<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMPUTER MOTION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3845 77-0458805
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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130-B CREMONA DRIVE, GOLETA, CALIFORNIA 93117
(805) 968-9600
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GENE WANG
CHIEF EXECUTIVE OFFICER AND PRESIDENT
COMPUTER MOTION, INC.
130-B CREMONA DRIVE, GOLETA, CALIFORNIA 93117
(805) 968-9600
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
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LAWRENCE B. COHN, ESQ. JOHN T. SHERIDAN, ESQ.
MARK L. SKAIST, ESQ. BRUCE M. MCNAMARA, ESQ.
WILLIAM E. GARRETT, ESQ. DANIEL F. VAUGHN, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH WILSON, SONSINI, GOODRICH & ROSATI
660 NEWPORT CENTER DRIVE, SUITE 1600 650 PAGE MILL ROAD
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94304
(714) 725-4000 (415) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH AMOUNT OFFERING PRICE AGGREGATE
CLASS OF SECURITIES TO TO BE PER OFFERING AMOUNT OF
BE REGISTERED REGISTERED (1) SHARE (2) PRICE (1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Common Stock
($0.001 par value)..... 2,875,000 shares $15.00 $43,125,000 $13,069
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(1) Includes 375,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
2,500,000 SHARES
LOGO
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold
by Computer Motion, Inc. (the "Company"). Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price for the Common Stock will be between
$13.00 and $15.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. Application
has been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "RBOT."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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- ---------------------------------------------------------------------------------------
Per Share................................ $ $ $
Total (3)................................ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities, on or about , 1997.
------------------------
MONTGOMERY SECURITIES PIPER JAFFRAY INC.
, 1997.
<PAGE> 3
The Company's ZEUS and HERMES products are under development and have not
been approved by the FDA for sale in the United States. These products have not
been operated in clinical practice to date. Approval by the FDA could take
several years and there can be no assurance that such approval will ever be
obtained. In addition, these products have not been approved by international
regulatory agencies for sale in international markets. See "Risk
Factors -- Government Regulation and Lack of Regulatory Approval" and "-- Lack
of Clinical Testing Experience; Safety and Efficacy Not Yet Established."
AESOP is a registered trademark and Computer Motion is a trademark of the
Company. This Prospectus also includes trademarks of other companies.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY INCLUDING OVERALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." THESE TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR
OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and related Notes appearing elsewhere in
this Prospectus. The following summary and certain portions of this Prospectus
include forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ materially from the results predicted by
such forward-looking statements due to various factors, including but not
limited to those discussed in "Risk Factors." Except as otherwise specified, all
information in this Prospectus reflects (i) the reincorporation of the Company
in Delaware which will be effected prior to or upon completion of this offering,
(ii) the automatic conversion of each outstanding share of Preferred Stock into
Common Stock upon completion of this offering, (iii) a reverse stock split of
1-for-1.928 shares of the Preferred Stock and Common Stock of the Company which
will be effected prior to or upon completion of this offering and (iv) no
exercise of the Underwriters' over-allotment option.
Computer Motion, Inc. (the "Company") develops and markets proprietary
robotic and computerized surgical systems that enhance a surgeon's performance
and centralize and simplify a surgeon's control of the operating room ("OR").
The Company believes that its products and technologies under development have
the potential to revolutionize surgery and the OR by providing a surgeon with
the precision and dexterity necessary to perform complex, minimally invasive
surgical procedures including fully endoscopic multivessel coronary artery
bypass grafts ("E-CABG") and by enabling a surgeon to control critical devices
in the OR through simple verbal commands. The Company believes that its products
and technologies under development will broaden the scope and increase the
effectiveness of minimally invasive surgery, improve patient outcomes, and
create a safer, more efficient and cost effective OR. The Company's current
commercial product, AESOP, is an FDA-cleared, robotic endoscope positioning
system.
Traditionally, the vast majority of all surgeries have been open, requiring
large incisions measuring up to 18 inches to access the operative site. Although
this approach can be highly effective, it often results in significant trauma,
pain and complications, as well as significant costs related to lengthy
convalescent periods for the patient. In an effort to mitigate these
shortcomings, minimally invasive surgical techniques and related technologies
have been developed. According to Medical Data International ("MDI"), in the
United Sates in 1995, over 13 million procedures which traditionally would have
been performed in an open manner were performed using minimally invasive
techniques. Minimally invasive surgery is intended to be as effective as
traditional open surgery while offering patients substantially reduced pain and
collateral trauma, shortened convalescent periods and decreased overall patient
care costs. While these benefits are significant, the minimally invasive
approach presents numerous challenges to surgeons, including the intricate
reconstruction of patient tissue by suturing, delicate manipulation of small
anatomical features and constrained access to, and limited visualization of, the
operative site.
The Company's robotic surgical system under development, ZEUS, is designed
to fundamentally improve a surgeon's ability to perform complex surgical
procedures and enable new, minimally invasive microsurgical procedures that are
currently impossible or very difficult to perform. ZEUS is comprised of three
surgeon-controlled robotic arms, one of which positions the endoscope and two of
which manipulate the Company's proprietary single-use and reusable surgical
instruments. The Company believes that ZEUS will improve a surgeon's dexterity
and precision and enhance visualization of, and access to, confined operative
sites. The Company also believes that new minimally invasive surgical procedures
performed with ZEUS will result in reduced patient pain and trauma, fewer
complications, lessened cosmetic concerns and shortened convalescent periods and
will increase the number of patients qualified for certain surgical procedures.
In addition, the Company believes that an increase in minimally invasive options
will result in lower overall healthcare costs to providers, payors and patients.
The Company has commenced limited experimental animal testing with ZEUS at The
Cleveland Clinic, Pennsylvania State University's Hershey Medical Center and
Sarasota Memorial Hospital. The Company intends to seek premarket approval
("PMA") by the FDA to market ZEUS.
3
<PAGE> 5
The Company also develops technologies to centralize and simplify control
of the OR. The modernization of the OR has resulted in the introduction of
numerous medical devices with widely varied methods of control and feedback.
These devices aid a surgeon but also increase the complexity and costs of the
OR. In many instances, these devices are manually controlled and monitored by
someone other than a surgeon in response to a surgeon's spoken commands and
requests for status. The Company's voice controlled technology platform under
development, HERMES, is designed to enable a surgeon to directly control
multiple OR devices, including various laparoscopic, arthroscopic and video
devices, as well as the Company's robotic devices, through simple verbal
commands. HERMES is also designed to provide standardized visual and digitized
voice feedback to a surgical team. The Company believes that the enhanced
control and feedback provided by HERMES will result in improved safety, greater
efficiency, shorter procedure times and reduced costs. The Company has developed
a prototype of HERMES and expects to commence Investigational Review Board
testing of this product during the second half of 1997.
The Company's current commercial product, AESOP, approximates the form and
function of a human arm and allows control of the endoscope through simple
verbal commands. This eliminates the need for a member of a surgical staff to
manually control the endoscope and provides a surgeon with direct control of the
endoscope and a more stable and sustainable endoscopic image. As of June 1,
1997, the Company had sold 221 AESOP units worldwide, which the Company believes
have been used to perform over 18,000 procedures.
In addition to directly marketing its products, the Company intends to
commercialize its robotic and computerized surgical systems by forming strategic
alliances with prominent corporate and clinical partners. For instance, the
Company and Medtronic, Inc. ("Medtronic"), a leading manufacturer of medical
devices, entered into an agreement pursuant to which ZEUS, for cardiothoracic
applications, will be co-marketed in North America by the Company and Medtronic
and distributed exclusively in Europe, the Middle East and Africa by Medtronic.
The Company has also entered into an agreement with Stryker Corporation
("Stryker"), a leading manufacturer of endoscopic equipment, pursuant to which
Stryker will purchase HERMES on an OEM basis and will market HERMES as an
integrated component of several of its laparoscopic and arthoroscopic products.
The Company intends to enter into similar development and OEM relationships with
other leading manufacturers of OR devices in order to establish the Company's
HERMES technology as the standard method of controlling devices and equipment in
the OR. The Company utilizes a number of third-party representatives to
distribute AESOP internationally, including Johnson & Johnson which distributes
AESOP in Australia and New Zealand. The Company has also entered into agreements
with a number of leading medical institutions and formed a Clinical Advisory
Board in order to clinically validate and guide the development process of the
Company's robotic and computerized surgical systems.
The Company was founded in 1989 and incorporated in California on April 11,
1990. The Company intends to reincorporate in Delaware prior to or effective
upon completion of this offering. The Company's principal offices are located at
130-B Cremona Drive, Goleta, CA 93117 and its telephone number is (805)
968-9600.
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company................... 2,500,000 shares
Common Stock to be outstanding after the offering..... 7,118,468 shares(1)
Use of proceeds....................................... For repayment of debt, research and
development, sales and marketing and
working capital.
Proposed Nasdaq National Market symbol................ RBOT
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FISCAL NINE- THREE MONTHS
YEAR MONTHS ENDED
ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31,
MARCH 31, DECEMBER 31, ----------------------------- -----------------
1993 1993(2) 1994 1995 1996 1996 1997
--------- ------------ ------- ------- ------- ------ -------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 393 $ 66 $ 607 $ 2,271 $ 4,057 $ 676 $ 1,373
Cost of revenue............................ 259 88 500 1,973 2,627 444 651
----- ----- ------- ------- ------- ------ -------
Gross profit (loss)........................ 134 (22) 107 298 1,430 232 722
Operating expenses:
Research and development................. 132 495 630 739 1,359 336 558
Selling, general and administrative...... 134 367 2,784 3,158 4,144 745 1,312
----- ----- ------- ------- ------- ------ -------
Total operating expenses............... 266 862 3,414 3,897 5,503 1,081 1,870
----- ----- ------- ------- ------- ------ -------
Loss from operations....................... (132) (884) (3,307) (3,599) (4,073) (849) (1,148)
Interest and other income (expense), net... 1 10 63 9 (486) (41) (356)
----- ----- ------- ------- ------- ------ -------
Net loss................................... $(131) $(874) $(3,244) $(3,590) $(4,559) $ (890) $(1,504)
===== ===== ======= ======= ======= ====== =======
Pro forma net loss per share............... $ (0.64) $ (0.71) $ (0.88) $(0.18) $ (0.28)
======= ======= ======= ====== =======
Pro forma shares used in per share
computations(3).......................... 5,067 5,041 5,155 5,045 5,464
======= ======= ======= ====== =======
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MARCH 31, 1997
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ACTUAL AS ADJUSTED(4)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 3,986 $ 35,936
Working capital...................................................................... 1,101 36,218
Total assets......................................................................... 6,673 38,623
Long-term debt, net of current portion............................................... 2,972 2,972
Total stockholders' equity (deficit)................................................. (1,052) 34,065
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(1) Excludes 1,553,981 shares of Common Stock issuable upon exercise of
outstanding stock options and 1,609,250 shares of Common Stock issuable upon
exercise of outstanding warrants as of June 1, 1997. Includes 2,414,645
shares of Common Stock issuable upon the automatic conversion of each
outstanding share of Preferred Stock into Common Stock that will occur upon
the completion of this offering. See "Capitalization," "Management -- Stock
Plans," "Certain Transactions," and Notes 6, 14 and 15 of Notes to Financial
Statements.
(2) In 1993, the Company changed its fiscal year end from March 31 to December
31.
(3) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share.
(4) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $14.00
per share after deducting the underwriting discount and the estimated costs
of this offering, the automatic conversion of all outstanding shares of the
Company's Preferred Stock into Common Stock that will occur upon completion
of this offering and the conversion of the Secured Convertible Debenture
issued to Medtronic (the "Medtronic Debenture"), as if such sale and
conversions had occurred at the beginning of the period indicated. The
number of shares issued to Medtronic is subject to further adjustment under
certain circumstances. See "Capitalization" and "Selected Financial Data"
and "Certain Transactions."
5
<PAGE> 7
RISK FACTORS
Prospective investors should consider carefully the following risk factors,
in addition to the other information contained in this Prospectus concerning the
Company and its business, before purchasing the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve certain risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as in the
Prospectus generally. The Company's actual results could differ materially from
those anticipated in such forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and appearing
elsewhere in this Prospectus. These forward-looking statements are made as of
the date of this Prospectus and the Company assumes no obligation to update such
forward-looking statements or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.
LIMITED OPERATING HISTORY; ABSENCE OF PROFITABILITY
From its inception in 1989 through March 31, 1997, the Company has
generated revenues of approximately $9.3 million and incurred cumulative losses
of approximately $13.9 million. The Company expects to incur significant
additional losses for the foreseeable future and the Company expects to
significantly increase its spending over the next several years with respect to
research and development efforts, clinical trials, manufacturing and marketing.
There can be no assurance that the Company will ever achieve significant
commercial revenues, particularly from sales of HERMES or ZEUS, or that the
Company will be profitable. There can be no assurance that the Company will not
encounter substantial delays or incur unexpected expenses related to the
introduction of HERMES and ZEUS, or future products. Failure to achieve
significant commercial revenues and profitability would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Products."
RELIANCE ON SALES OF FUTURE PRODUCTS; UNCERTAINTY OF MARKET ACCEPTANCE
The Company has been producing and selling its AESOP products since 1994,
but the Company has not received regulatory clearance or approval to market its
other products and will not commence commercial sales of these products until
such clearance or approval is obtained. If regulatory clearance or approval for
HERMES and ZEUS is obtained, the Company anticipates that HERMES and ZEUS will
comprise a substantial majority of the Company's sales. Accordingly, the
Company's future success depends on the successful development, regulatory
clearance or approval, commercialization and market acceptance of these
products. Even if the Company is successful in obtaining the necessary
regulatory clearances or approvals for HERMES and ZEUS, their successful
commercialization will depend upon the Company's ability to demonstrate the
clinical efficacy, ease-of-use, reliability and cost-effectiveness of such
products in a clinical setting. Neither HERMES nor ZEUS has yet been operated in
clinical practice. There can be no assurance that these products will adequately
demonstrate these characteristics or that they will receive market acceptance
among surgeons, patients and health care payors. The Company believes that
surgeons' acceptance of, and health care payors' reimbursement of procedures
using, HERMES or ZEUS will be essential for market acceptance of these products,
and there can be no assurance that such acceptance and reimbursement will be
obtained. Surgeons will not adopt the Company's products unless they conclude,
based on clinical data and other factors, that they are an attractive
alternative to other drug or surgical treatments. In addition, cardiac surgeons
may elect not to use the proposed ZEUS system until such time as the efficacy of
the medical procedures using ZEUS, including its E-CABG indication, can be
successfully demonstrated as compared to conventional and other methods of
performing such procedures. Even if the safety and efficacy of procedures using
HERMES and ZEUS is established, surgeons may elect not to recommend the use of
these products for any number of reasons, including inadequate levels of
reimbursement. Broad use of the Company's products will require training
surgeons and the time required to complete such training could
6
<PAGE> 8
adversely affect market acceptance. In addition, surgeons will not elect to use
the Company's products until they are comfortable relying on voice control to
adjust instruments and devices and are comfortable controlling robotic arms to
manipulate surgical instruments. Surgeons have traditionally relied on their
direct sight and sense of touch for delicate surgical operations. Using the ZEUS
product, physicians will rely primarily on video images and computerized
feedback as they manipulate instruments using robotic controls. Surgeons will
not elect to use the Company's ZEUS product until they are convinced that
surgical procedures performed in this manner are as safe and effective as those
performed by traditional manual methods. Successful commercialization of the
Company's products will also require the Company to satisfactorily address the
needs of various decision makers in the hospitals that constitute the target
market for the Company's products and to address potential resistance to change
in existing surgical methods. Such efforts may extend the sales cycle for the
Company's products and delay commercial sales and market acceptance. If the
Company is unable to gain market acceptance of HERMES or ZEUS, the Company's
business, financial condition and results of operations will be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Products."
GOVERNMENT REGULATION AND LACK OF REGULATORY APPROVAL
The research and development, design, testing, manufacture, labeling,
distribution and marketing of the Company's products in the United States are
regulated as medical devices by the United States Food and Drug Administration
("FDA") as well as various state agencies. The process of obtaining required
regulatory approvals and clearances is lengthy, expensive and uncertain.
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through a premarket approval ("PMA")
application or through a premarket notification submission under Section 510(k)
of the Federal Food, Drug and Cosmetic Act of 1938, as amended (the "FDC Act"),
and the regulations promulgated thereunder. The Company has obtained 510(k)
premarket notification clearance for AESOP, including its voice control
interface, but has not obtained FDA approval or clearance for HERMES or ZEUS.
Because HERMES will be sold by the Company to medical device manufacturers on an
OEM basis, the device manufacturers will be responsible for obtaining FDA
clearance for any product incorporating HERMES. There can be no assurance that
the FDA will determine that HERMES can be cleared for marketing through the
510(k) notification process, causing the device manufacturers to incur increased
costs and delay in seeking FDA approval through PMA applications for this
device. The Company intends to seek approval of a PMA application for its ZEUS
system. Generally, a PMA application may be submitted to the FDA only after
clinical trials and the required patient follow-up are successfully completed.
Upon acceptance of a PMA application for filing, the FDA commences a review
process that could take two years or more from the date on which the PMA
application is filed. Before approval of a PMA application, the FDA will inspect
the Company to determine whether its manufacturing facilities and processes
comply with FDA regulations.
The process of obtaining required regulatory approvals and clearances can
be expensive, and there can be no assurance that the Company or the device
manufacturers for HERMES will obtain such approvals or clearances on a timely
basis, if at all. There can be no assurance that the FDA will act favorably or
quickly on any submissions for approval or clearance of the Company's products,
and significant difficulties and costs may be encountered by the Company in its
efforts to obtain FDA approvals or clearances that could delay or preclude the
Company from selling its products in the United States. Furthermore, there can
be no assurance that the FDA will not request additional data or require the
Company to conduct further clinical trials, causing the Company to incur
substantial costs and delay. In addition, there can be no assurance that the FDA
will not impose strict labeling requirements, onerous operator training
requirements or other requirements as a condition to approval or clearance. The
FDA strictly prohibits the marketing of FDA-cleared or approved medical devices
for unapproved uses. Failure to receive or delays in receipt of FDA clearances
or approvals, including as a result of the need for additional clinical trials
or data as a prerequisite to approval or clearance, or any FDA conditions that
limit the ability of the Company to market its products for particular uses or
indications, could have a material adverse effect on the Company's business,
financial condition and results of operations.
7
<PAGE> 9
Commercial distribution of the Company's products in foreign countries is
also subject to varying government regulations which may delay or restrict
marketing of the Company's products in those countries. The time required to
obtain approval for the Company's products internationally may be longer or
shorter than that required for FDA approval or clearance and the requirements
may differ significantly. In addition, such regulatory authorities may impose
limitations on the use of the Company's products. After mid-1998, the Company
will be required to obtain the certifications necessary to enable the CE mark to
be affixed to the Company's products in order to sell its products in member
countries of the European Union. The Company has not obtained such certification
and there can be no assurance it will be able to do so in a timely manner, if at
all.
Federal, state and international government regulations regarding the
manufacture and sale of medical devices are subject to future change, and
additional regulations may be adopted which may prevent the Company from
obtaining, or affect the timing of, future regulatory approvals or clearances.
The failure to obtain or any significant delay in obtaining any regulatory
approvals or clearances could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's manufacturing operations are subject to the FDA's Quality
System Regulation ("QSR"), formerly known as Good Manufacturing Practice
regulations, and similar regulations in other countries regarding the
manufacture, testing, labeling, record keeping and storage of devices. Ongoing
compliance with QSR requirements and other applicable regulatory requirements
will be monitored through periodic inspection by federal and state agencies,
including the FDA, and comparable agencies in other countries.
The Company's manufacturing processes are subject to stringent federal,
state and local regulations governing the use, generation, manufacture, storage,
handling and disposal of certain materials and wastes. Although the Company
believes that it has complied in all material respects with such laws and
regulations, the Company is subject to periodic inspection to ensure its
continued compliance with such laws and regulations. There can be no assurance
that the Company will not be required to incur significant costs in the future
in complying with such laws and regulations, or that the Company will not be
required to cease operations in the event of its continued failure to effect
compliance.
Failure to comply with applicable regulatory requirements can result in,
among other things, suspensions or withdrawals of approvals, product seizures,
injunctions, recalls of products, operating restrictions, and civil fines and
criminal prosecutions. Delays or failure to receive approvals or clearances to
market products, or loss of previously received approvals or clearances, would
materially adversely affect the marketing of the Company's products and the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
LACK OF CLINICAL TESTING EXPERIENCE; SAFETY AND EFFICACY NOT YET ESTABLISHED
The Company has only limited, experimental animal data with respect to ZEUS
and HERMES. In addition, neither HERMES nor ZEUS has been operated in clinical
practice. The Company also has no experience conducting clinical trials and will
likely rely on its clinical development partners to perform any clinical study.
In order to conduct clinical trials with ZEUS, which is considered to be a
significant risk device, the Company must submit and obtain approval of an
Investigational Device Exemption ("IDE") application. The IDE application must
be supported by adequate data typically including the results of laboratory and
animal testing conducted under Good Laboratory Practices ("GLPs"). To date the
Company has not conducted any GLP animal studies on any of its products. The
Company will be required to submit the clinical data gathered in the study
and/or a summary thereof under its IDE to the FDA for review. The Company has
not yet submitted an IDE to the FDA. There can be no assurance that the FDA will
allow the Company to conduct clinical trials or that ZEUS will prove to be safe
and effective in clinical trials under United States or international regulatory
guidelines or that the Company will not encounter problems in clinical testing
that will cause a delay in or prohibit commercialization of ZEUS. Moreover, the
clinical trials may identify significant technical or other obstacles to
overcome prior to obtaining necessary regulatory or reimbursement approvals, if
granted at all, also resulting in significant additional product development
expense
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and delays. Such expense and delays could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
INTENSE COMPETITION
The Company's products are designed to address the markets for minimally
invasive surgery and minimally invasive microsurgery, which are currently in
early stages of development. These markets are and the Company believes will
continue to be intensely competitive. Competitors have been pursuing or will be
pursuing opportunities in these markets, and most of these competitors have
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company. In addition, some of these
companies may be able to market their products sooner than the Company if they
are able to achieve regulatory approval before the Company.
Many medical conditions that can be treated using the Company's systems,
particularly ZEUS, can also be treated by pharmaceuticals or other medical
devices and procedures. For example, many coronary artery diseases can be
treated with PTCA, intravascular stents, atherectomy catheters and lasers. Many
of these alternative treatments are widely accepted in the medical community and
have a long history of use. In addition, technological advances with other
procedures could make such therapies more effective or inexpensive than using
the Company's products and could render the Company's technology obsolete or
unmarketable. There can be no assurance that physicians will use the Company's
products to replace or supplement established treatments or that the Company's
products will be competitive with current or future technologies. In addition,
the Company may also experience competitive pricing pressures which may
adversely affect unit prices and sales levels. Such competition could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON STRATEGIC RELATIONSHIPS AND CLINICAL SITES
The Company's future success will depend, in part, on its ability to enter
into and successfully develop strategic relationships with corporations and
medical institutions with respect to the research and development, regulatory
approval or clearance, production, marketing and distribution of its products.
For instance, the Company and Medtronic entered into an agreement pursuant to
which ZEUS, for cardiothoracic applications, will be co-marketed in North
America by the Company and Medtronic and distributed exclusively in Europe, the
Middle East and Africa by Medtronic. The Company has also entered into an
agreement with Stryker, pursuant to which Stryker will purchase HERMES on an OEM
basis and will market HERMES as an integrated component of several of its
laparoscopic and arthroscopic products. The Company intends to enter into
similar OEM relationships with other leading manufacturers of OR devices with
the goal of establishing the Company's HERMES technology as the standard method
of controlling devices and equipment in the OR. The Company utilizes a number of
third-party representatives to distribute AESOP internationally, including
Johnson & Johnson, which distributes AESOP in Australia and New Zealand. The
Company has also entered into agreements with a number of leading medical
institutions in order to clinically validate and guide the development process
of the Company's robotic and computerized surgical systems. The success of the
Company's strategic relationships will depend on the other parties' strategic
interests in the specific products involved and their willingness and ability to
perform the role contemplated by the Company. The Company will have limited or
no control over the resources that any particular third party partner devotes to
its relationship with the Company. There can be no assurance that the Company's
current strategic relationships will be successful, that the Company will be
successful in locating qualified parties with whom to enter into additional
strategic relationships or that any strategic relationships can be maintained or
will ultimately prove beneficial to the Company. See "Business -- Corporate
Alliances and Clinical Sites" and "-- Sales, Marketing and Distribution."
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
Sale of the Company's proposed products in most markets in the United
States and internationally will depend on the availability of adequate
reimbursement from third-party health care payors, such as government and
private insurance plans, health maintenance organizations and preferred provider
organizations. In the
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United States, the Company's products under development, if and when approved
for commercial sale, would be acquired primarily by medical institutions which
then bill various third-party payors, such as Medicare, Medicaid and other
government programs and private insurance plans for the health care services
provided to their patients. Government agencies, certain private insurers and
certain other payors generally reimburse hospitals for medical treatment at a
fixed rate based on the diagnosis related group ("DRG") established by the
federal Health Care Financing Administration ("HCFA") which covers this
treatment. The Company believes that the procedures using AESOP are eligible and
future products will be eligible for reimbursement under existing DRG
reimbursement codes. However, Medicare and other third-party payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement for covered products and procedures. Third-party payors have
challenged, and in certain circumstances have ceased, reimbursement for
procedures under existing codes where the aggregate level of reimbursement has
been significantly increased. In addition, third-party payors have required,
following further study regarding safety and efficacy, establishment of new
reimbursement codes. Even if a procedure is covered by a DRG, payors may deny
reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate, not cost-effective, experimental or used for a
non-approved indication. Medicare reimburses hospitals on a prospectively
determined fixed amount for the costs associated with an in-patient
hospitalization based on the patient's discharge diagnosis, and reimburses
physicians on a prospectively determined fixed amount based on the procedure
performed, regardless of the actual costs incurred by the hospital or physician
in furnishing the care and unrelated to the specific devices used in that
procedure.
Capital costs for medical equipment purchased by hospitals are currently
reimbursed under Medicare separately from medical procedure payments. Recent
federal Medicare legislation has called for these capital costs to be reimbursed
on a prospective payment system. During a transition period due to end in 2000,
each hospital's capital expenditures will be based in part on its own historical
capital costs and in part on the prospective payment system. There can be no
assurance that the movement to a prospective payment system will not cause
hospitals to reduce their expenditure payments for products developed or being
developed by the Company.
Medicare coverage may be available, under certain circumstances for
investigational devices when used in clinical IDE trials, which have not been
approved or cleared for marketing by the FDA. However, Medicare coverage may be
denied if certain coverage requirements are not met, including if the treatment
is not medically needed for the specific patient. There can be no assurance that
the Company's products under development will be covered when they are used in
clinical trials and, if covered, whether the payment amounts for their use will
be considered to be adequate by hospitals and physicians. If the devices are not
covered or the payments are considered inadequate, the Company may need to bear
additional costs to sponsor such trials and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems as
well as government managed systems. Market acceptance of the Company's products
will depend on the availability and level of reimbursement in international
markets targeted by the Company. There can be no assurance that the Company will
obtain reimbursement in any country within a particular time, for a particular
time, for a particular amount, or at all.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets, as the overall escalating costs of medical products and
services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance that third-party reimbursement and coverage for the Company's products
will be available or adequate, that current reimbursement amounts will not be
decreased in the future, or that future legislation, regulation or reimbursement
policies of third-party payors will not otherwise affect the demand for the
Company's products or its ability to sell its products on a profitable basis,
particularly if the Company's products are more expensive than competing
surgical or other procedures. If
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third-party payor coverage or reimbursement is unavailable or inadequate, the
Company's business, financial condition and results of operations would be
materially adversely affected.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The success of the Company will depend, in part, on its ability to obtain
and maintain patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of others. The
Company's policy is to seek to protect its proprietary positions by, among other
methods, filing United States and foreign patent applications related to its
technology, inventions and improvements that are important to the development of
its business. As of June 1, 1997, the Company has five issued United States
patents which cover certain technologies embodied in its products relating to
computer processing, endoscopic positioning techniques by means of robotics and
user interface elements. The patented inventions have use in certain
applications, including computer assisted surgery and robotic tissue
manipulation. The Company also has 16 United States patent applications pending,
two of which have received a Notice of Allowance, by which it is seeking to
obtain protection for its concepts relating to robotic assisted surgery and
operating room control systems. In addition, the Company has four foreign patent
applications pending. There can be no assurance that the Company's issued
patents or any patents that may be issued in the future will provide significant
proprietary protection or provide a competitive advantage for the Company. In
addition, there can be no assurance that any pending patents will be issued, or
that any patents or patent applications will not be challenged, invalidated or
circumvented in the future. Further, there can be no assurance that competitors,
many of which have substantially more resources than the Company and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or
internationally.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices and robotics are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products or processes used or proposed to be used by the
Company. The Company is aware of patents issued to third parties, particularly
in the field of robotics, that contain subject matters related to the Company's
technology. Based in part on advice of its patent counsel, the Company believes
that the technologies employed by the Company in its devices and systems do not
infringe the claims of such patents. There can be no assurance, however, that
third parties will not seek to assert that the Company's devices and systems
infringe their patents or seek to expand their patent claims to cover aspects of
the Company's technology. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as the laws of the
United States. The failure of the Company to protect its intellectual property
rights could have a material adverse effect on its business, financial condition
and results of operations.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation in a court of law, or
interference proceedings declared by the United States Patent and Trademark
Office (the "USPTO") to determine the priority of inventions or an opposition to
a patent grant in a foreign jurisdiction. The defense and prosecution of
intellectual property suits, USPTO interference or opposition proceedings and
related legal and administrative proceedings are costly, time-consuming, divert
the attention of management and technical personnel and could result in
substantial uncertainty regarding the Company's future viability. Litigation or
regulatory proceedings, which could result in substantial cost and uncertainty
to the Company, may also be necessary to enforce patent or other intellectual
property rights of the Company or to determine the scope and validity of other
parties' proprietary rights. If any relevant claims of third-party patents are
upheld as valid and enforceable in any litigation or administrative proceeding,
the Company could be prevented from practicing the subject matter claimed in
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such patents, or would be required to obtain licenses from the patent owners of
each such patent, or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be available on terms acceptable to the Company or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company intends to vigorously protect
and defend its intellectual property. Costly and time-consuming litigation
brought by the Company may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company, or to
determine the enforceability, scope, and validity of the proprietary rights of
others.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute confidentiality and assignment of inventions agreements in connection
with their employment, consulting or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore, no
assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and technologies or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT
The market for the Company's products and products under development is
characterized by rapidly changing technology and new product introductions and
enhancements. In addition to the risks associated with market acceptance of
AESOP and the Company's other products under development, the Company's success
will depend to a significant extent upon its ability to enhance and expand the
utility of AESOP and its other products and to develop and introduce additional
innovative products that gain market acceptance. The Company maintains research
and development programs to continually improve and refine its product offerings
and those under development. There can be no assurances, however, that such
efforts will be successful or that the Company will be successful in selecting,
developing, manufacturing and marketing new products or enhancing its existing
products on a timely or cost-effective basis. Moreover, the Company may
encounter technical problems in connection with its product development efforts
that could delay introduction of new products or product enhancements. Failure
to develop or introduce new products or product enhancements on a timely basis
that achieve market acceptance could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
technological advances with other therapies could make such therapies less
expensive or more effective than using the Company's products and could render
the Company's technology obsolete or unmarketable. There can be no assurance
that physicians will use the Company's products to replace or supplement
established treatments or that the Company's products will be competitive with
current or future technologies. See "Business -- Research and Development" and
"-- Competition."
FLUCTUATIONS IN OPERATING RESULTS; LENGTHY SALES CYCLE
The Company's results of operations may vary significantly from quarter to
quarter depending upon numerous factors, including the following: delays
associated with the FDA and other regulatory approval processes; health care
reimbursement policies; timing and results of clinical trials; demand for the
Company's products; changes in pricing policies by the Company or its
competitors; the number, timing and significance of product enhancements and new
products by the Company and its competitors; and product quality problems.
The sale of the Company's products is often subject to delays associated
with the lengthy approval processes that typically accompany capital
expenditures by bureaucratic entities such as hospitals. Sales of the Company's
products therefore often have a lengthy sales cycle while the customer evaluates
and receives approvals for the acquisition of the Company's products. It is not
unusual for several months to lapse between a new customer's initial evaluation
of the Company's products and the execution of a contract. Accordingly, it
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is inherently difficult to accurately predict the sales cycle of any particular
order. A failure by the Company to ship orders as forecasted could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXPANSION OF MARKETING ACTIVITIES; LIMITED DISTRIBUTION
The Company currently has a limited domestic sales force consisting of ten
field sales persons, whose efforts are complemented by clinical education
specialists. The Company anticipates it will significantly increase the number
of sales personnel to more fully cover its target markets, particularly as
additional products become commercially available. There can be no assurance
that the Company will be able to compete effectively in attracting, motivating
and retaining qualified sales personnel, as needed. The Company currently
intends to market and sell its products outside the United States principally
through distributors. In order to accomplish this, the Company will be required
to significantly expand its distributor network. The Company's ability to
distribute its products in certain areas may depend on strategic alliances with
distribution partners. There can be no assurance that the Company will be able
to identify suitable distribution partners in desirable markets or, if
identified, that the Company will be successful in entering into distribution
agreements on acceptable terms, if at all, or that such distribution agreements
will result in significant sales. Any such failure could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Sales, Marketing and Distribution."
DEPENDENCE ON INDEPENDENT CONTRACT MANUFACTURERS; LIMITED MANUFACTURING
EXPERIENCE
The Company relies on independent contract manufacturers, some of which are
single source suppliers, for the manufacture of the principal components of
AESOP. The Company anticipates that it will continue to rely to a significant
extent on third parties to manufacture components of AESOP and its products
currently under development. Reliance on independent contract manufacturers
involves several risks, including the potential inadequacy of capacity, the
unavailability of or interruptions in access to certain process technologies and
reduced control over product quality, delivery schedules, manufacturing yields
and costs. Shortages of raw materials, production capacity constraints or delays
on the part of the Company's contract manufacturers could negatively affect the
Company's ability to meet its production obligations and result in increased
prices for affected parts. Any such reduction, constraint or delay may result in
delays in shipments of the Company's products or increases in the prices of
components, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has no supply agreements with certain of its current contract manufacturers and
orders through purchase orders which are subject to supplier acceptance. The
unanticipated loss of any of the Company's contract manufacturers could cause
delays in the Company's ability to deliver products while the Company identifies
and qualifies a replacement manufacturer. Such an event could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that current or future independent
contract manufacturers will be able to meet the Company's requirements for
manufactured products.
The Company does not have experience in manufacturing its products in
commercial quantities. The Company's manufacturing experience to date has been
focused primarily on assembling components produced by third party manufacturers
for its AESOP product. The Company's manufacturing activities to date with
respect to HERMES and ZEUS have consisted primarily of manufacturing a limited
number of prototypes for use in laboratory testing. The manufacture of the
Company's products and products under development involves and will involve
complex operations, including a number of separate processes and components.
Manufacturers often encounter difficulties in scaling up manufacturing of new
products, including problems involving quality control and assurance, component
and service availability, adequacy of control policies and procedures, lack of
qualified personnel, compliance with FDA regulations, and the need for further
FDA approval of new manufacturing processes and facilities. The Company has
considered and will continue to consider as appropriate the internal manufacture
of components currently provided by third parties, as well as the implementation
of new production processes. There can be no assurance that manufacturing yields
or costs will not be adversely affected by a transition to in-house production
or to new production processes if such
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efforts are undertaken or that the FDA's QSR requirements or any international
ISO certification requirements can be met and that such a transition would not
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that, in connection with the
commercialization of its products, it may also be necessary to expand its
manufacturing capabilities. If necessary, this expansion will require the
commitment of capital resources for facilities, tooling and equipment and for
leasehold improvements. Further, any delay by or inability of the Company in
expanding its manufacturing capacity or in obtaining the commitment of such
resources could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company expects to continue to manufacture its products based on
product orders, and intends to continue to purchase subassemblies and components
prior to receipt of purchase orders from customers. Lead times for materials and
components ordered by the Company vary significantly, and depend on factors such
as the business practices of the specific suppliers, contract terms, and general
demand for a component at a given time. Certain components used in the Company's
products have long lead-times. As a result, the Company may not be able to
maintain adequate inventories of certain components which could result in delays
in shipments. An inability of the Company to ship its products on a timely basis
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
POSSIBLE NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's operations to date have consumed substantial amounts of cash,
and the Company expects its capital and operating expenditures to increase in
the next few years. The Company believes that its existing capital resources and
anticipated cash flow from planned operations together with the net proceeds of
this offering and the interest earned thereon, should be adequate to satisfy its
cash requirements at least through 1998. There can be no assurance, however,
that the Company will not need significant additional capital before such time.
The Company's need for additional financing will depend upon numerous factors,
including, but not limited to, the extent and duration of the Company's future
operating losses, the level and timing of future revenues and expenditures, the
progress and scope of clinical trials, the timing and costs required to receive
both United States and international governmental approvals or clearances,
market acceptance of new products, the results and scope of ongoing research and
development projects, competing technologies, the costs of training physicians
to become proficient in the use of the Company's products and procedures, the
cost of developing marketing and distribution capabilities, and other market and
regulatory developments. To the extent that existing resources are insufficient
to fund the Company's activities, the Company may seek to raise additional funds
through public or private financings. There can be no assurance that additional
financing, if required, would be available on acceptable terms, if at all. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result. If adequate funds were not available, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISK OF PRODUCT LIABILITY CLAIMS
The development, manufacture and sale of medical products, such as the
Company's robotic and computerized surgical systems, entail significant risk of
product liability claims and product failure claims. The Company has not
conducted any clinical trials and does not have sufficient data to allow the
Company to measure the risk of such claims with respect to its products
currently under development. The Company faces an inherent business risk of
financial exposure to product liability claims in the event that the use of it
products results in personal injury or death. The Company also faces the
possibility that defects in the design or manufacture of the Company's products
might necessitate a product recall. There can be no assurance that the Company
will not experience losses due to product liability claims or recalls in the
future. The Company currently maintains product liability insurance with
coverage limits of $5 million per occurrence and $5 million annually in the
aggregate and there can be no assurance that the coverage limits of the
Company's insurance policies will be adequate. In addition, the Company may
require increased product liability coverage if any
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potential products are successfully commercialized. Such insurance is expensive,
difficult to obtain and may not be available in the future on acceptable terms,
or at all. Any claims against the Company, regardless of their merit or eventual
outcome, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part on its key management, scientific and technical personnel, many of whom
would be difficult to replace, and its future success will depend partially upon
its ability to retain these persons and recruit additional qualified management,
technical, marketing, sales and support, regulatory and manufacturing personnel
for its operations. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting or retaining such
personnel. The loss of the services of one or more members of the management
group or the inability to hire additional qualified personnel as needed may have
a material adverse affect on the Company's business, financial condition and
results of operations. See "Management."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects that the proceeds of this offering will be used for
repayment of certain debt, research and development, sales and marketing and
working capital. The Company is not able to estimate precisely the allocation of
the proceeds among such uses, and the timing and amount of expenditures will
vary depending upon numerous factors. The Company's management will have broad
discretion to allocate the proceeds of this offering and to determine the timing
of expenditures. See "Use of Proceeds."
MANAGEMENT OF GROWTH
The Company's business has grown rapidly over the past three years and such
growth has placed and, if sustained, will continue to place, significant demands
on the Company's management and resources. In order to compete effectively
against current and future competitors, prepare products for clinical trials and
develop future products, the Company believes it must continue to expand its
operations, particularly in the areas of research and development and sales and
marketing. Although the Company believes that its current operating and
financial control systems are adequate for the present time, it is likely that
the Company will be required to implement additional operating and financial
controls, as well as hire and train additional technical, marketing and
administrative personnel, install additional reporting and management
information systems for order processing, system monitoring, customer service
and financial reporting, successfully expand its operations, improve its
operating and financial control systems, hire additional personnel and otherwise
improve coordination between the product development, marketing, sales and
finance functions. The Company's future success will depend, in part, on
management's ability to manage any future growth and there can be no assurance
that these efforts will be successful.
NO PRIOR TRADING MARKET; MARKET VOLATILITY
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market for
the Common Stock will develop or, if one does develop, that it will be
maintained. The initial public offering price, which has been established by
negotiations between the Company and the Underwriters, may not be indicative of
prices that will prevail in the trading market. See "Underwriting" for
information relating to the method of determining the initial public offering
price. The market price of shares of the Common Stock is likely to be volatile
and may be affected by actual or anticipated decisions by the FDA with respect
to approvals or clearances of the Company's products, actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new commercial products by the Company or its competitors, changes
in third party reimbursement policies, developments concerning proprietary
rights, conditions and trends in the medical device and other technology
industries, governmental regulation, changes in financial estimates by
securities analysts, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These broad
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market fluctuations may adversely affect the market price of the Company's
Common Stock. In particular, the securities of medical device companies have
experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performances.
CONTROL BY MANAGEMENT, EXISTING STOCKHOLDERS AND AFFILIATED ENTITIES; EFFECT OF
ANTITAKEOVER PROVISIONS
Upon completion of this offering, the present directors and executive
officers of the Company and their affiliates will, in the aggregate,
beneficially own 35.7% of the outstanding Common Stock (34.0% if the
Underwriters' over-allotment option is exercised in full). As a result, these
stockholders, acting together, will have the ability to control the election of
the Company's directors and most other stockholders' actions and, as a result,
direct the Company's affairs and business. Such concentration may have the
effect of delaying or preventing a change in control of the Company.
Upon the completion of this offering, the Board of Directors will have
authority to issue up to 5,000,000 shares of Preferred Stock, $.001 par value,
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of those shares without any future vote or action by the
stockholders. The rights of the holders of the Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock. The Company has no
present plans to issue shares of Preferred Stock.
Upon the completion of this offering, certain provisions of the Company's
charter documents, including a provision eliminating the ability of stockholders
to take actions by written consent, and of the Delaware law could delay or make
difficult a merger, tender offer or proxy contest involving the Company.
Further, Section 203 of General Corporation Law of Delaware prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing
change in control of the Company without action by the stockholders and
therefore could adversely affect the price of the Company's Common Stock. See
"Principal Stockholders" and "Description of Capital Stock."
ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE; OUTSTANDING WARRANTS;
REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options or warrants) in the public market after this
offering could materially adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate. In addition to the 2,500,000 shares of Common
Stock offered hereby, upon completion of this offering, the Company will have
4,618,468 shares of Common Stock outstanding, all of which are restricted shares
("Restricted Shares") under the Securities Act. The Company's directors,
officers and certain of its stockholders (beneficially holding an aggregate of
4,347,926 of such Restricted Shares) have agreed that they will not sell,
directly or indirectly, any Common Stock without the prior written consent of
Montgomery Securities for a period of 180 days from the date of this Prospectus.
The number of outstanding shares that will be available for sale, subject in
certain circumstances to volume and manner of sale restrictions, in the public
market, after giving effect to the lock-up agreements, will be as follows: (i)
240,239 shares of Common Stock will be eligible for sale as of the effective
date of this offering, (ii) 141,185 shares of Common Stock will be eligible for
sale beginning 90 days after the effective date of this offering, including
approximately 110,000 shares of Common Stock issuable upon exercise of
outstanding vested options, and (iii) 4,194,614 shares of Common Stock,
including approximately 474,000 shares of Common Stock issuable upon exercise of
outstanding vested options, will be eligible for sale 180 days after the date of
this Prospectus. The approximately 4,658,838 remaining Restricted Shares and
shares of Common Stock issuable upon exercise of outstanding warrants and
options will be eligible for sale thereafter pursuant to Rules 144 and 701. In
addition, following the closing of this offering, the holders of 2,998,639
Restricted Shares (including shares issuable upon the exercises of the
16
<PAGE> 18
Company's outstanding warrants) will be entitled to certain rights with respect
to registration of such shares for sale in the public market. See "Shares
Eligible for Future Sale."
SUBSTANTIAL AND IMMEDIATE DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will incur
immediate dilution of approximately $9.16 per share in net tangible book value
(assuming an initial public offering price of $14.00 per share). The exercise of
existing options and warrants would also have a dilutive effect on the interests
of the investors in this offering. The Company has not paid any dividends on its
Common Stock since its inception and does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future. It is currently
anticipated that earnings, if any, will be used to finance the development and
expansion of the Company's business. The terms of certain outstanding notes
currently prohibit the Company from paying dividends until such notes are repaid
in full. See "Dividend Policy."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock in this offering at an assumed initial public offering price of
$14.00 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company, are estimated to be approximately
$32.0 million ($36.8 million if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use a portion of the net proceeds of this offering
to repay up to $3.5 million due under outstanding adjustable rate bridge notes
issued by the Company in 1995 and 1996 (the "Bridge Notes"). The Company intends
to use the remainder of the net proceeds for research and development, sales and
marketing and for working capital. A portion of the net proceeds may also be
used for strategic acquisitions of businesses, products or technologies
complementary to those of the Company. The Company is not currently a party to
any commitments or agreements, and is not currently involved in any
negotiations, with respect to any acquisitions. Except as stated above, the
Company has not determined the amounts it plans to expend with respect to each
of the listed uses or the timing of such expenditures. The amounts actually
expended for each use may vary significantly depending on a number of factors,
including the Company's success in obtaining FDA and other clearances or
approvals for its products, the Company's future revenue growth, if any, the
amount of cash generated or used by the Company's operations, the progress of
the Company's product development efforts, technological advances, the status of
competitive products and acquisition opportunities presented to the Company.
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, interest bearing, investment-grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and does not
anticipate paying any dividends on the Common Stock in the foreseeable future.
The Company's Bridge Notes currently prohibit the Company from paying dividends
until such notes are repaid in full. The Company anticipates that all future
earnings will be retained to finance future growth.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1997, (ii) the pro forma capitalization of the Company, giving
effect to the reincorporation of the Company in Delaware, the conversion of all
outstanding shares of Preferred Stock into Common Stock upon completion of this
offering and the conversion of the Medtronic Debenture based upon an assumed
initial public offering price of $14.00 per share and (iii) the capitalization
of the Company as adjusted to give effect to the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $14.00 per share, after deduction of the estimated
underwriting discount and offering expenses). This table should be read in
conjunction with the Financial Statements and Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible subordinated debt(1).............................. $ 3,167 $ -- $ --
Long-term debt, net of current portion(2)..................... 2,972 2,972 2,972
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; 2,250,288 shares outstanding actual; no
shares outstanding, pro forma and as adjusted(3)......... 11,932 -- --
Common Stock, $.001 par value, 25,000,000 shares authorized;
1,744,207 shares outstanding actual; 4,526,710 shares
outstanding, pro forma; 7,026,710 shares outstanding as
adjusted(4).............................................. 431 5 7
Additional paid-in capital.................................. 523 16,048 47,996
Accumulated deficit......................................... (13,938) (13,938) (13,938)
-------- --------- --------
Total stockholders' equity (deficit)..................... (1,052) 2,115 34,065
-------- --------- --------
Total capitalization................................... $ 5,087 $ 5,087 $ 37,037
======== ========= ========
</TABLE>
- ---------------
(1) See Note 14 of Notes to Financial Statements.
(2) See Notes 8 and 9 of Notes to Financial Statements.
(3) See Note 6 of Notes to Financial Statements.
(4) Excludes (i) 1,383,623 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1997 at a weighted average
exercise price of $4.05 per share under the Company's stock option plans,
(ii) 1,609,250 shares of Common Stock issuable upon exercise of outstanding
warrants as of March 31, 1997, which are exercisable at a weighted average
exercise price of $5.32 per share and (iii) a total of 1,283,545 additional
shares of Common Stock reserved for future issuance under the Company's
stock option plans and its Employee Stock Purchase Plan. See
"Management -- Stock Plans," "Description of Capital Stock" and Notes 5, 6
and 15 of Notes to Financial Statements.
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company's Common Stock at
March 31, 1997 was $2,021,900, or $0.45 per share of Common Stock. "Pro forma
net tangible book value" per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding, after giving effect to the automatic conversion of
each outstanding share of Preferred Stock into Common Stock upon the completion
of this offering and the conversion of the Medtronic Debenture based upon an
assumed initial public offering price of $14.00 per share. After giving effect
to the receipt of the net proceeds from the sale by the Company of the 2,500,000
shares offered hereby at an assumed initial public offering price of $14.00 per
share and after deduction of the estimated underwriting discount and offering
expenses, pro forma net tangible book value of the Company at March 31, 1997
would have been approximately $33,971,900, or $4.83 per share of Common Stock.
This represents an immediate increase in the pro forma net tangible book value
of $4.38 per share of Common Stock to existing stockholders and an immediate
dilution of $9.17 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $14.00
Pro forma net tangible book value as of March 31, 1997... $ 0.45
Increase attributable to new investors................... 4.38
------
Pro forma net tangible book value after this offering...... 4.83
------
Dilution to new investors.................................. $ 9.17
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the investors purchasing shares of Common Stock
in this offering (based on an assumed initial public offering price of $14.00
per share and before deducting the estimated underwriting discount and offering
expenses payable).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 4,526,710 64.4% $16,053,000 31.4% $ 3.55
New investors....................... 2,500,000 35.6 35,000,000 68.6 14.00
--------- ----- ----------- -----
Total............................. 7,026,710 100.0% $51,053,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options or warrants. As of March 31, 1997, 1,383,623 shares of Common Stock were
subject to outstanding options at a weighted average exercise price of $4.05 per
share under the Company's stock option plans and 1,609,250 shares of Common
Stock were subject to outstanding warrants at a weighted average exercise price
of $5.32 per share. In addition, as of March 31, 1997, 1,283,545 shares of
Common Stock were reserved for future issuance under the Company's stock option
plans and its Employee Stock Purchase Plan. To the extent that any shares
available for issuance upon exercise of outstanding options, warrants or
reserved for future issuance under the Company's stock option plans or Employee
Stock Purchase Plan are issued, there will be further dilution to new investors.
See "Management -- Stock Plans," "Certain Transactions," "Description of Capital
Stock" and Notes 5, 6 and 15 of Notes to Financial Statements.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years ended
December 31, 1994, 1995 and 1996 are derived from the Company's financial
statements audited by Arthur Andersen LLP, independent public accountants,
included elsewhere in this Prospectus. The selected financial data for the nine
months ended December 31, 1993 and for the fiscal year ended March 31, 1993 are
derived from the Company's audited financial statements not included in this
Prospectus. The selected financial data for the three-month periods ended March
31, 1996 and 1997 are derived from the Company's unaudited financial statements
which, in the opinion of management, reflect all adjustments necessary for a
fair presentation of the Company's financial position and results of operations
for such periods. The results of interim periods are not necessarily indicative
of the results that may be expected for future periods including the year ending
December 31, 1997. The data set forth below is qualified in its entirety by and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR NINE-MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31, ENDED MARCH 31,
MARCH 31, DECEMBER 31, --------------------------- ----------------
1993 1993(1) 1994 1995 1996 1996 1997
----------- ------------ ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.............................. $ 393 $ 66 $ 607 $ 2,271 $ 4,057 $ 676 $ 1,373
Cost of revenue...................... 259 88 500 1,973 2,627 444 651
----- ----- ------- ------- ------- ------ -------
Gross profit (loss).................. 134 (22) 107 298 1,430 232 722
Operating expenses:
Research and development........... 132 495 630 739 1,359 336 558
Selling, general and
administrative................... 134 367 2,784 3,158 4,144 745 1,312
----- ----- ------- ------- ------- ------ -------
Total operating expenses......... 266 862 3,414 3,897 5,503 1,081 1,870
----- ----- ------- ------- ------- ------ -------
Loss from operations................. (132) (884) (3,307) (3,599) (4,073) (849) (1,148)
Interest and other income (expense),
net................................ 1 10 63 9 (486) (41) (356)
----- ----- ------- ------- ------- ------ -------
Net loss............................. $(131) $(874) $(3,244) $(3,590) $(4,559) $ (890) $(1,504)
===== ===== ======= ======= ======= ====== =======
Pro forma net loss per share......... $ (0.64) $ (0.71) $ (0.88) $(0.18) $ (0.28)
======= ======= ======= ====== =======
Pro forma shares used in per share
computations(2).................... 5,067 5,041 5,155 5,045 5,464
======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------------- MARCH 31,
1993 1993 1994 1995 1996 1997
--------- ---- ------ ------ ------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 227 $377 $ 12 $ 64 $ 433 $ 3,986
Working capital (deficit).................. 597 310 3,136 (44) (665) 1,101
Total assets............................... 697 595 4,699 2,017 3,115 6,673
Long-term debt, net of current portion..... 0 2 46 535 2,884 2,972
Total stockholders' equity (deficit)....... 648 471 3,796 169 (2,812) (1,052)
</TABLE>
- ---------------
(1) In 1993, the Company changed its fiscal year end from March 31 to December
31.
(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Financial Statements and Notes included elsewhere in this Prospectus. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
From its inception in 1989 through 1991, the Company conducted contract
research in the area of robotics for several government agencies such as the
National Aeronautics and Space Administration, the National Science Foundation,
National Institutes of Health and the United States Navy. In 1991, the Company
began applying its research efforts to the medical marketplace, focusing on the
development of robotic systems for surgical applications. As a result, the
Company introduced AESOP, which it believes is the world's first FDA-cleared
medical robot, in October 1994. In October 1996, the Company introduced the next
version of AESOP which incorporates what the Company believes is the world's
first FDA-cleared voice control interface for a surgical device. Since AESOP's
commercial introduction, a significant portion of the Company's revenues have
been derived from the sale of AESOP and related single-use surgical accessories.
Since AESOP's introduction, approximately 221 units have been sold.
The Company is leveraging its AESOP technology to develop HERMES, a voice
controlled, networked, computer interface providing a surgeon with direct
control of and feedback from multiple devices in the OR. The Company is also
developing ZEUS, a surgical robotic system for minimally invasive surgery
utilizing technologies from both AESOP and HERMES. The initial target market for
ZEUS will be cardiovascular procedures. To date, all revenues from ZEUS and
HERMES have been payments made pursuant to development agreements.
The Company has entered into several strategic partnerships with
international medical device manufacturers and has established relationships
with leading medical institutions. The Company has entered into clinical
development agreements for ZEUS with The Cleveland Clinic, Hershey Medical
Center and Sarasota Memorial Hospital in order to enhance its research efforts
through use of prototype systems and provide cost sharing and revenue to the
Company. For cardiothoracic applications, Medtronic will act as the Company's
exclusive distributor of ZEUS in Europe, the Middle East and Africa and will
co-market ZEUS with the Company in North America. Stryker will purchase the
Company's HERMES system on an OEM basis, as a means of providing surgeons with
centralized and simplified voice control over a number of Stryker's endoscopic
and arthroscopic products. The Company currently distributes AESOP directly in
the United States and utilizes third-party distributors internationally. Johnson
& Johnson distributes AESOP in Australia and New Zealand and provides the
Company with certain strategic support in the areas of customer service and
training.
Since inception, the Company has sustained significant losses resulting in
an accumulated deficit of $13.9 million as of March 31, 1997. From inception
through March 31, 1997, the Company has raised approximately $11.5 million from
issuances of Common and Preferred Stock, $4.2 million in debt financing and $5.0
million in debt from strategic corporate partners. These financings have been
used to fund the Company's working capital needs, develop AESOP, HERMES and ZEUS
and continue its research and development efforts.
The Company expects to continue to incur significant operating losses due
to its research and development efforts, costs associated with obtaining
regulatory approvals and clearances, continued marketing expenditures to
increase sales and other costs associated with the Company's planned growth.
Furthermore, the Company anticipates that its operating results may fluctuate
significantly from quarter to quarter in the future, and that fluctuation will
depend on a number of factors, many of which are outside the Company's control.
These factors include timing and results of clinical trials, delays associated
with FDA and other
22
<PAGE> 24
approval and clearance processes, changes in pricing policy by the Company or
its competitors, the number, timing and significance of product enhancements and
new products by the Company and its competitors, health care reimbursement
policies and product quality issues.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996
Revenues. Revenues increased 103% to $1.4 million for the three months
ended March 31, 1997 from $676,000 for the same period in 1996. The increase
primarily resulted from both an increase in unit sales volume and an increase in
the selling price of AESOP attributable to the introduction of an enhanced
version of AESOP in the fourth quarter of 1996.
Cost of Revenues. Cost of revenues increased to $651,000 for the three
months ended March 31, 1997 from $444,000 for the same period in 1996. Gross
margin increased to 53% in the first quarter of 1997 as compared to 34% in the
first quarter of 1996. The increase in gross margin was attributable to
efficiencies of scale associated with the increase in the number of AESOP units
sold and an increase in selling price per unit, offset in part by increased
production costs related to AESOP enhancements.
Research and Development. Research and development expense increased 66% to
$558,000 in the three months ended March 31, 1997 from $336,000 for the same
period in 1996, primarily as a result of increased expenditures for HERMES and
ZEUS. The Company expects these expenditures to increase as it continues to
develop its technologies.
Selling, General and Administrative. Selling, general and administrative
expenses increased 76% to $1.3 million in the three months ended March 31, 1997
from $746,000 for the same period in 1996 due to the addition of sales and
managerial personnel and commissions on increased AESOP unit sales. The Company
expects selling, general and administrative expenses to increase in future
periods as the Company continues to expand its infrastructure and incurs
compensation charges related to the grant of stock options. See Note 15 of Notes
to Financial Statements.
Interest and Other Expense, Net. Interest and other expense, net, increased
to $356,000 for the three months ended March 31, 1997, from $41,000 for the same
period in 1996. Interest and other expense, net, in the first quarter of 1997
included the amortization of approximately $167,000 of interest cost
attributable to the fixed conversion feature of the Medtronic Debenture and
approximately $63,000 of interest cost related to warrants issued with the
Bridge Notes. The remainder of the increase in interest expense was attributable
to an increase in overall indebtedness. See "Certain Transactions" and Notes 8
and 14 of the Notes to the Financial Statements.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenues. Revenues increased 79% to $4.1 million in 1996 from $2.3 million
in 1995. This increase was primarily due to the commercial introduction of the
enhanced version of AESOP in the fourth quarter of 1996. The Company also
received additional revenue in 1996 as a result of the delivery of ZEUS
prototypes under clinical development contracts.
Cost of Revenues. Cost of revenues increased to $2.6 million in 1996 from
$2.0 million in 1995. Gross margin increased to 35% in 1996 as compared to 13%
in 1995. The increase in gross margin was primarily attributable to efficiencies
of scale associated with increased production and sales of AESOP and an increase
in selling price per unit of the enhanced version of AESOP relative to the
initial version of AESOP.
Research and Development. Research and development expenses increased 84%
to $1.4 million in 1996 as compared to $739,000 in 1995. During 1996, the
Company incurred additional costs for the development of voice control and more
sophisticated user interfaces related to the enhanced version of AESOP as well
as research and development efforts with respect to HERMES and ZEUS.
23
<PAGE> 25
Selling, General and Administrative. Selling, general and administrative
expenses increased 31% to $4.1 million in 1996 as compared to $3.2 million in
1995. The increase resulted primarily from the addition of sales personnel and
executive management, commissions on increased AESOP sales and increased costs
related to incentive compensation.
Interest and Other Expense, Net. Interest and other expense, net, was
$486,000 in 1996 as compared to interest and other income, net, of $9,000 in
1995. The increase was due primarily to interest cost on Bridge Notes issued in
1996.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Revenues. Revenues increased 274% to $2.3 million in 1995 from $607,000 in
1994 primarily due to the timing of the commercial introduction of AESOP in
October 1994.
Cost of Revenues. Cost of revenues increased to $2.0 million in 1995 from
$500,000 in 1994. Gross margin decreased to 13% in 1995 as compared to 18% in
1994. The decrease in gross margin was primarily attributable to investments in
manufacturing capabilities to support expanded production.
Research and Development. Research and development expenses increased 17%
to $739,000 in 1995 as compared to $630,000 in 1994. The increase was primarily
due to the addition of research and development staff and research related to
the development of AESOP.
Selling, General and Administrative. Selling general and administrative
expenses increased 13% to $3.2 million in 1995 as compared to $2.8 million in
1994. The increase was primarily attributable to payroll and commissions as the
Company transitioned from selling through independent representatives to a
direct sales force and as the Company grew to support the manufacture and
distribution of AESOP.
INCOME TAXES
Minimal provision for state income taxes has been recorded for the
Company's pre-tax losses through December 31, 1996. As of December 31, 1996, the
Company had federal and state net operating loss carryforwards of approximately
$11.0 million and $4.9 million, respectively, which are available to offset
future federal and state taxable income. Federal carryforwards expire fifteen
years after the year of loss and state carry forwards expire from five to seven
years after the year of loss. Under the Tax Reform Act of 1986, the amounts of
and the benefits from net operating loss carryforwards may be impaired in
certain circumstances. Events which may cause such limitations in the amount of
available net operating losses which the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%
over a three year period. The effect of such limitation, if imposed, has not
been determined. The Company has provided a full valuation allowance on the
deferred tax asset because of the uncertainty regarding its realization. See
Note 7 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have exceeded cash inflows,
resulting in an accumulated deficit of approximately $13.9 million as of March
31, 1997. In addition to AESOP product sales and product development and grant
revenues totaling approximately $8.1 million from the date of introduction of
AESOP through March 31, 1997, the Company has primarily relied on proceeds from
issuances of Preferred Stock and Common Stock of approximately $11.5 million,
bridge debt financing of approximately $4.2 million and proceeds from debt
financing from strategic corporate partners of approximately $5.0 million to
fund operations.
For the three months ended March 31, 1997, the Company had net cash used in
operating activities of $1.4 million. In fiscal 1996, 1995 and 1994, net cash
used in operating activities totaled $3.5 million, $3.6 million and $3.3
million, respectively. Net cash used in operating activities for these periods
has been primarily attributable to net losses.
24
<PAGE> 26
Cash outflows from investing activities have related primarily to purchases
of property and equipment. In 1995 and 1994, unspent proceeds from equity and
debt offerings were invested, generating earnings on cash balances.
For the three months ended March 31, 1997 and fiscal years 1996, 1995 and
1994, net cash provided by financing activities resulted primarily from
issuances of Preferred Stock and Common Stock and proceeds from issuances of
long-term debt.
The Company's operations to date have consumed substantial amounts of cash,
and the Company expects its capital and operating expenditures to increase in
the next few years. The Company believes that its existing capital resources and
anticipated cash flow from planned operations together with the net proceeds of
this offering should be adequate to satisfy its capital requirements at least
through 1998. There can be no assurance, however, that the Company will not need
significant additional capital before such time. The Company's need for
additional financing will depend upon numerous factors, including, but not
limited to, the extent and duration of the Company's future operating losses,
the level and timing of future revenues and expenditures, the progress and scope
of clinical trials, the timing and costs required to receive both United States
and international governmental approvals or clearances, market acceptance of new
products, the results and scope of ongoing research and development projects,
competing technologies, the costs of training physicians to become proficient in
the use of the Company's products and procedures, the cost of developing
marketing and distribution capabilities, and other market and regulatory
developments. To the extent that existing resources are insufficient to fund the
Company's activities, the Company may seek to raise additional funds through
public or private financings. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders may result. There can
be no assurance that additional financing, if required, would be available on
acceptable terms, if at all. If adequate funds are not available, the Company's
business, financial condition and results of operations would be materially
adversely affected.
25
<PAGE> 27
BUSINESS
INTRODUCTION
The Company develops and markets proprietary robotic and computerized
surgical systems that enhance a surgeon's performance and centralize and
simplify a surgeon's control of the operating room ("OR"). The Company believes
that its products and technologies under development have the potential to
revolutionize surgery and the OR by providing a surgeon with the precision and
dexterity necessary to perform complex, minimally invasive surgical procedures
including E-CABG and by enabling a surgeon to control critical devices in the OR
through simple verbal commands. The Company believes that its products and
technologies under development will broaden the scope and increase the
effectiveness of minimally invasive surgery, improve patient outcomes and create
a safer, more efficient and cost effective OR.
BACKGROUND
Surgical techniques and related technologies have changed rapidly over the
past twenty years. The widespread adoption of minimally invasive surgical
techniques has significantly expanded the number of surgical procedures
available to patients, and the increasing complexity of these minimally invasive
procedures has placed substantial emphasis on technical surgical skills. The
demand for minimally invasive surgical procedures has largely been driven by
patients and payors, as such procedures generally result in improved patient
outcomes and reduced overall procedure costs. In addition, the number of
surgical devices in the OR has grown dramatically, increasing the potential for
error and miscommunication during surgery. Finally, the impact of managed care
has increased pressure on hospitals to minimize the costs of surgery.
Minimally Invasive Surgery
Traditionally, the vast majority of all surgeries have been open, requiring
large incisions measuring up to 18 inches to access the operative site. These
large openings enable the surgeon to manipulate and view the operative site and
allow unobstructed access to the patient's anatomy. However, the invasiveness of
open surgery often results in significant trauma, pain and complications, as
well as significant costs related to lengthy convalescence periods for the
patient.
In an effort to mitigate the shortcomings of traditional surgical
techniques, minimally invasive surgery and related technologies have been
developed. In minimally invasive surgery, specially designed surgical
instruments and an endoscope (a miniature camera attached to a maneuverable
tube) are inserted into the patient through ports in the body measuring
approximately 3-to-10 millimeters. The endoscope is connected to a video monitor
which allows the surgeon to view the operative site. Minimally invasive surgery
is intended to be as effective as traditional open surgery while offering
patients substantially reduced pain and trauma, shortened convalescent periods
and decreased overall patient care costs.
The development and subsequent widespread adoption of minimally invasive
techniques have revolutionized many surgical fields, including orthopedics,
gynecology and general surgery. According to MDI, in the United States in 1995,
over 13 million procedures which traditionally would have been performed in an
open manner were performed minimally invasively. MDI estimates that the number
of minimally invasive procedures will grow to over 15 million annually in the
United States by 2000. The majority of minimally invasive procedures are
currently limited to less complex excisional or dissection-based procedures that
do not require microsuturing or other intricate surgical techniques. In cases
where minimally invasive surgical options are not available, many patients who
cannot withstand the trauma associated with open surgical procedures must forego
surgery as a means of treatment.
To date, the application of minimally invasive techniques to more complex
procedures, including microsurgical procedures such as cardiovascular, neuro and
ophthalmic surgery, has been limited. Microsurgical procedures involve accessing
and delicately manipulating extremely small anatomical structures. A surgeon's
ability to perform microsurgical procedures with traditional minimally invasive
instruments is often limited by the small size of the surgical workspace within
the patient's body, constrained access to, and limited visualization of, the
operative site and the difficulty of manually performing extremely precise
manipulations
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with currently available minimally invasive surgical instruments. As a result,
the Company believes that for minimally invasive microsurgical procedures to be
more widely applied, technology must be developed which improves visualization
of, and access to, confined operative sites and enhances a surgeon's dexterity
and precision.
The Operating Room
Another key challenge for a surgeon is the efficient control of the
multitude of devices which have been introduced into the OR. The typical OR
contains a variety of devices which aid a surgeon, such as patient monitors,
electrocautery devices, imaging systems and endoscopic equipment. Coordination
and control of these devices can be difficult, since they generally have
different user interfaces, such as buttons, dials, foot pedals and hand
controls, as well as numerous, non-intuitive methods of providing feedback to a
surgeon, such as small LCD screens on their front panels and numerous audible
alarms, including beeps, buzzes and bells. In most instances, these devices are
manually controlled by someone other than a surgeon in response to a surgeon's
spoken commands, and the person controlling the devices is often responsible for
giving a surgeon verbal feedback with regard to the status of these devices.
Such indirect control and feedback are necessary because a surgeon's hands are
usually occupied with surgical instruments and a surgeon cannot exit the sterile
operating field. This indirect control and feedback is inefficient and can
increase the potential for miscommunication and error. As a result, the Company
believes that technology which provides a surgeon with greater control over, and
enhanced feedback from, the devices within the OR will increase the efficiency
of surgical procedures, while reducing the potential for error during surgery.
Surgical Costs
The impact of managed care has placed significant pressure on hospitals to
minimize the costs associated with patient care, especially with regard to
surgical procedures and the associated pre-operative and post-operative care. A
number of procedural and administrative measures have been implemented during
the past decade which reduced these costs, although these costs are still
significant. For instance, it is still common for members of the surgical team
to perform manual tasks, such as holding and maneuvering the endoscope, even
though managed care has increased pressure to re-deploy these often highly paid
OR personnel to more value-added roles. The Company believes that there is
considerable demand for technology which will result in increased efficiency and
lower surgical costs.
THE COMPUTER MOTION SOLUTION
The Company's strategy is to become the leading provider of robotic and
computerized surgical systems. The Company intends to implement this strategy by
developing technologies and products to broaden the scope and effectiveness of
minimally invasive surgery, centralize and simplify control of the OR and reduce
the costs associated with surgical procedures.
The Company is developing robotic surgical systems to fundamentally improve
a surgeon's performance. The proprietary technologies underlying these systems
include voice control, robotic motion control, motion scaling, tremor filtering,
positioning memory and sophisticated mechanical and electrical redundancies. The
Company believes that its robotic surgical systems will provide a surgeon with
greater dexterity and precision and enhanced visualization of, and access to,
confined operative sites. The Company's robotic surgical system under
development, ZEUS, incorporates a robotic endoscope positioner, as well as two
robotic arms which permit a surgeon to remotely manipulate surgical instruments
while seated at a control console. The Company believes that this technology
will improve a surgeon's ability to perform complex, minimally invasive surgical
procedures and will allow a surgeon to perform new, minimally invasive
microsurgical procedures that currently are impossible or very difficult to
perform safely and economically.
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The Company is also developing voice controlled technologies which simplify
and centralize a surgeon's control of the OR. These proprietary technologies
include advanced speech recognition software, intuitive user interfaces, device
networking software and computer hardware. The Company has commenced marketing a
product incorporating this technology, AESOP, a robotic endoscope positioner,
which is controlled through simple verbal commands. The initial version of AESOP
has been cleared by the FDA and has been commercially available since October
1994. The voice control interface incorporated into the current version of AESOP
is also FDA-cleared, and has been commercially available since October 1996. The
Company is also developing HERMES, a voice control system that is designed to
enable a surgeon to directly control various critical devices in the OR, such as
laparoscopic, arthroscopic and video devices, through simple verbal commands.
HERMES is also designed to provide standardized visual and digitized voice
feedback, which the Company believes will increase safety by substantially
reducing the various non-intuitive feedback mechanisms associated with most
medical devices. The Company also believes that this enhanced control and
feedback in the OR will result in greater efficiency, shorter procedure times
and reduced costs.
The Company believes that its products and technologies under development
have the potential to revolutionize surgery and the OR by broadening the scope
and increasing the effectiveness and safety of minimally invasive surgery and
improving patient outcomes. The Company also believes that its proprietary
technology could reduce the direct costs of performing complex surgical
procedures by decreasing the number of personnel required to operate the devices
in the OR, shortening procedure times and enabling more effective deployment of
clinical personnel.
PRODUCTS AND MARKETS
The Company currently has three robotic and computerized surgical systems
in various stages of development, one of which is commercially available. The
Company believes that its products can be used in conjunction with devices
common to most ORs today. The following table identifies the Company's
commercially available products and products under development:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION DEVELOPMENT STATUS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
AESOP Proprietary robotic voice Commercially available and
controlled endoscope positioning FDA-cleared through the 510(k)
system used in laparoscopic, process
cardiovascular and thorascopic
procedures
- ----------------------------------------------------------------------------------------------
HERMES Proprietary voice controlled Investigational Review Board
system designed to centralize testing expected in second half of
and simplify control of various 1997
OR devices, which is expected to
initially include certain Initial OEM Customer -- Stryker
laparoscopic, arthroscopic and
video devices
- ----------------------------------------------------------------------------------------------
ZEUS Proprietary robotic surgical Limited, experimental animal
system designed to facilitate testing commenced at clinical sites
performance of minimally including The Cleveland Clinic,
invasive surgical procedures and Pennsylvania State University's
enable performance of new Hershey Medical Center and Sarasota
minimally invasive microsurgical Memorial Hospital
procedures, including
cardiovascular, neuro and Cardiothoracic Marketing Partner --
gynecologic surgeries Medtronic
</TABLE>
- --------------------------------------------------------------------------------
AESOP
The Company's Automated Endoscopic System for Optimal Positioning ("AESOP")
is a robotic endoscope positioner that enables surgeons to directly control the
movement of the endoscope through simple verbal commands and provides surgeons
with an image that is more stable and sustainable than the image provided when a
human assistant holds the scope. AESOP connects directly to the operating table
and
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approximates the form and function of a human arm. AESOP can accommodate nearly
any brand and size of endoscope. The scopes are attached to AESOP by a magnetic,
sterilizable collar and the arm is covered by a sterile single-use drape. AESOP
consists of a voice control microphone, and a proprietary, fault-tolerant
computer controller which translates a surgeon's commands into movements of the
robotic arm as well as a customized cart which allows AESOP to be easily
transported throughout the hospital. This system also includes manual, back-up
hand and foot controls that provide a surgeon and other members of a surgical
team with multiple interfaces to the robot. The Company believes that AESOP is
the world's first FDA-cleared medical robot and incorporates the world's first
FDA-cleared voice interface for use in the OR.
Prior to the introduction of AESOP, surgeons were forced to rely primarily
on a surgical assistant to hold and maneuver the endoscope to provide the
surgical field of view. This approach contributes to some of the inefficiencies
associated with minimally invasive surgical procedures, including an unstable
video image caused by the human endoscope holder's involuntary hand tremors, the
difficulty of the human endoscope holder to properly execute a surgeon's verbal
commands, including returning to a specific surgical site, the resultant
crowding around the OR table, often requiring the human endoscope holder to
reach under or across the surgeon to hold the endoscope, and the frequent
smearing of the endoscope lens caused by the human endoscope holder
inadvertently touching it against tissue.
The use of AESOP eliminates the need for a human endoscope holder and some
of the inefficiencies associated with minimally invasive surgical procedures by
providing a steady and sustainable video image and allowing a surgeon to
maneuver the endoscope by means of a proprietary voice control interface that
recognizes a surgeon's voice and moves the endoscope in response to a surgeon's
simple verbal commands. This direct control by a surgeon mitigates the risks
associated with miscommunication between the human endoscope holder and the
surgeon and allows a surgeon to access specific operative sites, including a
specific suture or the position of a clamp, stored in AESOP's memory. The use of
AESOP also reduces crowding in the OR, while allowing a surgical staff to
perform more productive tasks. The Company believes that the advantages of AESOP
result in shorter, safer and more cost effective minimally invasive surgical
procedures. AESOP has been cleared by the FDA for use in general thorascopy,
cardiothoracic and laparoscopic, as well as in a number of minimally invasive
ear, nose and throat ("ENT") procedures. These applications are performed by
thoracic, cardiac, general, orthopedic, gynecologic, urologic, plastic and ENT
surgeons.
In October 1994, the Company released the initial version of AESOP, which
utilized a foot pedal to control the robotic arm. The Company introduced the
current version of AESOP in October 1996. The initial version of AESOP can be
upgraded to include the Company's proprietary voice control technology. As of
June 1, 1997, the Company sold 221 AESOP units, which were used to perform over
18,000 minimally invasive surgical procedures. Of the 221 AESOP units sold
worldwide, 164 are the initial versions of AESOP (of which 93 have been upgraded
to the current version of AESOP) and 57 are the current version of AESOP. The
domestic and international list prices of AESOP were $44,900 and $31,500,
respectively, during the first quarter of 1997.
HERMES
The Company's OR control system, HERMES, is a voice controlled technology
platform which is designed to serve as a centralized and simplified interface
for a surgeon to control a variety of medical devices in the OR. These devices
currently include the endoscopic camera and light source, insufflator,
arthroscopic shaver and pump, VCR, video printer, video frame grabber and the
Company's robotic devices. HERMES consists of a control box which is networked
with multiple HERMES compatible devices, and is controlled by a surgeon using a
headset microphone.
HERMES allows a surgeon to directly control the OR devices and equipment to
which it is connected through simple verbal commands. HERMES also provides
visual and digitized voice feedback to a surgical team. The digitized voice
feedback is device-specific and the video feedback is displayed on the
endoscopic video monitor. Both the audio and video feedback features are
customizable by a surgeon in real time, allowing a surgeon to modify the amount
and type of feedback received. The Company believes that HERMES will increase
the effectiveness of a surgical team by augmenting the utility of the devices it
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<PAGE> 31
controls, thereby enhancing the efficiency and safety of surgical procedures. As
a result of these efficiencies, the Company believes that use of HERMES will
also reduce costs associated with surgical procedures.
The Company has developed a prototype of HERMES and expects to commence
Investigational Review Board ("IRB") testing at selected sites in the second
half of 1997. These sites are expected to include, among others, Stanford
University Medical Center, Duke University, Johns Hopkins, Baylor College of
Medicine and Louisiana State University Medical Center. The Company believes
that HERMES could be utilized in a majority of the approximately 23,000 ORs in
the United States.
In order to leverage its proprietary voice recognition technology in the
arthroscopic and laparoscopic market, the Company entered into a Development and
Supply Agreement with Stryker, a leading manufacturer of endoscopic equipment,
during the third quarter of 1996. Pursuant to this agreement, the Company is
developing interfaces between the Company's proprietary voice recognition
technology and certain of Stryker's arthroscopic and laparoscopic surgical
devices. The Company anticipates that Stryker will apply for 510(k) FDA
marketing clearance of the initial devices integrated with HERMES during the
latter half of 1997. The Company intends to enter into additional OEM agreements
with other leading medical device manufacturers to potentially expand the number
and type of devices to be integrated with HERMES, including the OR table, the OR
lights, electrocautery devices, various imaging systems, as well as numerous
devices in the catheterization laboratory. See "Business -- Corporate Alliances
and Clinical Sites."
ZEUS
The Company's robotic surgical system under development, ZEUS, is designed
to fundamentally improve a surgeon's ability to perform complex, minimally
invasive procedures and enable new, minimally invasive microsurgical procedures
that are currently impossible or very difficult to perform with conventional
surgical methods. ZEUS is comprised of three surgeon-controlled robotic arms,
one of which positions an endoscope while the other two hold the Company's
proprietary single-use and reusable surgical instruments. The Company believes
that these new minimally invasive surgical procedures would result in reduced
patient pain and trauma, fewer complications, lessened cosmetic concerns and
shortened convalescence periods and would increase the number of patients
qualified for certain surgical procedures. In addition, the Company believes
that an increase in minimally invasive options would result in lower overall
health care costs to providers, payors and patients.
ZEUS' robotic arms can be directly attached to the surgical table in order
to maintain a constant orientation to the patient. A surgeon controls the
movement of the robotic arms by manipulating two corresponding robotic
instrument handles, which are housed in a mobile console which can be positioned
anywhere in the OR. The physical design of these instrument handles are similar
to conventional surgical instrument handles. A surgeon's precise manipulation of
the instrument handles is communicated to a proprietary computer controller
which filters, scales and translates the movements to the robotic arms. A
surgeon can operate these instrument handles from a comfortable, ergonomic
position, including sitting with his or her forearms positioned on an armrest.
The surgeon controls the robotic arm which holds the endoscope through means of
simple verbal commands spoken into a headset microphone. A video display of the
endoscopic image is placed directly in front of the surgeon and a second monitor
is positioned next to the patient for use by the other members of the surgical
team. In addition, the Company believes that ZEUS could be used in conjunction
with the Company's HERMES technology to control a variety of ZEUS' features,
including motion scaling and tactile feedback.
The Company believes that ZEUS will enable new minimally invasive
microsurgical procedures and facilitate the performance of existing minimally
invasive procedures by providing clinicians with the following technical
benefits:
Improved Precision. ZEUS incorporates technology that is designed to enable
a surgeon to scale his or her movements, allowing manipulation of instruments on
a microsurgical scale while utilizing normal hand and arm movements. For
instance, in microsurgical procedures which involve extremely small bodily
structures and which utilize sutures ranging from 20-to-40 microns, or one-third
to two-thirds of the width of a
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<PAGE> 32
human hair, if a surgeon selects a scaling ratio of 15-to-1, each one inch
movement by the surgeon would result in a 1/15 inch movement by the robotic
surgical instruments.
Improved Dexterity. ZEUS is designed to enhance a surgeon's performance by
enabling manipulations of the surgical instruments, which are impossible or very
difficult to use when manually performing surgery. For instance, a surgeon can
activate and deactivate the instrument handles to further extend his or her
range of motion to complete a particular movement, such as suturing, without
having to physically contort his or her arms. In addition, in order to gain
anatomical access to certain regions of the body in a minimally invasive manner,
the instruments must be placed in positions that would be extremely difficult
for a surgeon to manipulate manually using conventional minimally invasive
surgical techniques, due to the distance between the instruments and their
relative positions to each other. ZEUS allows a surgeon to control the
instruments by means of the robotic instrument handles, regardless of the
positions of the instruments relative to each other.
Eliminated Effects of Involuntary Hand Tremors. ZEUS is designed to hold
the surgical instruments and the endoscope in a steady manner, eliminating a
surgeon's incidental and unintended hand motions and tremors which are
intensified when holding surgical instruments for extended periods of time.
Enhanced Tactile Feedback. ZEUS is designed to provide a surgeon with
computerized, scaleable feedback which enhances and amplifies the surgeon's
sense of touch while grasping delicate tissue as compared to traditional
minimally invasive surgical instruments.
Enhanced Visualization. ZEUS incorporates a robotic arm that controls the
endoscope to produce a steady, magnified video image under direct surgeon
control which facilitates performance of minimally invasive surgical procedures.
Improved Minimally Invasive Anatomical Access. ZEUS is designed to provide
a surgeon with access to confined areas in the body and critical anatomical
structures that are currently only accessible by means of highly invasive, open
surgical procedures or multiple "less invasive" incisions. In the case of
cardiac surgery, these less invasive approaches can require multiple 3-to-5 inch
incisions and often involve the removal of rib cartilage. In contrast, ZEUS
provides a surgeon with complete access to the heart through several 3
millimeter ports.
Minimized Surgeon Fatigue. ZEUS allows a surgeon to operate the surgical
instrument handles in a comfortable, ergonomic position, including sitting down
and positioning his or her forearms on armrests. The Company believes that these
enhanced ergonomics would extend the professional lives of surgeons and increase
the efficiency and effectiveness of demanding and lengthy microsurgical
procedures.
ZEUS has been used by the Company's clinical development partners to
perform limited, experimental procedures on animals, including minimally
invasive coronary artery bypass grafts, as well as anastomosis of the small
bowel, bile duct, ureteral and iliac artery. Each clinical development partner
has purchased a prototype ZEUS system and has provided funds to the Company to
partially offset the ongoing costs associated with the development and clinical
validation of ZEUS.
The Company will seek PMA approval by the FDA to market ZEUS for a number
of indications. To date, the Company has no experience with the testing of ZEUS
in clinical trials. The Company anticipates that it will begin clinical trials
during the fourth quarter of 1997. However, there can be no assurance that the
FDA will allow such trials to commence in a timely manner, if at all. Any delay
in the commencement of clinical trials would delay market introduction of ZEUS.
See "Risk Factors -- Government Regulation and Lack of Regulatory Approval."
Initial Applications for ZEUS
Conventional, open chest coronary artery bypass graft ("CABG") procedures
have been performed on a widespread basis for over 35 years, with approximately
318,000 patients undergoing this procedure in the United States during 1994,
according to the American Heart Association. Although many other surgical
procedures in the areas of arthroscopic, gynecologic and general surgery have
been performed in a minimally
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<PAGE> 33
invasive manner during the past three decades, the Company believes that
cardiovascular surgery remains the largest surgical discipline which still
utilizes a highly invasive approach. This is primarily due to the difficulty of
accessing and visualizing all regions of the heart within the confines of the
patient's body and performing the precise and highly dexterous movements
required to suture cardiac vessels with minimally invasive instruments. In order
to gain access to the heart, the surgeon currently must open the chest by
cutting a 12-to-18-inch incision in the patient's sternum with a bone saw and
split the ribcage apart approximately 6 inches by means of a steel retractor.
The surgeon then sutures a vein or artery harvested from elsewhere in the
patient's body directly onto the heart, effectively bypassing the diseased areas
of the coronary arteries. The anastomosis, or suturing process, is one of the
most critical aspects of the CABG procedure and is very difficult to perform
minimally invasively. This efficacious, but highly traumatic, open chest
approach results in a lengthy and painful convalescence period for the patient.
The typical hospital stay resulting from this procedure ranges from 5 to 10
days, with several additional weeks required for a complete recovery. The total
cost of this procedure ranges from $25,000 to $50,000.
A number of cardiovascular surgeons and medical device companies have
developed surgical procedures which are less invasive than the open chest
approach. These less invasive approaches are divided between the "beating" and
"stopped" heart methodologies. These approaches require making one or more
3-to-5 inch incisions parallel to the patient's ribs and, in many cases,
removing a portion of the patient's rib cartilage and retracting the
non-dissected ribs in order to gain access to the heart. Although the
anastomosis is performed under the surgeon's direct vision, it is still
extremely difficult to execute due to the limited anatomical and visual access
and the crowded surgical field, which place significant demands on the surgeon's
precision and dexterity. In most multiple bypass procedures, multiple incisions
are required to access all of the necessary regions of the heart. While
substantial progress has been made to reduce the pain and trauma associated with
cardiovascular surgery, the Company believes that significant limitations remain
which will preclude the wide application of these less invasive techniques
without the introduction of technology to enhance a surgeon's performance.
ZEUS is designed to enable a surgeon to perform a beating or stopped heart
E-CABG by providing visual and anatomical access to all regions of the heart as
well as the precision and dexterity required to perform the anastomosis
minimally invasively. This approach may greatly diminish collateral damage,
resulting in reduced pain and trauma, fewer complications, lessened cosmetic
concerns, shortened convalescence periods, increased patient qualification for
certain cardiovascular surgical procedures and lower overall costs for the
provider, payor and patient. In addition to the E-CABG, the Company believes
that ZEUS will also enable fully endoscopic heart valve replacement and repair
procedures, of which approximately 54,000 open procedures were performed in the
United States during 1994.
Potential Applications for ZEUS
In addition to cardiovascular procedures, ZEUS is also being designed to
enable a surgeon to perform new minimally invasive microsurgical procedures
which are impossible or very difficult to perform without robotic instruments.
These procedures include bowel resection, the treatment of female stress
incontinence, radical prostatectomy and nissen fundoplications. The Company
anticipates that ZEUS may make these, and numerous other procedures more
efficient and cost effective by simplifying the suturing process and allowing a
surgeon to more effectively manipulate a number of existing medical instruments,
such as clips, staples, energy sources, and lasers. The Company believes that
this precision would increase the number and scope of complex surgical
procedures that can be consistently, safely and economically performed minimally
invasively.
Digital imaging technology, including MRI, ultrasound and X-ray, generates
three dimensional renderings of soft anatomical features, such as organs and
other porous tissue. Due to the constraints associated with interpreting two
dimensional images on video monitors, the Company believes that significant
clinical and economic benefits could be derived by combining robotic systems
with digital imaging. By interfacing the imaging source with a positioning
robot, the robot can be "guided" in three dimensional space to the desired
location within the patient's body. Procedures which could potentially benefit
from the use of image guided robots include breast and brain biopsies, as well
as orthopedic implants and organ transplants.
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The Company also believes that ZEUS may allow clinicians to remotely
perform certain diagnostic and therapeutic procedures which involve the use of
low levels of radiation, such as radioactive seed implants for chemotherapy and
radioactive stents for cardiovascular therapies. Such radioactive materials do
not harm patients, but can have an adverse cumulative impact on clinicians. This
separation of the clinician from the radioactive substances would minimize the
clinician's exposure to the radiation, while enhancing his or her precision with
respect to placing radioactive materials in the patient's body. The Company
believes that the clinician's enhanced precision will also reduce collateral
damage to the patient's non-diseased tissue.
The Company has also developed proprietary technology that allows robotic
commands to be transmitted over conventional phone lines and the Internet. The
Company intends to eventually couple this technology with ZEUS in order to
enable telesurgery, in which a surgeon could operate on a patient irrespective
of the geographic distance between them. The Company has sold custom AESOP
Telesurgery Systems, which incorporate this proprietary technology, to a number
of leading teaching institutions, including Yale University, Johns Hopkins
University and George Washington University.
The Company has no immediate plans to obtain FDA clearance or approval for
any of the foregoing purposes and there can be no assurance that ZEUS will be
successfully utilized to perform these surgical procedures or that ZEUS will be
granted required regulatory clearances or approvals to enable ZEUS to be
marketed for these purposes. See "Risk Factors -- Government Regulation and Lack
of Regulatory Approval."
CORPORATE ALLIANCES AND CLINICAL SITES
In order to access development capital and marketing resources and to
rapidly commercialize its products, the Company has pursued strategic alliances
with corporations and has undertaken testing at clinical institutions in order
to advance the development, marketing and distribution of its robotic and
computerized surgical systems. To date, the Company has formed the following
corporate alliances and has commenced testing at the following clinical sites:
Medtronic, Inc. In the first quarter of 1997, the Company and Medtronic, a
leading manufacturer of medical devices, entered into an agreement pursuant to
which Medtronic will act as the Company's exclusive distributor of ZEUS for use
in cardiothoracic applications in Europe, the Middle East and Africa. Under this
agreement, Medtronic and the Company will co-market ZEUS in North America for
use in cardiothoracic applications. In addition, the Company granted to
Medtronic a right of first refusal for distribution rights outside of Europe,
the Middle East and Africa and for distribution or license rights for the use of
ZEUS in cardiology, urology and neurology. The Company anticipates cooperating
closely with Medtronic in the areas of training, service and after-market
support with regard to ZEUS. In connection with the distribution and
co-promotion arrangement, Medtronic invested $4.0 million in the Company in the
form of a loan which converted into 367,857 shares of Common Stock of the
Company, which number of shares is subject to adjustment. See "Certain
Transactions."
Stryker Corporation. In the third quarter of 1996, the Company entered into
an agreement with Stryker, a leading manufacturer of endoscopic equipment,
pursuant to which Stryker will purchase the Company's HERMES system on an OEM
basis and sell it worldwide, as a means of providing surgeons with centralized
and simplified voice control over certain of Stryker's endoscopic products.
Stryker has agreed to pay a significant percentage of the development costs of
HERMES. The Company will retain all intellectual property rights arising from
this development effort with respect to its proprietary voice control and
networking technology. Although Stryker is under no obligation to purchase the
developed product, the agreement between the Company and Stryker provides that
Stryker must meet certain sales targets in order to maintain marketing rights
and exclusivity of this voice control technology for use with specified OR
devices within specific fields of use. The Company intends to enter into similar
OEM relationships with other leading manufacturers of OR devices with the goal
of establishing the Company's HERMES technology as the standard method of
controlling devices and equipment in the OR, including the OR table, the OR
lights, electrocautery devices, imaging systems, as well as numerous devices in
the catheterization laboratory.
Clinical Sites. The Company has entered into several agreements with
leading medical institutions in order to clinically validate and guide the
development process of the Company's products and technology. These sites
include The Cleveland Clinic, Pennsylvania State University's Hershey Medical
Center and
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Sarasota Memorial Hospital. Each of these facilities has purchased a ZEUS
prototype system and has provided funds to the Company to partially offset
ongoing costs associated with its development and clinical validation.
SALES, MARKETING AND DISTRIBUTION
The Company utilizes two methods to sell and distribute AESOP.
Domestically, the Company sells AESOP and its related single-use products
through a direct sales force comprised of ten field sales persons and six
clinical education specialists. The Company employs a two-tier sales force,
which combines a field sales person and one or more clinical education
specialists in each territory. The clinical education specialists, who are
registered nurses, train new customers and increase the utilization rate of the
Company's products among existing customers. This structure separates the
selling and training functions to increase the sales force's efficiency.
Internationally, the Company distributes AESOP through independent, third party
distributors. The Company currently has distributors serving a number of
countries in Asia and Europe, including Johnson & Johnson in Australia and New
Zealand, AMCO in Japan and Joseph Trading Co. in Korea. The Company intends to
initially sell HERMES on an OEM basis to manufacturers of surgical devices for
use with their respective products. HERMES will initially be marketed by Stryker
as an integrated component of several of Stryker's endoscopic products.
The Company intends to utilize a combination of direct sales personnel and
strategic partners to sell its future products. In the United States and Canada,
the Company intends to sell ZEUS through its direct sales representatives and
the product will be co-marketed by Medtronic for cardiothoracic applications.
Internationally, the Company currently intends to distribute ZEUS through
independent, third party distributors. The Company believes that this approach
will allow the Company to maximize the size of its international installation
base in a rapid and economical manner. In Europe, the Middle East and Africa,
Medtronic will act as the exclusive distributor of ZEUS together with related
single-use and reusable products for use in cardiothoracic applications.
RESEARCH AND DEVELOPMENT
As of June 1, 1997, the Company's research and development department was
comprised of 27 engineers and medical clinicians, including four Ph.D.s. This
group has collectively earned 13 Masters Degrees in areas including electrical
engineering and mechanical engineering. Certain members of this team have been
working together for over ten years and have built numerous sophisticated
robotic systems and advanced motion control computers for a variety of companies
and government agencies, including the National Institutes of Health and the
National Aeronautical Space Agency. During 1994, 1995, 1996 and the three month
period ended March 31, 1997, the Company spent approximately $630,000, $739,000,
$1.4 million and $558,000, respectively, on research and development activities.
In certain cases, the Company places a full-time employee at the facilities of
its strategic partners in order to enhance communications between the Company
and these strategic partners and to maximize the value of the development
partnership. In addition, certain of the Company's strategic partners fund a
portion of the Company's research and development activities. See
"Business -- Corporate Alliances and Clinical Sites."
MANUFACTURING
The Company purchases most of the components and certain subassemblies used
in the manufacture of its AESOP products from outside vendors. These items are
generally produced to the Company's specifications and the final products are
assembled, tested and shipped by the Company at its headquarters. Certain
components of its product are obtained by the Company from single source
suppliers. However, the Company believes that alternative suppliers are
available for its product components and intends to qualify additional suppliers
as sales volume warrants. The Company plans to utilize a similar approach to
engage third parties to manufacture components of its other products under
development, including HERMES and ZEUS. Although the Company intends to maintain
sufficient levels of inventory to avoid any material disruption resulting from
increased demand or a disruption in supply, there can be no assurance that the
Company will be able to manufacture and supply products to meet potential
demand.
The Company has implemented quality control systems as part of its
manufacturing process, as required by the FDA's QSR. The Company has also been
inspected by the California Department of Health Services
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("CDHS") on behalf of the State and on behalf of the FDA, and is registered with
the State of California to manufacture its medical devices. The Company believes
that it is in substantial compliance with the FDA QSR requirements for medical
devices. There can be no assurance, however, that the Company will remain in
compliance with QSR requirements. Failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, in connection with the Company's anticipated PMA application for
ZEUS, the FDA will conduct, and the Company must pass, a pre-approval QSR
inspection, before approval of ZEUS can be granted.
The Company is also in the process of implementing policies and procedures
which are intended to allow the Company to achieve ISO 9001/EN 46001
certification of its quality control systems. The European Union has promulgated
rules which require that medical products receive the right to affix the CE
Mark, an international symbol of adherence to quality assurance standards, by
mid-1998. Failure to receive the right to affix the CE Mark would prohibit the
Company from selling its products in member countries of the European Union, and
there can be no assurance that the Company will be successful in meeting the
European quality standards or other certification requirements. See "Risk
Factors -- Government Regulation and Lack of Regulatory Approval" and
"-- Dependence on Independent Contract Manufacturers; Limited Manufacturing
Experience."
PATENTS AND PROPRIETARY RIGHTS
The success of the Company will depend, in part, on its ability to obtain
and maintain patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of others. The
Company's policy is to seek to protect its proprietary positions by, among other
methods, filing United States and foreign patent applications related to its
technology, inventions and improvements that are important to the development of
its business. As of June 1, 1997, the Company has five issued United States
patents which cover certain technologies embodied in its products relating to
computer processing, endoscopic positioning techniques by means of robotics and
user interface elements. The patented inventions have use in certain
applications, including computer assisted surgery and robotic tissue
manipulation. The Company also has 17 United States and five foreign patent
applications pending, two of which have received a Notice of Allowance, by which
it is seeking to obtain protection for its concepts relating to robotic assisted
surgery and operating room control systems. There can be no assurance that the
Company's issued patents or any patents that may be issued in the future will
provide significant proprietary protection or provide a competitive advantage
for the Company. In addition, there can be no assurance that any pending patents
will be issued, or that any patents or patent applications will not be
challenged, invalidated or circumvented in the future. Further, there can be no
assurance that competitors, many of which have substantially more resources than
the Company and have made substantial investments in competing technologies,
will not seek to apply for and obtain patents that will prevent, limit or
interfere with the Company's ability to make, use or sell its products either in
the United States or internationally.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices and robotics are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products or processes used or proposed to be used by the
Company. The Company is aware of patents issued to third parties, particularly
in the field of robotics, that contain subject matters related to the Company's
technology. Based, in part, on advice of its patent counsel, the Company
believes that the technologies employed by the Company in its devices and
systems do not infringe the claims of such patents. There can be no assurance,
however, that third parties will not seek to assert that the Company's devices
and systems infringe their patents or seek to expand their patent claims to
cover aspects of the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. The failure of the Company
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to protect its intellectual property rights could have a material adverse effect
on its business, financial condition and results of operations.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation in a court of law, or
interference proceedings declared by the USPTO to determine the priority of
inventions or an opposition to a patent grant in a foreign jurisdiction. The
defense and prosecution of intellectual property suits, USPTO interference or
opposition proceedings and related legal and administrative proceedings are
costly, time-consuming, divert the attention of management and technical
personnel and could result in substantial uncertainty regarding the Company's
future viability. Litigation or regulatory proceedings, which could result in
substantial cost and uncertainty to the Company, may also be necessary to
enforce patent or other intellectual property rights of the Company or to
determine the scope and validity of other parties' proprietary rights. If any
relevant claims of third-party patents are upheld as valid and enforceable in
any litigation or administrative proceeding, the Company could be prevented from
practicing the subject matter claimed in such patents, or would be required to
obtain licenses from the patent owners of each such patent, or to redesign its
products or processes to avoid infringement. There can be no assurance that such
licenses would be available or, if available, would be available on terms
acceptable to the Company or that the Company would be successful in any attempt
to redesign its products or processes to avoid infringement. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
intends to vigorously protect and defend its intellectual property. Costly and
time-consuming litigation brought by the Company may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the enforceability, scope, and validity of the
proprietary rights of others.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute confidentiality and assignment of inventions agreements in connection
with their employment, consulting or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore, no
assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and technologies or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
COMPETITION
The Company's products are designed to address the markets for minimally
invasive surgery and minimally invasive microsurgery, which are currently in
early stages of development. These markets are and the Company believes will
continue to be intensely competitive. Competitors have been pursuing or will be
pursuing opportunities in these markets, most of which have significantly
greater financial, manufacturing, marketing, distribution and technical
resources and experience than the Company. In addition, some of these companies
may be able to market their products sooner than the Company if they are able to
achieve regulatory approval before the Company.
Many medical conditions that can be treated using the Company's systems,
particularly ZEUS, can also be treated by pharmaceuticals or other medical
devices and procedures. For example, many coronary artery diseases can be
treated with PTCA, intravascular stents, atherectomy catheters and lasers. Many
of these alternative treatments are widely accepted in the medical community and
have a long history of use. In addition, technological advances with other
procedures could make such therapies more effective or inexpensive than using
the Company's products and could render the Company's technology obsolete or
unmarketable. There can be no assurance that physicians will use the Company's
products to replace or supplement established treatments or that the Company's
products will be competitive with current or future technologies. In addition,
the Company may also experience competitive pricing pressures which may
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<PAGE> 38
adversely affect unit prices and sales levels. Such competition could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATION
United States
The Company's products, including AESOP, HERMES and ZEUS, are regulated as
medical devices. Accordingly, clinical trials, product development,
manufacturing processes, labeling, promotional activities and product
distribution are subject to extensive review and rigorous regulation by
government agencies in most countries in which the Company will seek to
commercialize its products. In the United States, the Company's products are
subject to applicable provisions of the FDC Act and implementing regulations and
require clearance or approval by the FDA prior to commercialization. In
addition, significant changes or modifications to medical devices also are
subject to regulatory review and clearance or approval. Under the FDC Act, the
FDA regulates, among other things, the research, clinical testing,
manufacturing, labeling, storage, record keeping, advertising, distribution,
sale and promotion of medical devices in the United States. In addition, the FDA
has promulgated regulations effective in June 1997 to extend its oversight of
medical devices to design and development activities. The testing for,
preparation of and subsequent review of applications by the FDA and foreign
regulatory authorities is expensive, lengthy and uncertain. Noncompliance with
applicable requirements can result in, among other things, Warning Letters,
proceedings to detain imported products, fines, injunctions, civil and criminal
penalties against the Company, its officers and its employees, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals and a recommendation by the FDA that the
Company not be permitted to enter into government contracts. Changes in existing
requirements or adoption of new requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and efficacy. Under FDA regulations,
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to QSR) and Class II devices are subject to
general and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval ("PMA") by the FDA to
ensure their safety and efficacy (for example, life-sustaining, life-supporting
and implantable devices, or new devices that have not been found substantially
equivalent to legally marketed Class I or Class II devices).
The FDA also has the authority to require clinical testing of certain
medical devices as part of the clearance or approval process. If clinical
testing of a device is required and if the device presents a "significant risk,"
an Investigation Device Exemption ("IDE") application must be approved by the
FDA prior to commencing clinical trials. If a device does not present a
significant risk to patients, a clinical investigation may commence subject to
obtaining Institutional Review Board approval and the patients' informed
consent. The IDE application must be supported by adequate data, typically
including the results of laboratory and animal testing. If the IDE application
is approved by the FDA, clinical trials may begin at a specific number of
investigational sites with a maximum number of patients, as approved by the
agency. Sponsors of clinical trials are permitted to sell those devices
distributed in the course of the study provided such costs do not exceed
recovery of the costs of manufacture, research, development and handling. All
clinical trials must be conducted under the auspices of investigational sites
institutional review boards pursuant to FDA regulations and informed consent. To
date, the Company has conducted only limited experimental animal testing, has
not conducted any clinical trials and has not submitted an IDE to the FDA.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA approval of a PMA
application or clearance of a 510(k) submission. If the manufacturer or
distributor cannot establish that a proposed device is substantially equivalent
to a legally marketed Class I or II predicate device as discussed below, the
manufacturer or distributor must seek premarket approval of the proposed device
through submission of a PMA application. A PMA application must be supported by
extensive data, including laboratory, preclinical and clinical trial data to
prove the safety and efficacy of the device for each of its intended uses, as
well as extensive manufacturing information. If the
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FDA determines, upon initial review, that a submitted PMA application is
sufficiently complete to permit substantive review, the FDA will accept the PMA
application for filing. Depending on the technology and the quality of the PMA
application, the FDA review of a PMA application generally takes approximately
two years or more from the date of acceptance for filing, but review times vary
depending upon FDA resources and workload demands and the complexity of PMA
submissions. In addition, there can be no assurance that the FDA will approve
the PMA. Additionally, as one of the conditions for approval, the FDA will
inspect the manufacturing establishment at which the subject device will be
manufactured to determine whether the quality control and manufacturing
procedures conform to QSR requirements. If granted, the PMA approval may include
significant limitations on the indicated uses for which a product may be
marketed.
If a medical device manufacturer or distributor can establish, among other
things, that a device is "substantially equivalent" in intended use and
technological characteristics to a legally marketed Class I or Class II medical
device, or to a Class III medical device for which the FDA has not required a
PMA (known as a predicate device), the manufacturer or distributor may seek
clearance from the FDA to market the device by filing a 510(k). The 510(k)
submission must establish to the satisfaction of the FDA the claim of
substantial equivalence to the predicate device. In recent years, the FDA has
been requiring a more rigorous demonstration of substantial equivalence,
including the requirement for IDE clinical trials, before 510(k) clearance.
Following submission of the 510(k), the manufacturer or distributor may not
place the device into commercial distribution unless and until an order is
issued by the FDA finding the product to be substantially equivalent. In
response to a 510(k), the FDA may declare that the device is substantially
equivalent to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA, however, may require further
information including clinical data, to make a determination regarding
substantial equivalence, or may determine that the proposed device is not
substantially equivalent and require a PMA submission. Such a request for
additional information including clinical trials or a determination that the
device is not substantially equivalent would delay market introduction of the
products that are the subject of the 510(k). It generally takes four to 12
months from the date the FDA files a 510(k) to obtain clearance, although it may
take significantly longer, in particular if the device is novel and clinical
trials are required.
As of June 1, 1997, the Company had received three 510(k) clearances for
certain intended uses and indications of AESOP, including general thorascopy,
general laparoscopy and general cardiothoracic surgery. Because HERMES will be
sold by the Company to medical device manufacturers on an OEM basis, the device
manufacturers will be responsible for obtaining FDA clearance for their products
incorporating HERMES. There can be no assurance that the FDA will determine that
HERMES can be cleared for marketing through the 510(k) notification process. If
HERMES cannot be cleared for marketing through the 510(k) notification process,
the Company or the device manufacturers will be required to seek FDA approval
for HERMES through submission of a PMA application. The Company intends to
submit an IDE application with regards to ZEUS, in the second half of 1997, in
order to commence clinical trials. Following completion of clinical trials, the
Company plans to file a PMA application for ZEUS.
There can be no assurance that the Company or any device manufacturers for
HERMES will be able to obtain necessary PMA approvals or 510(k) clearances to
market the Company's products for the intended uses on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, or failure
to comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company is also required to register as a medical device manufacturer
with the FDA and state agencies such as the CDHS and to list its products with
the FDA. As such, the Company will be inspected by both the FDA and CDHS for
compliance with the QSR and other applicable regulations. These regulations
require that the Company manufacture its products and maintain its documents in
a prescribed manner. In July 1994, the Company's facility in Goleta, California
was inspected by the CDHS, acting on behalf of the State and under contract with
the FDA. The Company received no significant inspection observations and was
subsequently granted a California medical device manufacturing license. In March
1995, the Company's
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facility was inspected by the FDA and no significant inspection observations
were received. There can be no assurance that the Company will be able to
continue to be in substantial compliance on an ongoing basis with CDHS and FDA
QSR requirements or that it will not be required to incur significant costs to
comply with such laws and regulations now or in the future or that such laws or
regulations will not have a material adverse effect upon the Company's business,
financial condition and results of operations.
The Company is required to provide information to the FDA on death or
serious injuries that its medical devices have allegedly caused or contributed
to, product malfunctions that would likely cause or contribute to death or
serious injury. In addition, the FDA prohibits the marketing of approved devices
for uses other than those specifically cleared for marketing by the FDA. Failure
to comply with the regulatory requirements could have a material adverse effect
on the Company's business, financial condition and results of operations.
Regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition and results of operations.
International
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing a
product in a foreign country may differ significantly from FDA requirements.
Some countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in others.
The Company has received registrations and approvals to market AESOP in
Japan, Australia, New Zealand and certain European countries.
The primary regulatory environment in Europe is that of the European Union,
which consists of 15 member countries encompassing most of the major countries
in Europe. The European Union has adopted numerous directives and standards
regulating the design, manufacturing, clinical trials, labeling and adverse
event reporting for medical devices. Devices that comply with the requirements
of a relevant directive will be entitled to bear a CE Mark, indicating that the
device conforms with the essential requirements of the applicable directive, and
accordingly, can be commercially distributed throughout the European Union.
Medical products must receive by mid-1998 the right to affix the CE Mark. ISO
9000/EN 46001 certification is one of the CE Mark certification requirements.
Failure to receive the right to affix the CE Mark will prohibit the Company from
selling its products in member countries of the European Union and there can be
no assurance that the Company will be successful in meeting the European quality
standards or other certification requirements.
Unapproved products subject to the PMA requirements must receive prior FDA
export approval unless they are approved for use by any member country of the
European Union and certain other countries, including Australia, Canada, Israel,
Japan, New Zealand, Switzerland and South Africa, in which case they can be
exported to any country without prior FDA approval. Exports of products subject
to the 510(k) notification requirements, but not yet cleared to market, are
permitted without FDA export approval provided certain requirements are met.
However, the Company must, among other things, notify the FDA and meet the
importing countries' requirements. To obtain FDA export approval, when it is
required, certain requirements must be met and information must be provided to
the FDA, including documentation demonstrating that the product is approved for
import into the country to which it is to be exported and, in some instances,
safety data from animal or human studies. There can be no assurance that the
Company will receive FDA export approval when such approval is necessary, or
that countries to which the devices are to be exported will approve the devices
for import. Failure of the Company to receive import approval from foreign
countries, or to obtain Certificates for Products for Export when required, meet
FDA's export requirements, or obtain FDA export approval when required to do so,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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THIRD-PARTY REIMBURSEMENT
In the United States, the Company's new products, if and when approved for
commercial sale, would be purchased primarily by medical institutions which then
bill various third-party payors, such as Medicare, Medicaid and other government
programs and private insurance plans for the health care services provided to
their patients. Government agencies, certain private insurers and certain other
payors generally reimburse hospitals for medical treatment at a fixed rate based
on the DRG established by the HCFA which covers this treatment. The Company
believes that the procedures using the Company's AESOP are eligible and future
products will be eligible for reimbursement under existing DRG reimbursement
codes. However, Medicare and other third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered products and procedures. Third-party payors have challenged, and in
certain circumstances have ceased, reimbursement for procedures under existing
codes where the aggregate level of reimbursement has been significantly
increased and required, following further study regarding safety and efficacy,
establishment of new reimbursement codes. Even if a procedure is covered by a
DRG, payors may deny reimbursement if they determine that the device used in a
treatment was unnecessary, inappropriate or not cost-effective, experimental or
used for a non-approved indication. Medicare reimburses hospitals on a
prospectively determined fixed amount for the costs associated with an
in-patient hospitalization based on the patient's discharge diagnosis, and
reimburses physicians on a prospectively determined fixed amount based on the
procedure performed, regardless of the actual costs incurred by the hospital or
physician in furnishing the care and unrelated to the specific devices used in
that procedure.
Capital costs for medical equipment purchased by hospitals are currently
reimbursed under Medicare separately from medical procedure payments. Recent
Federal Medicare legislation has called for these capital costs to be reimbursed
on a prospective payment system. During a transition period due to end in 2000,
each hospital's capital expenditures will be based in part on its own historical
capital costs and in part on the prospective payment system. There can be no
assurance that the movement to a prospective payment system will not cause
hospitals to reduce their expenditure payments for equipment such as the
products developed or being developed by the Company.
Medicare coverage may be available, under certain circumstances for
devices, such as the Company's HERMES and ZEUS products, which have not been
approved or cleared for marketing by the FDA. However, Medicare coverage may be
denied if certain coverage requirements are not met, including if the treatment
is not medically needed for the specific patient. There can be no assurance that
the Company's future products will be covered when they are used in clinical
trials and, if covered, whether the payment amounts for their use will be
considered to be adequate by hospitals and physicians. If the devices are not
covered or the payments are considered inadequate, the Company may need to bear
additional costs to sponsor such trials and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems as
well as government managed systems. Market acceptance of the Company's products
will depend on the availability and level of reimbursement in international
markets targeted by the Company. There can be no assurance that the Company will
obtain reimbursement in any country within a particular time, for a particular
time, for a particular amount, or at all.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets, as the overall escalating costs of medical products and
services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance that third-party reimbursement and coverage for the Company's products
will be available or adequate, that current reimbursement amounts will not be
decreased in the future, or that future legislation, regulation or reimbursement
policies of third-party payors will not otherwise affect the demand for the
Company's products or its ability to sell its products on a profitable basis,
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particularly if the Company's products are more expensive than competing
surgical procedures. If third-party payor coverage or reimbursement is
unavailable or inadequate, the Company's business, financial condition and
results of operations could be materially adversely affected.
PRODUCT LIABILITY AND INSURANCE
The development, manufacture and sale of medical products, such as the
Company's robotic and computerized surgical systems, entail significant risk of
product liability claims and product failure claims. The Company has conducted
only limited clinical trials and does not yet have, and will not have for a
number of years, sufficient clinical data to allow the Company to measure the
risk of such claims with respect to its products. The Company faces an inherent
business risk of financial exposure to product liability claims in the event
that the use of it products results in personal injury or death. The Company
also faces the possibility that defects in the design or manufacture of the
Company's products might necessitate a product recall. There can be no assurance
that the Company will not experience losses due to product liability claims or
recalls in the future. The Company currently maintains product liability
insurance with coverage limits of $5 million per occurrence and $5 million
annually in the aggregate and there can be no assurance that the coverage limits
of the Company's insurance policies will be adequate. In addition, the Company
may require increased product liability coverage if any potential products are
successfully commercialized. Such insurance is expensive, difficult to obtain
and may not be available in the future on acceptable terms, or at all. Any
claims against the Company, regardless of their merit or eventual outcome, could
have a material adverse effect upon the Company's business, financial condition
and results of operations.
EMPLOYEES
As of June 1, 1997, the Company had 77 employees, of which 11 were
primarily involved in manufacturing operations, 27 in research and development
and clinical affairs, 13 in administration and 26 in sales, marketing and
customer service. None of the Company's employees are covered by a collective
bargaining agreement and management believes that its relationship with its
employees is good.
FACILITIES
The Company occupies approximately 17,500 square feet in a complex in
Goleta, California. The facility is subject to a lease which expires in November
2001, with a five-year renewal option. The Company believes that currently
leased facilities will be sufficient for the immediate future and that adequate
additional space is available within the same geographical area, should
expansion prove necessary or advisable in the future. The Company's business,
financial condition and results of operations could be materially adversely
effected if additional space were required and could not be obtained in near
proximity to the Company's current facilities at an acceptable cost.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Gene Wang.................... 40 Chief Executive Officer, President and Director
Yulun Wang................... 37 Executive Vice President, Chief Technical Officer and Director
Stephen L. Wilson............ 44 Executive Vice President, Chief Financial Officer and Secretary
John M. Greathouse........... 35 Vice President of Business Development
Kermit R. (Kerry) Pope, Jr... 50 Vice President of Sales and Marketing
David A. Stuart.............. 40 Vice President of Operations
Robert W. Duggan(1)(2)....... 53 Chairman of the Board of Directors
Daniel R. Doiron............. 46 Director
W. Peter Geis................ 55 Director
Stephen F. Wiggins(1)(2)..... 40 Director
William D. Williams(2)....... 50 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Gene Wang has been Chief Executive Officer, President and a Director of the
Company since January 1996. Mr. Wang served as Executive Vice President at
Symantec Corporation from 1992 to 1995 and served as Vice President and General
Manager of the Languages Business Unit of Borland International from 1988 to
1992. Mr. Wang earned a B.S. in computer science from the University of
California at Berkeley.
Yulun Wang, Ph.D., has been Executive Vice President and Chief Technical
Officer of the Company since January 1996 and a Director since 1990 and has
served in numerous other capacities since he founded the Company in 1989. Prior
to founding the Company, Dr. Wang had been the principal investigator on
research and development contracts and grants from the National Science
Foundation, the National Aeronautics and Space Administration ("NASA")/Jet
Propulsion Laboratories, NASA/Langley, National Institutes of Health and the
United States Navy. Dr. Wang earned B.S., M.S. and Ph.D. degrees in electrical
engineering from the University of California at Santa Barbara.
Stephen L. Wilson joined the Company as Executive Vice President, Chief
Financial Officer and Secretary in May 1997. Prior to joining the Company, Mr.
Wilson had served as the Vice President of Finance and Chief Financial Officer
at St. Jude Medical Inc., a medical device manufacturer, since 1990. Mr. Wilson
earned a B.S. in accounting from the University of Connecticut School of
Business Administration.
John M. Greathouse joined the Company as Director of Finance in 1993 and
has served as the Company's Vice President of Business Development since
February 1997. Prior to joining the Company, Mr. Greathouse served as Manager of
Corporate Development with Mitchell Humphrey & Co., a developer of financial
software, from 1990 to 1993. Mr. Greathouse earned his B.S. degree in accounting
from the University of Maryland and an M.B.A. from the University of
Pennsylvania's Wharton School of Business.
Kerry R. Pope, Jr. joined the Company in May 1997 as Vice President of
Sales and Marketing. Prior to joining the Company, Mr. Pope served as a Vice
President of Baxter Healthcare's Vascular Systems Division since May 1994. Prior
to that, Mr. Pope served in several sales related capacities at Vitaphone
Corporation, a manufacturer of collagen-based medical devices, since December
1986. Mr. Pope earned a B.S. in business from the University of Maryland.
David A. Stuart has been Vice President of Operations of the Company since
June 1996. From 1992 to 1996, Mr. Stuart served as Director of Materials at
Quantum Corporation, a disk drive manufacturer, and served as Director of
Materials and Manager of Manufacturing Finance for LTX Corporation, a
manufacturer and distributor of semi-conductor automatic test equipment, from
1984 to 1991.
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Robert W. Duggan has been Chairman of the Board of Directors of the Company
since 1990. Mr. Duggan is a venture capitalist and private investor. Mr. Duggan
has served as a member of the board of directors of a number of public and
private companies and currently serves as a member of the board of directors at
several private companies. Mr. Duggan serves on the Board of Trustees for the
University of California at Santa Barbara Foundation and is a member of the
University of California at Santa Barbara's Engineering Steering Committee.
Daniel R. Doiron, Ph.D., has been a Director of the Company since November
1996. Dr. Doiron is a founder and director of PDT, Inc., a pharmaceutical
company specializing in photodynamic therapy for certain cancers and other
diseases, where he served in various capacities, including Vice President of
Technology and Chief Scientist and President of its subsidiary, PDT Systems,
Inc., from 1989 to 1997. Dr. Doiron holds B.S. and M.S. degrees in Nuclear
Engineering and a Ph.D. in Chemical Engineering from the University of
California at Santa Barbara.
W. Peter Geis, M.D., has been a Director of the Company since March 1996.
Dr. Geis is a Director of the Minimally Invasive Surgical Training Institute
("MISTI"), an endoscopic training institution in Baltimore, Maryland. Dr. Geis
was an Associate Professor of Surgery at the University of Illinois. Dr. Geis
has been Clinical Professor of Surgery for the University of Chicago since 1991.
Dr. Geis is a member of the American College of Surgeons and the Society of
American Gastrointestinal Endoscopic Surgeons. Dr. Geis also sits on the
advisory faculty of Johnson & Johnson's Ethicon Endo-Surgery Unit. Dr. Geis
received his M.D. from Loyola University in Chicago in 1968, where he
subsequently served as an Associate Professor from 1974 to 1983.
Stephen F. Wiggins has been a Director of the Company since February 1996.
Mr. Wiggins is Chairman and Chief Executive Officer of Oxford Health Plans, Inc.
("Oxford"), a health management organization, which he founded in 1984. Mr.
Wiggins serves on the White House Commission for Consumer Protection and Quality
in Health Care and the Executive Committee of the National Healthcare Leadership
Council. Prior to founding Oxford, Mr. Wiggins founded Accessible Space
Incorporated ("A.S.I."), a residential housing program for individuals with
physical handicaps and brain injuries. Mr. Wiggins continues to serve on the
board of directors of A.S.I. Mr. Wiggins earned a B.A. from Macalester College
and an M.B.A. from the Harvard School of Business.
William D. Williams has been a Director of the Company since 1995. Mr.
Williams has served as the President of Pyxis Corporation ("Pyxis"), a
subsidiary of Cardinal Health Inc., since 1996. Prior to 1996, Mr. Williams
served as Vice President of Sales for Pyxis. Mr. Williams earned a B.S. from the
University of Missouri.
ELECTION OF DIRECTORS AND OFFICERS
All members of the Company's Board of Directors hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors and are
elected annually. Gene Wang is the brother of Yulun Wang. There are no other
familial relationships among the directors and officers of the Company.
Pursuant to the terms of a Stockholders Agreement among Chase Manhattan
Capital Corporation, the Company and certain executives designated therein, each
party to the Stockholders Agreement is obligated to take all necessary or
desirable actions within its control to cause one representative designated by
the holders of a majority of shares issued upon conversion of the Series D
Preferred Stock which have not been sold into the public market (the "Underlying
Stock") to be elected as a member of the Company's Board of Directors until the
later of (i) August 24, 2004 or (ii) such time as the Underlying Stock
constitutes less than 2.5% of the aggregate voting power of all classes of the
Company's voting securities. No designee of the holders of the Underlying Stock
currently sits on the Board. In addition, until such time that the holders of
the Underlying Stock no longer have the right to designate a member of the
Company's Board of Directors, the Company cannot increase the size of the Board
of Directors above seven members without such holders' consent.
43
<PAGE> 45
BOARD COMMITTEES AND COMPENSATION
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee consists of Messrs. Duggan and Wiggins. The Audit Committee
makes recommendations to the Board of Directors regarding the selection of
independent auditors, reviews the results and scope of the audit and other
services provided by the Company's independent auditors and reviews and
evaluates the Company's internal control functions.
The Company's Board of Directors formed a Compensation Committee, which
currently consists of Messrs. Duggan, Wiggins and Williams, in April 1997. The
Compensation Committee administers the Company's Tandem Stock Option Plan, 1997
Stock Incentive Plan and Employee Stock Purchase Plan and makes recommendations
to the Board of Directors concerning compensation for executive officers of the
Company. Prior to the formation of the Compensation Committee, such functions
were performed by the Board of Directors as a whole.
The Company does not currently compensate its directors for service in such
capacity. The Company intends to consider compensating non-employee directors in
the future.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, the Company had no
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions regarding compensation of executive officers were
made by the Board of Directors as a whole. The Company anticipates that
executive compensation for future periods will be determined by the Compensation
Committee.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth compensation earned
during the fiscal year ended December 31, 1996, by the Company's Chief Executive
Officer and the two other most highly compensated executive officers whose total
salary and bonus during such year exceeded $100,000 and one additional selected
officer (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OTHER($)(1) OPTIONS(#)
- --------------------------------------------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Gene Wang, Chief Executive Officer and
President.................................. $ 183,462 $50,000 $11,070(2) 250,259
Yulun Wang, Executive Vice President and
Chief Technical Officer.................... 110,208 -- -- 47,976
John M. Greathouse, Vice President of
Business Development....................... 60,000 5,822 50,000(3) 15,560
David A. Stuart, Vice President of
Operations(4).............................. 55,000 4,244 -- 70,020
</TABLE>
- ---------------
(1) Except as indicated below other annual compensation in the case of each
indicated Named Executive Officer consisted exclusively of perquisites
which, in each instance, did not exceed the lesser of $50,000 or 10% of such
Named Executive Officer's salary plus bonus.
(2) In the case of Mr. Wang, other annual compensation consisted of
reimbursement of certain expenses and a housing allowance in connection with
the initiation of his employment with the Company.
(3) In the case of Mr. Greathouse, other annual compensation consisted of
commissions.
(4) Mr. Stuart joined the Company as its Vice President of Operations in June of
1996 at an annual base salary of $110,000.
In May 1997, the Company hired Stephen L. Wilson and Kerry R. Pope, Jr. as
the Executive Vice President, Chief Financial Officer and Secretary and the Vice
President of Sales and Marketing, respectively. Each has an annual salary of
$150,000.
44
<PAGE> 46
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of options to each of the Named Executive Officers
during the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(4)
OPTIONS DURING PRICE EXPIRATION ------------------------
NAME GRANTED(#)(1) 1996(%)(2) ($/SHARE)(3) DATE 5%($) 10%($)
- ----------------------- ------------- ---------------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene Wang.............. 207,469 21.6% $ 4.57 1/08/06 $596,276 $ 1,511,080
42,790 4.4 4.57 12/25/06 122,980 311,657
Yulun Wang............. 5,186 0.5 5.03 10/01/01 4,162 12,084
42,790 4.4 5.03 12/25/01 34,344 99,702
John M. Greathouse..... 15,560 1.6 4.57 12/25/06 44,720 113,330
David A. Stuart........ 51,867 5.4 4.57 6/01/06 149,068 377,768
7,780 0.8 4.57 8/01/06 22,360 56,665
10,373 1.1 4.57 12/25/06 29,813 75,551
</TABLE>
- ---------------
(1) Options were granted under the Company's Tandem Stock Option Plan and
typically vest over five years from the date of grant.
(2) Based on an aggregate of 961,859 options granted by the Company in the
fiscal year ended December 31, 1996 to employees, including the Named
Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the underlying Common Stock on the date of grant as determined by
the Board of Directors.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the Company's Common Stock on the date of grant appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. The 5% and 10% assumed annual rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the Company's future Common Stock prices. Actual gain, if any,
on stock options exercises are dependent on the future performance of the
Common Stock and overall stock market condition. The amounts reflected in
the table may be higher or lower than the amounts actually realized.
In May 1997, Messrs. Wilson and Pope received a total of 116,701 and 77,801
options, respectively, at an exercise price of $4.57 per share in connection
with the initiation of their employment.
Option Exercises in 1996 and Fiscal Year-End Option Values. No options were
exercised by the Named Executive Officers during 1996. The following table sets
forth certain information regarding the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gene Wang................................ -- 250,259 $ -- $ 2,359,942
Yulun Wang............................... 2,999 44,977 26,901 403,453
John M. Greathouse....................... 15,301 23,599 164,157 236,599
David A. Stuart.......................... -- 70,020 -- 660,289
</TABLE>
- ---------------
(1) Calculated by determining the difference between the assumed initial public
offering price of $14.00 per share and the exercise price of the options.
45
<PAGE> 47
STOCK PLANS
Tandem Stock Option Plan. The Company's Tandem Stock Option Plan (the
"Tandem Plan") was adopted by the Board of Directors and approved by the
shareholders in 1993. At June 1, 1997, of the 1,556,017 shares of Common Stock
which have been reserved for issuance under the Tandem Plan, 1,408,740 were
subject to outstanding options at a weighted average exercise price of $4.05 per
share and 147,277 shares had been purchased upon exercise of options. There are
no additional shares available for grant under the Tandem Plan. The Tandem Plan
provides for the grant to employees of the Company of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and for the grant of nonstatutory options to employees,
consultants and non-employee directors of the Company. The purpose of the Tandem
Plan is to provide participants with incentives which will encourage them to
acquire a proprietary interest in, and continue to provide services to, the
Company. The Tandem Plan is administered by the Compensation Committee which has
discretion and authority, consistent with the provisions of the Tandem Plan, to
determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the Tandem Plan.
The exercise price under the Tandem Plan is determined by the Board of
Directors, provided that, generally in the case of an incentive stock option,
the exercise price shall be equal to the fair market value of the Common Stock
as of the date of grant, as determined by the Board of Directors. In the case of
an incentive stock option granted to an optionee who owns at least 10% of the
voting power of all classes of stock of the Company or any parent or subsidiary
of the Company, the exercise price may be no less than 110% of the fair market
value of the Common Stock on the date the option is granted. Payment of the
exercise price may be made in cash or by cashiers' check, or, in the discretion
of the Company, by delivery of shares of the Company's Common Stock having a
fair market value equal to the exercise price of the options being exercised.
The Board has the authority to determine the time or times at which options
granted under the Tandem Plan become exercisable, provided that incentive
options must expire no later than ten years from the date of grant (five years
with respect to optionees who own at least 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company).
Options are not assignable and are nontransferable, other than by will and the
laws of descent and distribution upon death, and generally may be exercised only
by an employee while employed by the Company or within 30 days after termination
of employment. The Tandem Plan will terminate in 2003, unless earlier terminated
by the Board of Directors.
1997 Stock Incentive Plan. The Company adopted the 1997 Stock Incentive
Plan (the "Stock Incentive Plan") in April 1997. The purpose of the Stock
Incentive Plan is to provide participants with incentives which will encourage
them to acquire a proprietary interest in, and continue to provide services to,
the Company. The Stock Incentive Plan provides for the granting of incentive
stock options, nonstatutory options and rights to purchase restricted stock. An
aggregate of 1,037,344 shares have been reserved for grant under the Stock
Incentive Plan. As of June 1, 1997, there were 145,241 options outstanding under
the Stock Incentive Plan. The Stock Incentive Plan provides that options to
purchase shares of the Company's Common Stock and restricted stock grants of the
Company's Common Stock may be granted to directors, officers, employees and
consultants of the Company, except that incentive stock options may not be
granted to non-employee directors or consultants. The Stock Incentive Plan is
administered by the Compensation Committee, which has sole discretion and
authority, consistent with the provisions of the Stock Incentive Plan, to
determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the Stock Incentive Plan.
The exercise price of incentive stock options must at least be equal to the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company).
Nonstatutory options shall have an exercise price of not less than 85% of the
fair market value of a share of Common Stock on the date such option is granted.
Payment of the exercise price may be made in cash, by delivery of shares of the
Company's Common Stock, waiver of compensation due or accrued or, in certain
circumstances, through the delivery of a promissory note. The Compensation
Committee has the authority to determine the time or times at which options
granted under the Plan become exercisable, provided that options must expire no
later
46
<PAGE> 48
than ten years from the date of grant (five years with respect to optionees who
own at least 10% of the voting power of all classes of stock of the Company or
any parent or subsidiary of the Company). Options are nontransferable, other
than upon death by will and the laws of descent and distribution.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors in April 1997. An
aggregate of 129,668 shares of Common Stock have been reserved for issuance
under the Purchase Plan. The Purchase Plan, which is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code, will be
implemented by two year offerings with purchases occurring at six-month
intervals commencing on the completion of this offering. The initial offering
period will conclude on June 30, 1999. The Purchase Plan will be administered by
the Compensation Committee. Employees will be eligible to participate if they
are employed by the Company for at least 20 hours per week and if they have been
employed by the Company for at least 90 days. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 10% of an employee's compensation. The price of stock purchased under the
Purchase Plan will be 85% of the lower of the fair market value of the Common
Stock at the beginning of the two year offering period or on the applicable
purchase date. Employees may end their participation in the offering at any time
during the offering period, and participation ends automatically on termination
of employment. The Board may at any time amend or terminate the Purchase Plan,
except that no such amendment or termination may adversely affect shares
previously purchased under the Purchase Plan. In addition, the Board may not,
without stockholder approval, materially increase the number of shares of Common
Stock available for issuance, alter the purchase price formula so as to reduce
the purchase price payable for shares of Common Stock or materially modify the
eligibility requirements for participation or the benefits available to
participants. The Purchase Plan will terminate on June 30, 2007.
EMPLOYMENT AGREEMENT
The Company has entered into an agreement relating to the employment of
Stephen L. Wilson whereby the Company has agreed to provide Mr. Wilson with
severance benefits during the first year of employment equal to one year's
salary plus bonus and thereafter equal to two years' salary plus bonus. The
Agreement also provides that, in the event of termination following a change of
control of the Company, Mr. Wilson will receive three years' salary plus bonus
and all his outstanding options will fully vest.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its other employees and agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. Prior to the completion of
this offering, the Company expects to have in place liability insurance for its
officers and directors.
In addition, the Company's Second Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable to the Company or its stockholders for monetary damages for breach of
the directors' fiduciary duty. This provision in the Second Amended and Restated
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
however, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
The Company has entered into separate indemnification agreements with its
directors and officers. These agreements require the Company, among other
things, to indemnify the directors and officers against certain liabilities that
may arise by reason of their status or service as directors or officers (other
than liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be opposed to the best interests
47
<PAGE> 49
of the Company), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified and to obtain
directors' insurance if available on reasonable terms. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. The
Company believes that these provisions of its Second Amended and Restated
Certificate of Incorporation and Bylaws and the indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
48
<PAGE> 50
CERTAIN TRANSACTIONS
In June 1997, pursuant to an agreement entered into in April 1997, Stephen
L. Wilson, an executive officer of the Company, purchased 32,417 shares of
Common Stock at $4.57 per share and was issued warrants to purchase an
additional 32,417 shares of Common Stock at $4.57 per share.
In March 1997, the Company and Medtronic entered into an agreement
providing for the distribution and co-promotion of the Company's robotic systems
that position and maneuver both visualization equipment and instruments for
minimally invasive cardiothoracic surgery, including ZEUS (the "Systems").
Pursuant to a Sales Agreement dated May 28, 1997 (the "Sales Agreement"),
Medtronic will act as the Company's exclusive distributor for the Systems for
use in cardiothoracic surgical procedures in Europe, the Middle East and Africa
and will co-promote the Systems for use in cardiothoracic surgical procedures in
North America. In exchange for co-promoting the Systems in North America,
Medtronic will receive a commission based on the Company's net revenues from the
sale of the Systems. The Company retains direct distribution rights in North
America, as well as the worldwide right to distribute its systems for use in
other procedures. In connection with the strategic alliance, Medtronic invested
$4.0 million in the Company in the form of a convertible loan, evidenced by a
convertible debenture (the "Medtronic Debenture"), which bore interest at a rate
equal to prime, as announced by Norwest Bank of Minnesota N.A., plus 1%. Such
loan was converted into 367,857 shares of Common Stock of the Company upon the
execution of the Sales Agreement. In the event the actual initial offering price
is less than $11.20 per share Medtronic shall be entitled to receive additional
shares of Common Stock, without additional consideration, so that the aggregate
number of shares of Common Stock held by Medtronic with respect to the
conversion of the Medtronic Debenture equals the number of shares of Common
Stock Medtronic would have received had it converted the Medtronic Debenture at
a conversion price equal to the actual initial public offering price per share
(the "Offering Price"). In addition, Medtronic has the right, at its election,
to invest up to an additional $10.0 million for shares of the Company's Common
Stock at the Offering Price, which right will terminate at the completion of
this offering.
In February 1997, Daniel R. Doiron, a director of the Company, loaned the
Company the sum of $150,000 at an interest rate equal to the prime rate plus 1%.
Such loan was evidenced by a promissory note and was repaid in April 1997
pursuant to its terms.
Between September 1996 and March 1997, the Company sold 116,702 common
equivalent shares of Series E Preferred Stock at an effective purchase price of
$7.71 per share and warrants to purchase 116,702 shares of Common Stock at an
effective purchase price of $.015 per warrant to certain directors of the
Company. The effective exercise price of each warrant is $7.71 per share. Such
issuances were made pursuant to Purchaser Representation and Subscription
Agreements as follows:
<TABLE>
<CAPTION>
SHARES OF
SERIES E PREFERRED
STOCK PURCHASED
PURCHASER AND RELATIONSHIP (COMMON EQUIVALENT WARRANTS TO PURCHASE AGGREGATE
TO THE COMPANY BASIS) COMMON STOCK CONSIDERATION
- ----------------------------------------------- ------------------ -------------------- -------------
<S> <C> <C> <C>
Robert W. Duggan, Director..................... 25,934 25,934 $ 200,000
Stephen F. Wiggins, Director................... 58,351 58,351 450,000
William D. Williams, Director.................. 6,483 6,483 50,000
Daniel R. Doiron, Director..................... 25,934 25,934 200,000
</TABLE>
49
<PAGE> 51
On various dates between November 6, 1995 and May 20, 1996, the Company
entered into Bridge Financing Agreements with certain officers and directors of
the Company, pursuant to which agreements the Company issued promissory notes
("Bridge Notes") in the total original principal amount indicated below,
together with warrants to purchase shares of its common stock as indicated
below:
<TABLE>
<CAPTION>
PURCHASER AND RELATIONSHIP ORIGINAL PRINCIPAL WARRANTS TO PURCHASE
TO THE COMPANY BALANCE OF BRIDGE NOTE COMMON STOCK
- -------------------------------------------------------- ---------------------- --------------------
<S> <C> <C>
Robert W. Duggan, Director.............................. $750,000 245,687
Gene Wang, Chief Executive Officer, President and 100,000 32,758
Director..............................................
Yulun Wang, Executive Vice President, Chief Technical 12,000 3,931
Officer and Director..................................
Stephen F. Wiggins, Director............................ 350,000 114,654
Daniel R. Doiron, Director.............................. 100,000 32,758
</TABLE>
The Bridge Notes bear interest at a rate equal to the lesser of the prime
rate quoted by Chase Manhattan Bank plus one percent or the highest rate
permitted by law, and have a term of thirty months. The Bridge Notes held by Mr.
Duggan, Messrs. Wang and Mr. Wiggins were subsequently amended to waive current
payment of interest thereon and to make the entire balance of principal and
accrued interest due and payable within 30 days following a public offering of
the Company's Common Stock. The warrants issued in connection with the Bridge
Notes were sold for $.0002 per warrant, may be exercised at any time, have an
exercise price of $4.57 per share and expire seven years after the applicable
issuance date.
On August 24, 1994, the Company entered into a Series D Convertible
Preferred Stock and Warrant Purchase Agreement with Chase Manhattan Capital
Corporation, a principal stockholder of the Company, pursuant to which the
Company issued 545,971 shares of its Series D Preferred Stock for aggregate
consideration totaling $5.0 million. On April 13, 1995, Chase Manhattan Capital
Corporation transferred 59,688 of such shares to Archery Partners, an affiliated
entity.
Holders of Series D Preferred Stock and Series E Preferred Stock, the
warrants issued in connection with the Bridge Notes and Medtronic are entitled
to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
50
<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of June 1, 1997, adjusted to reflect the sale of Common Stock offered hereby
for (i) each person or entity known to the Company to own beneficially more than
5% of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- --------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Robert W. Duggan(2)............................................ 1,164,755 23.8% 15.8%
Yulun Wang(3).................................................. 999,178 21.6 14.0
Chase Manhattan Capital Corporation............................ 563,376 12.2 7.9
c/o Chase Capital Partners
380 Madison, 12th Floor
New York, NY 10017
Medtronic, Inc.(4)............................................. 367,857 8.0 5.2
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Stephen F. Wiggins(5).......................................... 239,135 5.0 3.3
Gene Wang(6)................................................... 235,922 4.9 3.2
Stephen L. Wilson(7)........................................... 103,734 2.2 1.4
Daniel R. Doiron(8)............................................ 84,626 1.8 1.2
John M. Greathouse(9).......................................... 27,749 * *
William D. Williams(10)........................................ 38,900 * *
David A. Stuart(11)............................................ 21,914 * *
W. Peter Geis(12).............................................. 12,189 * *
Kerry R. Pope.................................................. -- * *
All executive officers and directors
as a group (11 persons)(13).................................. 2,811,401 52.2 35.7
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days of June 1,
1997, are deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote and subject
to community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Includes an aggregate of 275,498 shares subject to options and warrants
exercisable within 60 days of June 1, 1997.
(3) Includes 16,004 shares subject to options and warrants exercisable within
60 days of June 1, 1997 and 8,754 shares owned by minor children of Yulun
Wang. Dr. Wang disclaims beneficial ownership of shares owned by such
children. Also includes 311,204 shares subject to an option granted by Dr.
Wang to Gene Wang. An aggregate of 116,701 shares subject to such option
are exercisable within 60 days of June 1, 1997.
(4) The number of shares held by Medtronic are subject to adjustment upon
completion of this offering. See "Certain Transactions."
(5) Includes an aggregate of 180,785 shares subject to options and warrants
exercisable within 60 days of June 1, 1997.
(6) Includes an aggregate of 192,791 shares subject to options exercisable
within 60 days of June 1, 1997, including 116,701 shares owned by Yulun
Wang subject to an option exercisable within 60 days of June 1, 1997 and
32,758 shares subject to a warrant exercisable within 60 days of June 1,
1997. Excludes 194,503 shares owned by Yulun Wang subject to an option
exercisable after 60 days after June 1, 1997.
(7) Includes an aggregate of 71,317 shares subject to options and warrants
exercisable within 60 days of June 1, 1997.
(8) Includes an aggregate of 58,691 shares subject to warrants exercisable
within 60 days of June 1, 1997.
(9) Includes an aggregate of 20,487 shares subject to options exercisable
within 60 days of June 1, 1997.
(10) Consists of 32,420 shares subject to an option exercisable within 60 days
of June 1, 1997.
(11) Includes an aggregate of 21,006 shares subject to options exercisable
within 60 days of June 1, 1997.
(12) Consists of an aggregate of 12,189 shares subject to options exercisable
within 60 days of June 1, 1997.
(13) Includes an aggregate of 764,487 shares subject to options and warrants
exercisable within 60 days of June 1, 1997.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, $.001 par value per
share, and 5,000,000 shares of Preferred Stock, $.001 par value per share.
COMMON STOCK
As of June 1, 1997, there were 1,835,966 shares of Common Stock outstanding
held by 52 stockholders of record. There will be 7,118,468 shares of Common
Stock outstanding after giving effect to the sale of 2,500,000 shares of Common
Stock offered by the Company hereby and after giving effect to the conversion of
all shares of Preferred Stock and the Medtronic Debenture into an aggregate of
2,782,502 shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors, and do not have cumulative voting rights. Subject to preferences that
may be applicable to the holders of outstanding shares of Preferred Stock, if
any, the holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock shall be entitled to receive pro rata all of the assets of the
Company available for distribution to its stockholders. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and shares
of Common Stock to be issued pursuant to this offering shall be fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has authority to issue up to 5,000,000 shares of
Preferred Stock, $.001 par value, and to fix the rights, preferences, privileges
and restrictions, including voting rights, of those shares without any future
vote or action by the stockholders. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company,
thereby delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights senior to the Common Stock, and, as a result, the issuance thereof could
have a material adverse effect on the market value of the Common Stock. The
Company has no present plans to issue shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Agreement dated as of August 24,
1994, as amended to date (the "Registration Agreement"), subject to the terms
and conditions therein, and upon expiration of lock-up agreements with the
Underwriters, persons who are the holders of an aggregate of (i) 1,021,531
outstanding shares of Common Stock issuable upon conversion of all outstanding
shares of Series D and Series E Preferred Stock, (ii) 1,609,250 shares issuable
upon exercise of the warrants to purchase Common Stock issued in connection with
the Company's Bridge Note financing and the issuance of Series E Preferred Stock
and (iii) 367,857 shares of Common Stock issued upon conversion of the Medtronic
Debenture, which number of shares is subject to adjustment upon completion of
this offering (collectively, the "Registrable Securities") are entitled to
certain rights, including demand registration rights and piggyback rights, with
respect to the registration of such shares under the Securities Act. Subject to
certain limitations in the Registration Agreement, at any time after completion
of this offering, the holders of 20% or more of the Registrable Securities may
request registration under the Securities Act of all or part of their
Registrable Securities on Form S-1 and the holders of any Registrable Securities
may request registration under the Securities Act of all or part of their
Registrable Securities on Form S-2 or S-3 or any similar short form. In
addition, the holders of
52
<PAGE> 54
a majority of the Common Stock issuable upon conversion of the Medtronic
Debenture are entitled to request one registration on Form S-1, provided that
the amount of Registrable Securities sold by Medtronic shall not be less than
$2.0 million. See "Certain Transactions."
ANTI-TAKEOVER EFFECT OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (an anti-takeover law). In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless either (i) prior to the date at which the person becomes an
interested stockholder, the Board of Directors approves such transaction or
business combination, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
such transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. For purposes of Section 203, "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Company's Common Stock is
U.S. Stock Transfer Corporation.
LISTING
The Company has applied to have its Common Stock approved for quotation on
the Nasdaq National Market under the symbol "RBOT."
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely and materially affect market prices prevailing from time
to time. Furthermore, because only a limited number of shares will be available
for sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have 7,118,468 shares of
Common Stock outstanding assuming (i) no exercise of the Underwriters'
over-allotment option, (ii) no exercise after June 1, 1997 of the approximately
3,163,232 shares issuable pursuant to outstanding options and warrants, and
(iii) the conversion of all outstanding shares of Preferred Stock into 2,414,645
shares of Common Stock. Of these outstanding shares of Common Stock, the
2,500,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless purchased
by an "affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act (the
"Restricted Shares"). Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration such as Rules
144 or 701 promulgated under the Securities Act, which are summarized below.
Sales of the Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock.
The Company's directors, officers and certain holders of its Common Stock
(beneficially holding an aggregate of approximately 4,347,926 Restricted Shares)
have agreed, pursuant to certain "lock-up" agreements, that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
the shares of Common Stock owned by them or that could be purchased by them
through the exercise of options to purchase Common Stock of the Company for
certain designated periods. All shares owned by any holder signing such lock-ups
will be restricted from sale for 180 days following the date of this Prospectus,
unless such holder receives the prior written consent of Montgomery Securities
to sell such shares. The number of outstanding shares that will be available for
sale, subject in certain circumstances to volume and manner of sale
restrictions, in the public market, after giving effect to the lock-up
agreements, will be as follows: (i) 240,239 shares of Common Stock will be
eligible for sale as of the effective date of this offering, (ii) 141,185 shares
of Common Stock will be eligible for sale beginning 90 days after the effective
date of this offering, including approximately 110,000 shares of Common Stock
issuable upon exercise of outstanding vested options, and (iii) 4,194,614 shares
of Common Stock, including approximately 474,000 shares of Common Stock issuable
upon exercise of outstanding vested options, will be eligible for sale beginning
180 days after the date of this Prospectus. The approximately 4,658,838
remaining Restricted Shares and shares of Common Stock issuable upon exercise of
outstanding vested options and warrants will be eligible for sale pursuant to
Rule 144 upon the expiration of their respective one-year holding periods
required under Rule 144. In addition, following the completion of this offering,
the holders of 2,998,639 Restricted Shares (including shares issuable upon the
exercises of the Company's outstanding warrants) will be entitled to certain
rights with respect to registration of such shares for sale in the public
market.
Under Rule 144 as currently in effect, beginning 90 days after the date of
this Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed affiliates of the Company, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) one percent of the number of shares of Common Stock then outstanding (which
will equal approximately 71,185 shares immediately after the effective date of
this offering); or (ii) the average weekly trading volume of the Common Stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
54
<PAGE> 56
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits an affiliate to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares. On June 1, 1997, the Company had outstanding options to purchase
1,553,981 shares of Common Stock, 359,407 of which were then exercisable, and an
additional 892,103 shares of Common Stock are available for issuance pursuant to
the Stock Incentive Plan.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issued or issuable pursuant to the
Company's Tandem Plan, Stock Incentive Plan and Common Stock issuable pursuant
to the Company's Purchase Plan. Accordingly, shares issuable upon exercise of
these options or under the Purchase Plan may be sold under such registration
statements, subject to Rule 144 volume limitations applicable to affiliates in
the open market, except to the extent that such shares are subject to vesting
restrictions with the Company or the contractual restrictions described above.
See "Management -- Stock Plans."
55
<PAGE> 57
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Piper Jaffray Inc. (the "Representatives"), have severally agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters to pay for and
accept delivery of the shares of Common Stock are subject to certain conditions
precedent, and that the Underwriters are committed to purchase all of such
shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities...........................................................
Piper Jaffray Inc ..............................................................
---------
Total................................................................... 2,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters may
allow to selected dealers a concession of not more than $ per share;
and the Underwriters may allow, and such dealers may reallow, a concession of
not more than $ per share to certain other dealers. After the offering,
the price, concessions and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,500,000 shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table.
The Representatives have advised the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The holders of approximately 94% of the shares of the Company's Common
Stock, including all of the Company's directors and executive officers, have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Montgomery Securities, directly
or indirectly, sell, offer to sell or otherwise dispose of any shares of Common
Stock or any options owned directly by such holders or with respect to which
they have the power of disposition. The Company has agreed not to sell, offer to
sell, contract to sell, grant any options to purchase or otherwise dispose of
any shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for shares of Common Stock or any rights to acquire Common Stock
for a period of 180 days after the date of this Prospectus, other than the
issuance of shares of Common Stock upon the exercise of outstanding options, and
the grant of options to purchase shares or the issuance of shares of Common
Stock under the Company's Tandem Plan, Stock Incentive Plan and Purchase Plan.
The lock-up agreements may be released at any time as to all or any portion of
the shares subject to such agreements at the discretion of Montgomery
Securities.
56
<PAGE> 58
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
negotiated between the Company and the Representatives. Among the factors
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California. Certain shareholders of Stradling, Yocca, Carlson &
Rauth, and an investment partnership, certain partners of which are affiliated
with Stradling, Yocca, Carlson & Rauth, own 19,450 shares of the Company's
Common Stock and warrants to purchase an additional 19,450 shares of the
Company's Common Stock at an exercise price equal to $7.71 per share.
Certain legal matters in connection with this offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements and schedules of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
57
<PAGE> 59
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement (including any
amendments thereto) on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, and such exhibits and schedules
filed therewith, which may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained at prescribed
rates from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois. The Registration
Statement and such exhibits and schedules are also available through the
Commission's Website: http://www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements, with an opinion thereon expressed by an
independent certified public accounting firm, and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996, and March 31, 1997 (unaudited)....... F-3
Statements of Operations for each of the three years in the period ended December 31,
1996, and the three month periods ended March 31, 1996 and 1997 (unaudited)......... F-4
Statements of Shareholders' Equity (Deficit) for each of the three years in the period
ended December 31, 1996, and the three month period ended March 31, 1997
(unaudited)......................................................................... F-5
Statements of Cash Flows for each of the three years in the period ended December 31,
1996, and the three month periods ended March 31, 1996 and 1997 (unaudited)......... F-7
Notes to Financial Statements......................................................... F-9
</TABLE>
The financial statements as of March 31, 1997, and for the three month
periods ended March 31, 1996 and 1997, are unaudited.
The information required by the applicable financial statement schedules
has been disclosed in the financial statements and notes thereto and,
accordingly, the schedules have been omitted.
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computer Motion, Inc.:
After the reincorporation discussed in Note 13 of Computer Motion Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 18, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computer Motion, Inc.:
We have audited the accompanying balance sheets of Computer Motion, Inc. (a
Delaware corporation) as of December 31, 1995 and 1996, and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Computer Motion, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July , 1997
F-2
<PAGE> 62
COMPUTER MOTION, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ---------------------------
-------------------------- PRO FORMA
1995 1996 HISTORICAL (NOTE 2)
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 64,048 $ 432,518 $ 3,986,339 $ 3,986,339
Accounts receivable, net of allowance for doubtful
accounts of $5,000 in 1995, $75,000 in 1996 and
$53,467 in 1997..................................... 350,909 1,151,733 939,102 939,102
Inventories........................................... 728,566 645,311 683,441 683,441
Prepaid expenses...................................... 55,887 88,493 187,479 187,479
----------- ------------ ------------ ------------
1,199,410 2,318,055 5,796,361 5,796,361
----------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures................................ 146,257 185,656 250,985 250,985
Computer equipment.................................... 209,657 400,818 424,015 424,015
Machinery and equipment............................... 863,548 836,671 851,136 851,136
----------- ------------ ------------ ------------
1,219,462 1,423,145 1,526,136 1,526,136
Less: Accumulated depreciation........................ (484,588) (814,378) (904,629) (904,629)
----------- ------------ ------------ ------------
734,874 608,767 621,507 621,507
----------- ------------ ------------ ------------
OTHER ASSETS............................................ 82,665 187,794 255,351 255,351
----------- ------------ ------------ ------------
Total assets................................... $ 2,016,949 $ 3,114,616 $ 6,673,219 $ 6,673,219
=========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 223,860 $ 901,731 $ 526,201 $ 526,201
Accrued expenses...................................... 280,314 761,652 758,328 758,328
Deferred revenue...................................... 32,350 74,219 168,787 168,787
Current portion of capital lease obligations.......... 13,446 60,349 75,464 75,464
Line of credit........................................ -- 185,500 -- --
Current portion of long-term debt..................... 693,200 1,000,000 -- --
Convertible subordinated debt......................... -- -- 3,167,000 --
----------- ------------ ------------ ------------
1,243,170 2,983,451 4,695,780 1,528,780
----------- ------------ ------------ ------------
LONG-TERM LIABILITIES:
Capital lease obligations, net of current portion..... 34,510 75,734 100,477 100,477
Long-term debt, net of current portion................ 500,000 2,808,181 2,871,298 2,871,298
Deferred rent......................................... 70,659 59,381 57,764 57,764
----------- ------------ ------------ ------------
605,169 2,943,296 3,029,539 3,029,539
----------- ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, Series A, B, C, D and E --
Authorized -- 10,467,632 shares
Outstanding -- 1,939,085 shares, 2,020,516 shares and
2,250,288 shares in 1995, 1996 and 1997,
respectively, and none on a pro forma basis......... 8,043,780 9,597,388 11,932,388 --
Common stock --
Authorized -- 25,000,000 shares
Issued and outstanding -- 1,695,173 shares in 1995,
1,734,289 shares in 1996 and 1,744,207 shares in
1997 and 4,526,710 shares on a pro forma basis at
$.001 par value................................... -- 24,468 431,254 4,526
Additional paid-in capital............................ -- -- 522,566 16,048,682
Accumulated deficit................................... (7,875,170) (12,433,987) (13,938,308) (13,938,308)
----------- ------------ ------------ ------------
168,610 (2,812,131) (1,052,100) 2,114,900
----------- ------------ ------------ ------------
Total liabilities and shareholders' equity
(deficit).................................... $ 2,016,949 $ 3,114,616 $ 6,673,219 $ 6,673,219
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 63
COMPUTER MOTION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Products and product
development................ $ 477,316 $ 2,001,375 $ 3,842,195 $ 619,291 $ 1,312,441
Grant......................... 130,000 269,839 214,696 56,751 60,818
----------- ----------- ----------- ----------- -----------
607,316 2,271,214 4,056,891 676,042 1,373,259
COSTS AND EXPENSES:
Cost of revenue -- products
and product development.... 369,999 1,703,348 2,412,582 387,091 590,432
Cost of revenue -- grant...... 130,000 269,839 214,696 56,751 60,818
Research and development...... 630,143 739,093 1,358,970 335,577 558,104
Selling, general and
administrative............. 2,784,450 3,158,298 4,143,544 745,602 1,311,573
----------- ----------- ----------- ----------- -----------
3,914,592 5,870,578 8,129,792 1,525,021 2,520,927
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS............ (3,307,276) (3,599,364) (4,072,901) (848,979) (1,147,668)
INTEREST INCOME................. 74,959 63,714 14,355 2,601 8,183
INTEREST EXPENSE................ (10,953) (15,380) (475,420) (39,585) (357,076)
OTHER EXPENSE................... -- (37,943) (23,651) (3,742) (7,460)
----------- ----------- ----------- ----------- -----------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES.................. (3,243,270) (3,588,973) (4,557,617) (889,705) (1,504,021)
----------- ----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES...... 800 800 1,200 300 300
----------- ----------- ----------- ----------- -----------
NET LOSS........................ $(3,244,070) $(3,589,773) $(4,558,817) $ (890,005) $(1,504,321)
=========== =========== =========== =========== ===========
PRO FORMA NET LOSS PER COMMON
SHARE, giving effect to the
conversion of Series A, B, C,
D and E preferred stock upon
completion of the initial
public offering as if
converted on the first day of
each period................... $ (0.64) $ (0.71) $ (0.88) $ (0.18) $ (0.28)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
used to compute pro forma net
loss per common share......... 5,066,805 5,041,420 5,155,381 5,045,420 5,463,578
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
COMPUTER MOTION, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
SERIES
E
SERIES A SERIES B SERIES C SERIES D PREFERRED
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
------------------ -------------------- -------------------- -------------------- -------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- -------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1993... 422,718 $107,500 586,446 $1,277,652 -- $ -- -- $ -- --
Common stock issued for cash... -- -- -- -- -- -- -- -- --
Preferred stock issued for
cash, net of expenses........ -- -- -- -- 296,920 1,188,150 545,971 4,887,686 --
Preferred stock issued as
repayment of debt............ -- -- -- -- 97,403 400,000 -- -- --
Exercise of stock options...... -- -- -- -- -- -- -- -- --
Common stock issued for
services..................... -- -- -- -- -- -- -- -- --
Accrued mandatory redemption
premium on preferred stock
Series D..................... -- -- -- -- -- -- -- 139,000 --
Net loss....................... -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- ------- ---------- ----
Balance -- December 31, 1994... 422,718 $107,500 586,446 $1,277,652 394,323 $1,588,150 545,971 $5,026,686 --
------- -------- ------- ---------- ------- ---------- ------- ---------- ----
Common stock issued for cash... -- -- -- -- -- -- -- -- --
Exercise of options............ -- -- -- -- -- -- -- -- --
Common stock repurchase from
employees.................... -- -- -- -- -- -- -- -- --
Common stock redeemed for note
payable...................... -- -- -- -- -- -- -- -- --
Preferred stock repurchase..... -- -- -- -- (10,373) (42,600) -- -- --
Accrued mandatory redemption
premium on preferred stock
Series D..................... -- (12,985) -- (139,581) -- (172,042) -- 411,000 --
Net loss....................... -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- ------- ---------- ----
Balance -- December 31, 1995... 422,718 $ 94,515 586,446 $1,138,071 383,950 $1,373,508 545,971 $5,437,686 --
------- --------- ------- ---------- ------- ---------- ------- ---------- ----
<CAPTION>
NET
COMMON STOCK ADDITIONAL SHAREHOLDERS'
--------------------- PAID-IN (ACCUMULATED EQUITY
AMOUNT SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
-------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1993... $ -- 1,642,733 $ 127,398 $ -- $(1,041,327) $ 471,223
Common stock issued for cash... -- 6,743 9,750 -- -- 9,750
Preferred stock issued for
cash, net of expenses........ -- -- -- -- -- 6,075,836
Preferred stock issued as
repayment of debt............ -- -- -- -- -- 400,000
Exercise of stock options...... -- 571 1,551 -- -- 1,551
Common stock issued for
services..................... -- 56,405 81,562 -- -- 81,562
Accrued mandatory redemption
premium on preferred stock
Series D..................... -- -- (139,000) -- -- --
Net loss....................... -- -- -- -- (3,244,070) (3,244,070)
---- --------- --------- ---- ----------- -----------
Balance -- December 31, 1994... $ -- 1,706,452 $ 81,261 $ -- $(4,285,397) $ 3,795,852
---- --------- --------- ---- ----------- -----------
Common stock issued for cash... -- 59,899 273,700 -- -- 273,700
Exercise of options............ -- 7,832 16,567 -- -- 16,567
Common stock repurchase from
employees.................... -- (24,298) (35,136) -- -- (35,136)
Common stock redeemed for note
payable...................... -- (54,712) (250,000) -- -- (250,000)
Preferred stock repurchase..... -- -- -- -- -- (42,600)
Accrued mandatory redemption
premium on preferred stock
Series D..................... -- -- (86,392) -- -- --
Net loss....................... -- -- -- -- (3,589,773) (3,589,773)
---- --------- --------- ---- ----------- -----------
Balance -- December 31, 1995... -- 1,695,173 $ -- $ -- $(7,875,170) $ 168,610
---- --------- --------- ---- ----------- -----------
</TABLE>
F-5
<PAGE> 65
COMPUTER MOTION, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
SERIES
E
SERIES A SERIES B SERIES C SERIES D PREFERRED
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
------------------ -------------------- -------------------- ------------------- -------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- -------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of options............. -- -- -- -- -- -- -- -- --
Common stock warrants issued for
cash.......................... -- -- -- -- -- -- -- -- --
Fair market value of warrants
issued with bridge financing
debt.......................... -- -- -- -- -- -- -- -- --
Common stock issued for
services...................... -- -- -- -- -- -- -- -- --
Common stock issued for
inventory and other asset..... -- -- -- -- -- -- -- -- --
Preferred stock Series E issued
for cash...................... -- -- -- -- -- -- -- -- 81,431
Accrued mandatory redemption
premium on preferred stock
Series D...................... -- 12,985 -- 139,581 -- 172,042 -- 444,000 --
Net loss........................ -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- ------- ---------- -------
Balance -- December 31, 1996.... 422,718 $107,500 586,446 $1,277,652 383,950 $1,545,550 545,971 $5,881,686 81,431
------- -------- ------- ---------- ------- ---------- ------- ---------- -------
Exercise of options
(unaudited)................... -- -- -- -- -- -- -- -- --
Common stock warrants issued for
cash (unaudited).............. -- -- -- -- -- -- -- -- --
Preferred Stock Series E issued
for cash (unaudited).......... -- -- -- -- -- -- -- -- 229,772
Accrued mandatory redemption
premium on preferred stock
Series D (unaudited).......... -- -- -- -- -- -- -- 120,000 --
Interest cost for fixed
conversion of subordinated
convertible debt
(unaudited)................... -- -- -- -- -- -- -- -- --
Net loss (unaudited)............ -- -- -- -- -- -- -- -- --
------- -------- ------- ---------- ------- ---------- ------- ---------- -------
Balance -- March 31, 1997
(unaudited)................... 422,718 $107,500 586,446 $1,277,652 383,950 $1,545,550 545,971 $6,001,686 311,203
======= ======== ======= ========== ======= ========== ======= ========== =======
<CAPTION>
NET
COMMON STOCK ADDITIONAL SHAREHOLDERS'
--------------------- PAID-IN (ACCUMULATED EQUITY
AMOUNT SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
---------- --------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Exercise of options............. -- 13,226 42,240 -- -- 42,240
Common stock warrants issued for
cash.......................... -- -- -- 1,366 -- 1,366
Fair market value of warrants
issued with bridge financing
debt.......................... -- -- -- 631,170 -- 631,170
Common stock issued for
services...................... -- 5,017 22,922 -- -- 22,922
Common stock issued for
inventory and other asset..... -- 20,873 95,378 -- -- 95,378
Preferred stock Series E issued
for cash...................... 785,000 -- -- -- -- 785,000
Accrued mandatory redemption
premium on preferred stock
Series D...................... -- -- (136,072) (632,536) -- --
Net loss........................ -- -- -- -- (4,558,817) (4,558,817)
---------- --------- --------- -------- ------------ -----------
Balance -- December 31, 1996.... $ 785,000 1,734,289 $ 24,468 $ -- $(12,433,987) $(2,812,131)
---------- --------- --------- -------- ------------ -----------
Exercise of options
(unaudited)................... -- 9,918 45,322 -- -- 45,322
Common stock warrants issued for
cash (unaudited).............. -- -- -- 4,030 -- 4,030
Preferred Stock Series E issued
for cash (unaudited).......... 2,215,000 -- -- -- -- 2,215,000
Accrued mandatory redemption
premium on preferred stock
Series D (unaudited).......... -- -- 361,464 (481,464) -- --
Interest cost for fixed
conversion of subordinated
convertible debt
(unaudited)................... -- -- -- 1,000,000 -- 1,000,000
Net loss (unaudited)............ -- -- -- -- (1,504,321) (1,504,321)
---------- --------- --------- -------- ------------ -----------
Balance -- March 31, 1997
(unaudited)................... $3,000,000 1,744,207 $ 431,254 $522,566 $(13,938,308) $(1,052,100)
========== ========= ========= ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
COMPUTER MOTION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $(3,244,070) $(3,589,773) $(4,558,817) $ (890,005) $(1,504,321)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization.... 146,083 330,686 345,858 82,185 91,809
Provision for doubtful
accounts....................... 5,000 -- 70,000 -- (21,533)
(Gain)/loss on sale of fixed
assets......................... 47,482 (1,804) 8,434 (600) --
Common stock issued for
services....................... 81,562 -- 22,922 -- --
Amortization of warrant costs
with long-term debt............ -- -- 189,351 -- 63,117
Amortization of fixed discount on
convertible subordinated
debt........................... -- -- -- -- 167,000
Compensation for stock options
issued below fair market
value.......................... 52,006 24,000 -- -- --
Changes in:
Accounts receivable.............. (168,434) (187,475) (870,824) (59,154) 234,164
Inventories...................... (725,918) (2,648) 148,633 132,733 (38,130)
Prepaid expenses................. (95,435) 82,243 (32,606) (18,151) (98,986)
Other assets..................... (41,679) -- -- -- --
Accounts payable................. 591,884 (420,541) 677,871 79,801 (375,529)
Accrued expenses................. 281 145,434 481,338 14,581 (3,324)
Deferred revenue................. 10,598 21,752 41,869 123,544 94,568
Deferred rent.................... 79,233 (8,574) (11,278) (20,538) (1,617)
----------- ----------- ----------- --------- -----------
Net cash used in operating
activities.......................... (3,261,407) (3,606,700) (3,487,249) (555,604) (1,392,782)
----------- ----------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (710,101) (347,146) (116,330) (27,344) (45,410)
Proceeds from sale of property and
equipment........................ 3,125 2,605 14,350 7,000 --
Net proceeds from (purchases of)
short-term investments........... (2,874,785) 2,874,785 -- -- --
----------- ----------- ----------- --------- -----------
Net cash provided by (used in)
investing activities................ (3,581,761) 2,530,244 (101,980) (20,344) (45,410)
----------- ----------- ----------- --------- -----------
</TABLE>
F-7
<PAGE> 67
COMPUTER MOTION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt............................. $ 400,000 $ 1,011,370 $ 4,155,000 $1,327,000 $ 4,150,000
Repayment of long-term debt......... -- (68,170) (1,098,200) (429,500) (1,150,000)
Proceeds from line of credit........ -- -- 513,532 -- 76,979
Repayment of line of credit......... -- -- (328,032) -- (262,479)
Repayment of capital lease
obligations...................... (9,419) (12,234) (33,165) (3,125) (17,723)
Proceeds from common stock and
warrant issuance................. 11,301 290,267 43,606 -- 49,352
Proceeds from preferred stock
issuance......................... 6,075,836 -- 785,000 -- 2,215,000
Repurchase of preferred stock....... -- (42,600) -- -- --
Repurchase of common stock.......... -- (35,136) -- -- --
Investment in sales-type leases..... -- (14,649) (80,042) (88,153) (69,116)
----------- ----------- ----------- --------- -----------
Net cash provided by financing
activities.......................... 6,477,718 1,128,848 3,957,699 806,222 4,992,013
----------- ----------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (365,450) 52,392 368,470 230,274 3,553,821
CASH AND CASH EQUIVALENTS, beginning
of period........................... 377,106 11,656 64,048 64,048 432,518
----------- ----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 11,656 $ 64,048 $ 432,518 $ 294,322 $ 3,986,339
=========== =========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for --
Income taxes..................... $ 800 $ 800 $ 1,700 $ -- $ --
Interest......................... $ 10,953 $ 15,380 $ 270,958 $ 32,532 $ 71,017
SCHEDULE OF NON-CASH TRANSACTIONS:
Capital lease obligations incurred
for certain equipment............ $ 64,781 $ 1,995 $ 121,292 $ 10,443 $ 57,581
Accretion of dividend on Series D
preferred stock.................. $ 139,000 $ 411,000 $ 444,000 $ 111,000 $ 120,000
Common stock redeemed for note
payable.......................... $ -- $ 250,000 $ -- $ -- $ --
Common stock issued for inventory... $ -- $ -- $ 65,378 $ -- $ --
Common stock issued for other
asset............................ $ -- $ -- $ 30,000 $ -- $ --
Additional Paid-In Capital for
issuance of warrants with debt... $ -- $ -- $ 631,170 $ 350,542 $ --
Debt exchanged for 97,403 shares of
Series C preferred stock......... $ 400,000 $ -- $ -- $ -- $ --
Additional Paid-In Capital for
conversion of convertible
subordinated debt................ $ -- $ -- $ -- $ -- $ 1,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 68
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. LINE OF BUSINESS AND RISKS
Computer Motion, Inc. (the "Company"), a Delaware corporation, develops and
markets proprietary robotic and computerized surgical systems that enhance a
surgeon's performance and centralize and simplify a surgeon's control of the
operating room. The Company has developed AESOP, the first surgical robotics
assistant used in minimally invasive surgery. AESOP became commercially
available in October 1994. The Company's primary efforts are now directed to the
development of the market for AESOP, rollout of the Company's next generation
medical robot, continued development of new medical robots which will enable
high-volume, low cost minimally invasive procedures and commercializing
intuitive interface modalities which will enhance the surgical team's overall
productivity. The Company's objective is to become the leading provider of
robotic and computerized surgical systems. Like other companies at this stage of
development, it is subject to numerous risks including the uncertainty of its
chosen markets, its ability to obtain regulatory approvals and to develop its
markets, uncertainty of acceptance of its products, its ability to finance its
operations, limited operating history, the absence of profitability,
competition, and other risks.
Through December 31, 1996, the Company raised approximately $9.3 million
from private placements of preferred and common stock and approximately $4.0
million of bridge financing debt obtained primarily from officers and
shareholders of the Company (see Notes 6 and 8).
The Company expects to raise additional funds to meet its 1997 cash needs.
Subsequent to December 31, 1996, the Company has raised $2,215,000 from private
placement of preferred stock, $4,000,000 from the issuance of convertible debt,
and borrowed $150,000 from a director (see Note 14). The Company also plans to
raise additional funds through an initial public offering of its common stock.
2. METHODS OF ACCOUNTING
a. Revenue Recognition
The Company's revenue has been derived primarily from the manufacture and
sale of AESOP systems. In addition, the Company also leases its systems under
sales-type leases. Supplies for all AESOP systems are also available for sale.
Revenues from sales-type leases are recognized when the systems are
installed, the customer accepts the system, and the lease term becomes
noncancellable. Outright systems and supplies sales are recognized upon
shipment. Unearned finance income on sales-type leases is recognized using the
interest method. Collections may be accelerated if the lease contracts are sold
to third parties, generally without recourse. Revenues from service contracts
are recognized on a straight-line basis over the life of the maintenance or
support services agreement, generally 48 months.
The Company has entered into agreements with several health care
institutions to jointly research, develop and test the Company's next generation
medical robot. The Company has recognized $645,000 of revenues in 1996 for
prototype robots delivered under these contracts. The contracts also provide
quarterly development revenues to the Company for support services which totaled
approximately $100,000 in 1996. These contracts are terminable at will by the
parties involved or will terminate upon achieving commercial production of the
robot which is planned for the second quarter of 1999. Management expects
development revenue under these agreements to approximate $100,000 per quarter
in 1997.
Grant income is recognized by the percentage-of-completion method, measured
by the percentage of cost incurred to date to estimated total cost for each
grant. This method is used because management considers total cost to be the
best available measure of the grants. The grants' proceeds are generally a
reimbursement of the related costs incurred.
F-9
<PAGE> 69
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
b. Inventories
Inventories are stated at the lower of cost or market and consist of
finished AESOP systems and component parts as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Component parts................................................ $522,805 $553,157
Finished systems............................................... 205,761 92,154
-------- --------
$728,566 $645,311
======== ========
</TABLE>
c. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on the temporary difference between the financial statement and income tax bases
of assets and liabilities using the enacted marginal tax rate in effect for the
year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
d. Loss Per Common Share
Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the related
periods. For purposes of computing loss per share, all shares of outstanding
preferred stock are assumed converted into common stock. For all periods
presented, per share information was computed pursuant to the rules of the
Securities and Exchange Commission, which require that the dilutive effect of
common shares issued by the Company during the 12 months immediately preceding
the Company's initial public offering plus the number of common shares issuable
pursuant to the issue of warrants or the grant of options during the same
period, be included in the calculation of the shares outstanding from the
beginning of all periods presented.
A summary of the shares used to compute loss per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDING
YEAR ENDING DECEMBER 31, MARCH 31,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding.................... 1,706,184 1,691,173 1,706,319 1,695,173 1,744,081
Dilutive effect of common stock
equivalents.................... -- -- -- -- --
Conversion of preferred stock.... 2,036,015 2,025,641 2,127,430 2,025,641 2,414,645
Additional dilutive effect of
shares, options and warrants
issued within 12 months of
initial public offering........ 956,749 956,749 953,775 956,749 936,995
Conversion of subordinated
debt........................... 367,857 367,857 367,857 367,857 367,857
--------- --------- --------- --------- ---------
Shares used to computed pro forma
loss per share................. 5,066,805 5,041,420 5,155,381 5,045,420 5,463,578
========= ========= ========= ========= =========
</TABLE>
e. Patents
Patents, which are included in other assets, consist primarily of legal
fees and are stated at cost. Patent cost is amortized on a straight-line basis
over 17 years.
F-10
<PAGE> 70
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
g. New Authoritative Pronouncements
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" and SFAS
No. 129, "Disclosure of Information about Capital Structure." SFAS No. 128
revises and simplifies the computation for earnings per share and requires
certain additional disclosures. SFAS No. 129 requires additional disclosures
regarding the Company's capital structure. Both standards will be adopted in the
fourth quarter of fiscal 1997. Management does not expect the adoption of these
standards to have a material effect on the Company's financial position or
results of operations.
h. Unaudited Pro Forma Balance Sheet Presentation
The unaudited pro forma balance sheet is presented to show the effects on
the unaudited March 31, 1997 balance sheet of the conversion of all outstanding
shares of preferred stock into 2,414,646 shares of common stock (see Note 6) and
the conversion of the $3,167,000 of convertible debt, net of value assigned to
related warrants, into 367,857 shares of common stock (see Note 14) as if the
conversion took place on March 31, 1997.
3. SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line and double-declining balance methods over the following
estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures............................................ 7 years
Computer equipment................................................ 5 years
Machinery and equipment........................................... 3-7 years
</TABLE>
Depreciation expense related to property and equipment was approximately
$142,000, $326,000 and $341,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
5. STOCK OPTION PLANS AND STOCK PURCHASE PLAN
The Company has stock option plans (the "Plans") for which it is authorized
to issue up to 2,593,361 shares of common stock. Under the Plans, options are
generally issued to employees at an exercise price equal to fair market value,
as determined by the Board of Directors. The options generally vest at five
percent per quarter.
The Company has also established the Employee Stock Purchase Plan (the
"ESPP") to provide employees the opportunity to purchase shares of the Company's
common stock up to a maximum of 10% of annual compensation. The Company has
reserved 129,668 shares of common stock for purchase under the ESPP. As of June
16, 1997, no shares have been issued under the ESPP.
F-11
<PAGE> 71
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of activity under the Plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
COMMON EXERCISE PRICE OPTION PRICE
SHARES PER SHARE PER SHARE
--------- ---------------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1993.......... 228,477 $ 1.10 $ .02 to 1.45
Granted.............................. 338,926 $ 2.20 $1.45 to 4.57
Exercised............................ (571) $ 2.72 $ .02 to 2.72
Canceled............................. (90,977) $ 1.75 $ .02 to 4.57
--------- ------ -------------
Outstanding at December 31, 1994.......... 475,855 $ 1.75 $ .02 to 4.57
Granted.............................. 331,172 $ 4.49 $1.45 to 4.57
Exercised............................ (7,832) $ 2.12 $1.45 to 3.66
Canceled............................. (175,311) $ 3.51 $ .02 to 4.57
--------- ------ -------------
Outstanding at December 31, 1995.......... 623,884 $ 2.72 $ .02 to 4.57
Granted.............................. 961,859 $ 4.57 $ 4.57
Exercised............................ (13,226) $ 3.20 $1.45 to 4.57
Canceled............................. (230,757) $ 2.95 $1.45 to 4.57
--------- ------ -------------
Outstanding at December 31, 1996.......... 1,341,760 $ 4.01 $ .02 to 4.57
========= ====== =============
</TABLE>
As of December 31, 1994, 1995 and 1996, options for 148,522, 244,310 and
334,401 shares, respectively, were exercisable.
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net loss would have
been increased as follows:
<TABLE>
<CAPTION>
NET LOSS
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
As reported............................................... $(3,589,773) $(4,558,817)
Pro forma................................................. $(3,630,947) $(4,798,099)
</TABLE>
For the above disclosure, the fair value of each option grant is estimated
on the date of grant using an option pricing model with the following weighted
average assumptions used in 1995 and 1996: risk-free interest rates of
approximately 6.0% to 7.5%; expected life of seven years; no expected dividend
yield; no expected volatility.
The option pricing model was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
6. STOCK TRANSACTIONS
a. Preferred Stock
As of December 31, 1996, the Series A, B, C and E preferred shares carry
rights, preferences, privileges and restrictions as follows:
- Dividend preference over common stock is non-cumulative at a rate of
$.073 per share per annum if declared, except in the case of non-cash
dividends at which point a proportionate share will be paid as if the
number of preferred shares were common shares. This preference is
subordinate to Series D.
- Preferred shares are voting shares equivalent to common shares, and
are convertible to common shares on a one-for-one basis. Subsequent to
December 31, 1996, the Company did not complete
F-12
<PAGE> 72
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
minimum equity financing detailed in the Series E offering, at which time
all Series E became convertible to common at a rate of 2.41 common shares
per Series E share.
- Liquidation preference over common stock is at a rate of $.19 per
share for Series A, $2.18 for Series B, $4.11 for Series C and $9.64 for
Series E, plus an amount equal to all declared but unpaid dividends per
share. This preference is subordinate to Series D.
During 1994, the Company converted a note payable, due an officer and
shareholder, in the amount of $400,000 into 97,403 Series C preferred
shares at the then estimated fair market value of $4.11 per share.
As of December 31, 1996, the Series D preferred shares carry rights,
preferences, privileges and restrictions as follows:
- Dividend preference is cumulative on a daily basis from the date of
original issue at a rate of 8 percent per annum of the sum of $9.16 per
share plus all accumulated and unpaid dividends from prior years, as
applicable. This dividend is being accreted in the accompanying financial
statements.
- Upon the conversion of Series D stock to common shares, all
dividends accumulated or accrued shall be canceled.
- Preferred Series D shares are voting shares equivalent to common
shares, and are convertible at the option of the holder to common shares on
a one-to-one basis subject to certain anti-dilutive provisions.
- Liquidation preference is at a rate of $9.16 per share plus an
amount equal to all accumulated or accrued dividends.
The Company may not redeem, purchase or otherwise acquire directly or
indirectly any Series A, B, C or E preferred stock nor shall the Company pay or
declare any dividends or make distributions on Series A, B, C or E preferred
stock without prior approval of the Series D preferred shareholder.
The Series D preferred stock purchase agreement contains certain covenants
and restrictions. As of December 31, 1996 and 1995, the Company had borrowed
funds in excess of $500,000, which exceeds one of the restrictions set forth in
the Series D preferred stock purchase agreement. The holder of the Series D
preferred shares has provided the Company with a consent and waiver of its
rights as they apply in the purchase agreement in regards to these borrowings.
All shares of preferred stock will convert into common stock (2,414,646
shares of common stock) in the event of an initial public offering with net
proceeds in excess of $15,000,000.
b. Common Stock Warrants
As of December 31, 1996, the Company had the following outstanding warrants
to purchase common stock:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE EXPIRATION
- ---------- -------- -------------------------------
<C> <C> <S>
1,064,645 $ 4.57 November 2002 through May 2003
155,602 $ 4.57 September 2003
81,432 $ 9.64 December 2003
</TABLE>
Subsequent to December 31, 1996, the Company adjusted the price per warrant
from $9.64 to $7.71 pursuant to the terms of the agreements relating to the
Series E offering.
F-13
<PAGE> 73
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 consisted of minimum state income taxes.
Net deferred income tax assets at December 31, 1995 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Allowance for doubtful accounts........................... $ 2,007 $ 30,104
Accrued liabilities....................................... 55,865 197,546
Deferred rent............................................. 28,361 23,834
Depreciation and amortization............................. 527 16,055
Uniform capitalization costs.............................. 80,276 80,276
Net operating loss carryforwards.......................... 2,570,000 4,039,000
Tax credits............................................... 180,000 219,000
Other..................................................... 45,294 11,048
----------- -----------
Total deferred income taxes.......................... 2,962,330 4,616,863
Valuation reserve......................................... (2,962,330) (4,616,863)
----------- -----------
Net deferred income tax assets....................... $ -- $ --
=========== ===========
</TABLE>
The provision for income taxes reconciles to the amount computed by
applying the federal statutory rate to loss before provision for income taxes as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected federal benefit............... $(1,102,712) $(1,220,251) $(1,549,590)
State income taxes, net of federal income tax
effect........................................ 800 800 1,200
Tax benefits not recognized..................... 1,102,712 1,220,251 1,549,590
----------- ----------- -----------
$ 800 $ 800 $ 1,200
=========== =========== ===========
</TABLE>
The Company had federal and state net operating loss (NOL) carryforwards of
approximately $11,000,000 and $4,900,000, respectively, as of December 31, 1996.
The Company also had research and development tax credit carryforwards of
approximately $219,000 at December 31, 1996. The federal tax credit and NOL
carryforwards expire after 15 years from the year of loss and are restricted if
significant changes in ownership occur. The California NOL carryforwards expire
in 5 to 7 years from the year of loss.
Realization of deferred tax assets is dependent on generating sufficient
taxable income during the periods in which the temporary differences will
reverse. The amount of the deferred tax assets considered realizable could be
adjusted if estimates of future taxable income during the reversal periods are
revised.
F-14
<PAGE> 74
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. DEBT
The following is a summary of long-term debt as of December 31, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Bridge financing debt, from officers and shareholders,
bearing interest at prime rate plus 1% (9.25% at December
31, 1996), interest payable monthly, principal due at
various maturities between July 1998 and November 1998,
net of value assigned to related warrants................ $ 500,000 $ 2,808,181
Note payable to corporation, bearing interest at 10%,
principal and interest due January 1997, collateralized
by certain tangible and intangible assets................ -- 1,000,000
Note payable to vendor, bearing interest at bank's prime
rate, principal and interest due monthly through May
1996..................................................... 477,365 --
Other...................................................... 215,835 --
---------- -----------
1,193,200 3,808,181
Less-current portion....................................... (693,200) (1,000,000)
---------- -----------
$ 500,000 $ 2,808,181
========== ===========
</TABLE>
The Company's debt obligations mature as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.............................................................. $1,000,000
1998.............................................................. 2,808,181
----------
$3,808,181
==========
</TABLE>
The bridge financing debt from officers and shareholders, with original
face maturities totaling $3,655,000 as of December 31, 1996, included the
granting of 1,064,645 warrants to purchase shares of the Company's common stock.
Under SFAS No. 123, the fair market value of these warrants at the date of grant
totaling $631,170 was recorded as additional paid-in capital and an offset to
long-term debt representing financing cost. During fiscal 1996, $189,351 of this
financing cost was amortized to interest expense. During fiscal 1997 and 1998,
$252,468 and $189,351, respectively, will be amortized to interest expense.
At December 31, 1996, the Company had drawn $185,500 against a $250,000
line of credit maintained with a bank. The line bears interest at prime rate
plus 1.5% (9.75% at December 31, 1996), with interest due monthly and
outstanding principal due at maturity in June 1997. The line is collateralized
by certain inventory and equipment and contains financial and non-financial
covenants. The maximum borrowing in 1996 under this line was approximately
$226,000, the average borrowing was approximately $103,000, and the weighted
average interest rate was 9.75%.
F-15
<PAGE> 75
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
a. Leases
As of December 31, 1996, the Company has the following minimum lease
payments for certain equipment and facilities under capital and operating
leases:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ----------
<S> <C> <C>
Year Ended December 31:
1997.................................................. $ 79,955 $ 309,000
1998.................................................. 69,193 322,000
1999.................................................. 25,934 329,000
2000.................................................. -- 337,000
2001.................................................. -- 316,000
-------- ----------
175,082 $1,613,000
==========
Less -- amount representing interest......................... (38,999)
--------
Present value of minimum capital lease payments.............. 136,083
Less -- current portion...................................... (60,349)
--------
$ 75,734
========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $136,000, $211,000 and $214,000, respectively.
b. Legal Matters
The Company is party to various legal proceedings in the normal course of
business. In the opinion of management, the outcome of such proceedings will not
have a material adverse impact on the Company's financial position or results of
operations.
10. FINANCING ARRANGEMENTS
During 1994, the Company entered into an agreement with a third party
finance company, whereby the Company sells its sales-type leases with and
without recourse. The Company recognized approximately $140,000, $797,000 and
$494,000 in revenues from sales-type leases sold for the years ended December
31, 1994, 1995 and 1996, respectively. As of December 31, 1995 and 1996,
approximately $34,000 and $193,000, respectively, had not been collected on
leases sold with recourse for which the Company is contingently liable.
11. PROFIT SHARING PLAN
Effective January 1, 1996, the Company adopted a defined contribution
profit sharing plan (the "Plan"). All employees are eligible to participate in
the Plan after meeting certain minimum age and service requirements. Employees
may make discretionary contributions to the Plan subject to Internal Revenue
Service limitations. Employer contributions to the Plan are discretionary and
are determined by the Board of Directors annually. No employer contribution was
made during 1996. Plan participants are fully vested in all contributions to the
Plan.
12. MAJOR CUSTOMERS AND VENDORS
As of December 31, 1996, one customer accounted for approximately 20% of
total accounts receivable. The Company's AESOP robot has three significant
components which are manufactured on an outsource basis. Three vendors act as
sole source providers of these components with each manufacturing a separate
component.
Sales to foreign countries represented 9%, 21% and 49% of the Company's
product revenues in 1994, 1995, and 1996, respectively. Foreign sales were
primarily to Europe, Japan, and Korea.
F-16
<PAGE> 76
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. REINCORPORATION
The Company reincorporated in Delaware and effected a reverse stock split
of its existing common and preferred stock of 1 for 1.928 shares in July 1997.
This reincorporation and reverse stock split have been retroactively reflected
in the accompanying financial statements.
14. UNAUDITED INFORMATION
a. Basis of Presentation
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These unaudited financial statements reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations, changes in
cash flows and financial position as of and for the periods presented. The
unaudited financial statements should be read in conjunction with the audited
financial statements and related notes thereto. The results for the interim
periods presented are not necessarily indicative of results to be expected for
the full year.
b. Inventories
Inventories are stated at the lower of cost or market and consist of
finished AESOP systems and component parts as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
Component parts.......................................... $ 533,751
Finished systems......................................... 149,690
--------
$ 683,441
=========
</TABLE>
c. Income Taxes
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the loss before provision for income
taxes as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
Expected federal tax benefit............................. $ (511,367)
State income taxes, net of federal income tax effect..... 300
Tax benefit not recognized............................... 511,367
----------
$ 300
==========
</TABLE>
d. Major Customers and Vendors
As of March 31, 1997, three customers accounted for approximately 44% of
total accounts receivable, with each individually exceeding 10% of total
accounts receivable. The Company also replaced one of its three inventory
component manufacturers, with the new manufacturer acting as the sole source
provider of the same component.
F-17
<PAGE> 77
COMPUTER MOTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
e. Placement of Debt
In March 1997, the Company borrowed $4,000,000 from a corporation, bearing
interest at bank's prime rate plus 1% (9.5% at March 31, 1997), principal and
interest due December 31, 1997, secured by certain intangible assets.
Outstanding principal and interest are convertible to common stock at a fixed
discount of 80% of initial offering price per share upon an initial public
offering by the Company. For the three month period ending March 31, 1997,
approximately $167,000 of interest expense related to the fixed discount
conversion has been recognized in the accompanying statements of operations, and
an additional $833,000 of deferred interest expense has been netted against
principal in the accompanying balance sheets.
Effective May 1997, the lender converted its note and all accrued interest
thereon into 367,857 shares of the Company's Common Stock. If the Company
completes an initial public offering with an initial offering price of less than
$11.20 per share, the lender will receive additional shares without additional
consideration so that the aggregate number of shares upon conversion equals the
number of shares the lender would have received had it converted at a price
equal to the actual initial offering price per share.
An additional $150,000 was raised in the form of a short term, unsecured
note from a director and was repaid in the first quarter of 1997.
f. Preferred Stock
The Company secured an additional $2,215,000 from private placements of
preferred stock, closing out its Series E offering.
15. STOCK OPTIONS
During the period from January 1, 1997 through June 16, 1997 the Company
issued 323,029 additional stock options. A summary of the options granted is as
follows:
<TABLE>
<CAPTION>
ESTIMATED FAIR
MARKET VALUE
OF COMMON STOCK
NUMBER OF EXERCISE AT DATE OF AGGREGATE
OPTIONS PRICE GRANT COMPENSATION
- --------- -------- --------------- ------------
<S> <C> <C> <C>
54,927 $ 4.57 $ 4.57 $ --
260,477 $ 4.57 $ 11.20 $1,726,963
7,625 $ 9.93 $ 11.20 $ 9,684
</TABLE>
Certain options were granted at prices less than the estimated fair market
value of the common stock. The difference between the exercise price and
estimated fair market value at date of grant (aggregate compensation) will be
recognized as compensation expense over the vesting period of the options,
generally five years.
In June 1997, 5,187 shares of restricted common stock were granted to an
officer and vest over a 5 year period. Compensation expense of approximately
$58,000 will be recognized over the next 5 years as the restrictions lapse. In
addition, the same officer purchased 32,417 shares of common stock for $4.57 per
share and was issued warrants to purchase 32,417 shares at $4.57 per share. The
difference between the exercise price of 4.57 per share and the estimated fair
market value at date of grant will be a charge to operations of approximately
$430,000 in June 1997.
F-18
<PAGE> 78
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates, or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 26
Management............................ 42
Certain Transactions.................. 49
Principal Stockholders................ 51
Description of Capital Stock.......... 52
Shares Eligible For Future Sale....... 54
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 58
Index to Financial Statements......... F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
, 1997
======================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE COMPANY
-------------
<S> <C>
SEC registration fee............................................ $ 13,069
NASD filing fee................................................. 4,813
Nasdaq National Market application fee.......................... 8,133
Printing expenses............................................... 120,000
Legal fees and expenses......................................... 225,000
Accounting fees and expenses.................................... 100,000
Blue sky fees................................................... 5,000
Transfer agent and registrar fees............................... 2,000
Director and Officer liability insurance........................ 65,000
Miscellaneous................................................... 56,985
---------
Total................................................. $ 600,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Second
Amended and Restated Certificate of Incorporation of the Company (Exhibit 3.1
hereto) eliminates the liability of directors to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a directors, except to the
extent otherwise required by the Delaware General Corporation Law.
(b) The Second Amended and Restated Certificate of Incorporation provides
that the Company will indemnify each person who was or is made a party to any
proceeding by reason of the fact that such person is or was a director or
officer of the Company against all expense, liability and loss reasonably
incurred or suffered by such person in connection therewith to the fullest
extent authorized by the Delaware General Corporation Law. The Company's Bylaws
(Exhibit 3.2 hereto) provide for a similar indemnity to directors and officers
of the Company to the fullest extent authorized by the Delaware General
Corporation Law.
(c) The Amended and Restated Certificate of Incorporation also gives the
Company the ability to enter into indemnification agreements with each of its
directors and officers. The Company has entered into indemnification agreements
with each of its directors and officers (Exhibit 10.18 hereto), which provide
for the indemnification of directors an officers of the Company against any an
all expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act:
(1) From time to time during the three years preceding the date
hereof, the Registrant issued incentive stock options, nonqualified stock
options and rights to purchase Common Stock pursuant to the Registrant's
Tandem Plan to officers, directors and employees of the Registrant.
Exemption from the registration provisions of the Securities Act is
claimed, with respect to the grant of options referred to above, on the
basis that the grant of options did not involve a "sale" of securities and,
therefore, registration thereof was not required. During the period
referred to above, 55,861 options and rights to
II-1
<PAGE> 80
purchase granted pursuant to the Tandem Plan were exercised for an
aggregate exercise price of $1.31. The issuance of Common Stock upon the
exercise of such options securities is exempt by reason of Section 4(2) of
the Securities Act and Rule 701 thereunder.
(2) During the three years preceding the date hereof, the Registrant
issued approximately 82,295 shares of its Common Stock from time to time to
eight providers of goods or services to the Company, all of whom were
accredited investors at the time of such issuances.
(3) In August 1994, the Registrant issued 545,971 shares of its Series
D Preferred Stock to Chase Manhattan Capital Corporation for an aggregate
purchase price of $5,000,002.
(4) Beginning in November 1995 and continuing through May, 1996, the
Registrant issued certain 30-month promissory notes in aggregate principal
amount of $3,250,000 (the "Bridge Notes") together with warrants to
purchase Common Stock pursuant to Bridge Financing Agreements to a total of
21 investors, including certain officers and directors of the Company. The
warrants to purchase Common Stock have an exercise price of $4.57 per
share. Subsequently holders of $1,840,000 in principal amount of Bridge
Notes, including certain officers and directors of the Company, agreed to
waive current payment of interest in exchange for prepayment of the
principal and accrued interest thereon within 30 days following the
consummation of this offering.
(5) Beginning in September, 1996 and continuing through March, 1997,
the Registrant issued a total of 311,203 shares of its Series E Preferred
Stock together with warrants to purchase common stock to approximately
fifty investors. Subsequently, pursuant to the certificate of
determinations governing such series, the number of shares of Common Stock
into which the Series E Preferred Stock is convertible was increased to
389,004 by an adjustment to the conversion ratio. The warrants to purchase
common stock have undergone a similar adjustment and are now exercisable
for 389,004 shares of Common Stock at an exercise price of $7.71 per share.
The aggregate consideration for the Series E Preferred Stock totaled
$3,000,000 and the consideration for the warrants totaled $6,000.
(6) In March 1997, Medtronic, Inc. ("Medtronic"), invested $4,000,000
in the Company in the form of a convertible loan bearing interest at a rate
equal to prime, as announced by Norwest Bank of Minnesota N.A., plus 1%.
Such loan was converted into 367,857 shares of Common Stock, based on an
assumed initial public offering price of $14.00 per share. In the event the
actual initial public offering price is less than $11.20 per share,
Medtronic shall be entitled to receive additional shares of Common Stock,
without additional consideration, so that the aggregate number of shares of
Common Stock issued to Medtronic in connection with the conversion of such
loan equals the number of shares of Common Stock Medtronic would have
received had it converted such loan at a conversion price equal to the
actual initial public offering price per share.
(7) In June 1997, Stephen L. Wilson purchased 32,417 shares of Common
Stock for $4.57 per share.
Except as set forth in item (1) above, exemption from the registration
requirement of the Act for the transactions described above is claimed
under Section 4(2) of the Act, among others, on the basis that such
transactions did not involve any public offering and the purchasers were
sophisticated with access to the kind of information registration would
provide. No underwriting fees or broker's commissions were paid in
connection with the foregoing transactions.
On or prior to the completion of this offering the Company will
reincorporate in Delaware. To affect the reincorporation, Computer Motion, Inc.,
a California corporation ("CMI California") will be merged with and into its
wholly-owned subsidiary, the Company. In connection with the merger, the Company
will issue an aggregate of 4,618,468 shares of Common Stock and Preferred Stock
to the holders of Common Stock and Preferred Stock of CMI California, such that
holders of Common Stock and Preferred Stock of CMI California received an
equivalent number of shares of CMI Delaware Common Stock and Preferred Stock.
This issuance of securities was not registered under the Securities Act by
reason of the exemption from registration provided by Section 3(a)(9) thereof.
II-2
<PAGE> 81
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between the Company and Computer Motion, Inc., a
California Corporation dated , 1997.
3.1 Second Amended and Restated Certificate of Incorporation, as shall be in effect
upon the completion of this offering.*
3.2 Bylaws of the Company, as currently in effect.
4.1 Specimen Certificate of Common Stock.*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.*
10.1 Computer Motion, Inc. Tandem Stock Option Plan ("Tandem Plan").
10.2 Forms of Stock Option Agreements pertaining to the Tandem Plan.
10.3 Computer Motion, Inc. 1997 Stock Incentive Plan ("Stock Incentive Plan").
10.4 Form of Stock Option Agreement pertaining to the Stock Incentive Plan.
10.5 Computer Motion, Inc. Employee Stock Purchase Plan.
10.6 Development And Supply Agreement between the Stryker Endoscopy Division of
Stryker Corporation and the Company dated August 21, 1996.**
10.7 Series D Convertible Preferred Stock and Warrant Purchase Agreement dated as of
August 24, 1994 between Chase Manhattan Capital Corporation and the Company.
10.8 Registration Agreement between the Company and certain shareholders thereof, as
amended to date.
10.9 Stockholders Agreement dated August 24, 1994 between Chase Manhattan Capital
Corporation, the Company and the Executives designated therein.
10.10 Sales Agreement between the Company and Medtronic, Inc. dated May 28, 1997.**
10.11 Secured Convertible Debenture of the Company to Medtronic, Inc. dated March 19,
1997.
10.12 Forms of Bridge Financing Agreements.
10.13 Form of Warrant to Purchase Common Stock issued to the Bridge Financing
Agreements.
10.14 Purchaser Representation and Subscription Agreement relating to the Company's
Series E Preferred Stock and Warrant to Purchase Common Stock issuance.
10.15 Form of Redeemable Warrant to Purchase Common Stock of the Company issued in
conjunction with the Company's Series E Preferred Stock.
10.16 Business Agreement between the Company and Bulova Technologies, L.L.C. dated
February 18, 1997.**
10.17 Lease between the Company and University Business Center Associates dated March
1, 1994 and amendment thereto dated October, 1996.
10.18 Form of Indemnification Agreement for Officers and Directors of the Company.
10.19 Agreement relating to the Company's employment of Stephen L. Wilson.*
21.1 Subsidiaries of the Company.
23.1 Consent of Stradling, Yocca, Carlson & Rauth (see Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
II-3
<PAGE> 82
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Goleta, State of
California, on the 16th day of June, 1997.
Computer Motion, Inc.
By: /s/ GENE WANG
------------------------------------
Gene Wang
Chief Executive Officer and
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Computer Motion, Inc. do
hereby constitute and appoint Gene Wang and Stephen L. Wilson, or either of
them, our true and lawful attorneys and agents, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) hereto or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended; and we do hereby
ratify and confirm all that the said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ GENE WANG Chief Executive Officer, June 16, 1997
- ------------------------------------- President and Director
Gene Wang (Principal Executive Officer)
/s/ STEPHEN L. WILSON Executive Vice President, Chief June 16, 1997
- ------------------------------------- Financial Officer and Secretary
Stephen L. Wilson (Principal Financial and
Principal Accounting Officer)
/s/ ROBERT W. DUGGAN Chairman of the Board of Directors June 16, 1997
- -------------------------------------
Robert W. Duggan
/s/ YULUN WANG, PH.D. Executive Vice President, Chief June 16, 1997
- ------------------------------------- Technical Officer and Director
Yulun Wang, Ph.D.
/s/ STEPHEN F. WIGGINS Director June 16, 1997
- -------------------------------------
Stephen F. Wiggins
/s/ DANIEL R. DOIRON, PH.D. Director June 16, 1997
- -------------------------------------
Daniel R. Doiron, Ph.D.
/s/ W. PETER GEIS, M.D. Director June 16, 1997
- -------------------------------------
W. Peter Geis, M.D.
/s/ WILLIAM D. WILLIAMS Director June 16, 1997
- -------------------------------------
William D. Williams
</TABLE>
II-5
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between the Company and Computer Motion, Inc., a
California Corporation dated , 1997.
3.1 Second Amended and Restated Certificate of Incorporation, as shall be in effect
upon the completion of this offering.*
3.2 Bylaws of the Company, as currently in effect.
4.1 Specimen Certificate of Common Stock.*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.*
10.1 Computer Motion, Inc. Tandem Stock Option Plan ("Tandem Plan").
10.2 Forms of Stock Option Agreements pertaining to the Tandem Plan.
10.3 Computer Motion, Inc. 1997 Stock Incentive Plan ("Stock Incentive Plan").
10.4 Form of Stock Option Agreement pertaining to the Stock Incentive Plan.
10.5 Computer Motion, Inc. Employee Stock Purchase Plan.
10.6 Development And Supply Agreement between the Stryker Endoscopy Division of
Stryker Corporation and the Company dated August 21, 1996.**
10.7 Series D Convertible Preferred Stock and Warrant Purchase Agreement dated as of
August 24, 1994 between Chase Manhattan Capital Corporation and the Company.
10.8 Registration Agreement between the Company and certain shareholders thereof, as
amended to date.
10.9 Stockholders Agreement dated August 24, 1994 between Chase Manhattan Capital
Corporation, the Company and the Executives designated therein.
10.10 Sales Agreement between the Company and Medtronic, Inc. dated May 28, 1997.**
10.11 Secured Convertible Debenture of the Company to Medtronic, Inc. dated March 19,
1997.
10.12 Forms of Bridge Financing Agreements.
10.13 Form of Warrant to Purchase Common Stock issued to the Bridge Financing
Agreements.
10.14 Purchaser Representation and Subscription Agreement relating to the Company's
Series E Preferred Stock and Warrant to Purchase Common Stock issuance.
10.15 Form of Redeemable Warrant to Purchase Common Stock of the Company issued in
conjunction with the Company's Series E Preferred Stock.
10.16 Business Agreement between the Company and Bulova Technologies, L.L.C. dated
February 18, 1997.**
10.17 Lease between the Company and University Business Center Associates dated March
1, 1994 and amendment thereto dated October, 1996.
10.18 Form of Indemnification Agreement for Officers and Directors of the Company.
10.19 Agreement relating to the Company's employment of Stephen L. Wilson.*
21.1 Subsidiaries of the Company.
23.1 Consent of Stradling, Yocca, Carlson & Rauth (see Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
<PAGE> 1
EXHIBIT 1.1
MONTGOMERY SECURITIES
FORM UNDERWRITING AGREEMENT
[Draft of May 7, 1997]
_______________ SHARES
COMPUTER MOTION, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED [___]
<PAGE> 2
UNDERWRITING AGREEMENT
______________, 1997
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Computer Motion, Inc., a [Delaware] corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Common
Shares") of its Common Stock, par value $[0.001] per share (the "Common Stock").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional [___] shares (the "Optional Common Shares") of Common Stock,
as provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". Montgomery Securities and Piper Jaffray Inc. have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of Montgomery
<PAGE> 3
Securities, elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___] (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"), together with the applicable term sheet (the
"Term Sheet") prepared and filed by the Company with the Commission under Rules
434 and 424(b) under the Securities Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreement with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to
-2-
<PAGE> 4
be described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Representatives two complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, except for such rights as have
been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "Material Adverse Change"); (ii) the
Company has not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made
-3-
<PAGE> 5
by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(h) Independent Accountants. Arthur Andersen, LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position of
the Company and its subsidiaries as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Selected Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement. The Company's ratios of
earnings to fixed charges and preferred stock dividends set forth in the
Prospectus under the captions "Prospectus Summary--Summary Selected Financial
Data", "Selected Financial Data" and in Exhibit 12 to the Registration Statement
have been calculated in compliance with Item 503(d) of Regulation S-K under the
Securities Act.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation and has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement. The Company is duly
qualified as a foreign corporation to transact business and is in good standing
in [the State of California and] each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions [(other than
the State of California)] where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change. The Company has no subsidiaries.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans
-4-
<PAGE> 6
described in the Prospectus or upon exercise of outstanding options or warrants
described in the Prospectus). The Common Stock (including the Common Shares)
conforms in all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable and have
been issued in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to official
notice of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation of its
charter or by-laws or in default (or, with the giving of notice or lapse of
time, would be in default) ("Default") under any indenture, mortgage, loan or
credit agreement, note, contract, franchise, lease or other instrument to which
the Company is a party or by which it may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject (each,
an "Existing Instrument"), except for such Defaults as would not, individually
or in the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default or
a Debt Repayment Triggering Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, or require the
consent of any other part to, any Existing Instrument, except for such
conflicts, breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, result in a Material Adverse Change and (iii)
will not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any subsidiary. No
consent, approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or agency, is
required for the Company's execution, delivery and performance of this Agreement
and consummation of the transactions contemplated hereby and by the Prospectus,
except such as have been obtained or made by the Company and are in full force
and effect under the Securities Act, applicable state securities or blue sky
laws and from the National Association of Securities Dealers, Inc. (the "NASD").
As used herein, a "Debt Repayment Triggering Event" means any event or condition
which gives, or with the
-5-
<PAGE> 7
giving of notice or lapse of time would give, the holder of any note, debenture
or other evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company.
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or director
of, or property owned or leased by, the Company or any of its subsidiaries or
(iii) relating to environmental or discrimination matters, where in any such
case (A) there is a reasonable possibility that such action, suit or proceeding
might be determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No material
labor dispute with the employees of the Company, or with the employees of any
principal supplier of the Company, exists or, to the best of the Company's
knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company owns or
possesses sufficient licenses or other rights to use all patents, copyrights,
trademarks, service marks, trade names, technology and know-how (collectively,
the "Intellectual Property Rights") reasonably necessary to conduct its business
in the manner described in the Prospectus, and the expected expiration of any
Intellectual Property Rights would not result in a Material Adverse Change. The
Company is not obligated (in any material respect) to pay a royalty, grant a
license, or provide other consideration to any third party in connection with
its patents, copyrights, trademarks, service marks, trade names, or technology
other than as disclosed in the Prospectus, and, except as disclosed in the
Prospectus, the Company has not received any notice of infringement or conflict
with (and the Company knows of no infringement or conflict with) asserted rights
of others with respect to the Intellectual Property Rights which could
reasonably be expected to result in a Material Adverse Change and, except as
disclosed in the Prospectus, the discoveries, inventions, products or processes
of the Company referred to in the Prospectus do not, to the best knowledge of
the Company, infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company which could result in
a Material Adverse Change. No third party including any academic or governmental
organization, possesses rights to the Intellectual Property Rights which, if
exercised, could enable such third party to develop products competitive to
those of the Company or could result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company is in possession
of such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct its businesses, and the Company has not received any notice of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse
-6-
<PAGE> 8
Change.
(q) Title to Properties. The Company has good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(i) above (or elsewhere in the Prospectus),
in each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(r) Tax Law Compliance. The Company has filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes required to be paid by the Company, if due and payable, any related or
similar assessment, fine or penalty levied against the Company. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(i) above in respect of all federal, state
and foreign income and franchise taxes for all periods as to which the tax
liability of the Company has not been finally determined.
(s) Company Not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(t) Insurance. The Company is insured by recognized,
financially sound and reputable institutions with policies in such amounts and
with such deductibles and covering such risks as are generally deemed adequate
and customary for its businesses including, but not limited to, policies
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and earthquakes. The Company has
no reason to believe that it will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Change. The Company has not been denied any insurance coverage which it
has sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
-7-
<PAGE> 9
(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or any person
required to be described in the Prospectus which have not been described as
required.
(w) No Unlawful Contributions or Other Payments. Neither the
Company nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any federal,
state or foreign office in violation of any law or of the character required to
be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a
system of accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, "Environmental Laws"), which violation includes, but is not
limited to, noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its subsidiaries
under applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its subsidiaries
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no written
notice by any person or entity alleging potential liability for investigatory
costs, cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment, of
any Material of Environmental Concern at any location owned, leased or operated
by the Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's knowledge,
threatened
-8-
<PAGE> 10
against the Company or any of its subsidiaries or any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law; and (iii) to
the best of the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a violation
of any Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or against any person or entity
whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law.
(z) Periodic Review of Costs of Environmental Compliance. In
the ordinary course of its business, the Company conducts a periodic review of
the effect of Environmental Laws on the business, operations and properties of
the Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
(aa) ERISA Compliance. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(bb) Governmental Approvals. The Company owns, possesses or
has obtained
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all licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities (including foreign
regulatory agencies), all self-regulatory organizations and all courts and other
tribunals, domestic or foreign, necessary to own or lease, as the case may be,
and to operate its properties and to carry on its business as conducted as of
the date hereof, and the Company not has received any actual notice of any
proceeding relating to revocation or modification of any such license, permit,
certificate, consent, order, approval or other authorization, except as
described in the Registration Statement and the Prospectus; and the Company is
in compliance with all laws and regulations relating to the conduct of its
business as conducted as of the date hereof; the Company is not in violation of
any foreign, state or local law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body, including, but not limited
to, the United States Food and Drug Administration (the "FDA"); all of the
descriptions in the Registration Statement and Prospectus of the legal and
governmental proceedings by or before the FDA or any foreign, state or local
government body exercising comparable authority are true, complete and accurate
in all material respects.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representative) at 6:00 a.m. San Francisco time, on [____________][ten (10)
business days following the original contemplated First Closing Date], or such
other time and date not later than 10:30 a.m. San Francisco time, as the
Representative shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of Section
10.
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<PAGE> 12
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representative and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representative may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective as the Representatives, in their judgment, have
determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received
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<PAGE> 13
by the Representatives by the First Closing Date or the Second Closing Date, as
the case may be, for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from any of its obligations under this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date, as in the opinion of counsel for
the Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing (i)
of the receipt of any comments
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<PAGE> 14
of, or requests for additional or supplemental information from, the Commission,
(ii) of the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any preliminary
prospectus or the Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any order
preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend from listing or quotation
the Common Stock from any securities exchange upon which Common Stock is listed
for trading or included or designated for quotation, or of the threatening or
initiation of any proceedings for any of such purposes. If the Commission shall
enter any such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment. Additionally,
the Company agrees that it shall comply with the provisions of Rules 424(b),
430A and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company under such
Rule 424(b) were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section
3(A)(a) hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
state securities or blue sky laws or Canadian provincial securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the
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<PAGE> 15
Representatives promptly of the suspension of the qualification or registration
of (or any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best efforts
to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending [___] that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
all reports on Form SR as may be required under Rule 463 under the Securities
Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the Company
will not, without the prior written consent of the Representatives (which
consent may be withheld at the discretion of the Representatives), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or exercisable for
or convertible into shares of Common Stock (other than as contemplated by this
Agreement with respect to the Common Shares); provided, however, that the
Company may issue shares of its Common Stock or options to purchase its Common
Stock, or Common Stock upon exercise of options, pursuant to any stock option,
stock bonus or other stock plan or arrangement described in the Prospectus, but
only if the holders of such shares, options, or shares issued upon exercise of
such options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without the prior
written consent of the Representatives (which consent may be withheld at the
discretion of the Representatives).
(k) Future Reports to the Representatives. During the period
of five years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San
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<PAGE> 16
Francisco, CA 94111 Attention:[ ] and to Piper Jaffray Inc. at 222 South Ninth
Street, Minneapolis, Minnesota 55402, Attention: [_______]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
The Representatives, on behalf of the several Underwriters, may, in
their discretion, waive in writing the performance by the Company of any one or
more of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES.
The Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified pubic accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representatives, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
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<PAGE> 17
The obligations of the several Underwriters to purchase and pay for the
Common Shares as provided herein on the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representative
shall have received from Arthur Andersen, LLP, independent public or certified
public accountants for the Company, a letter dated the date hereof addressed to
the Underwriters, in form and substance satisfactory to the Representatives,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to Statement
of Auditing Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial information
contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required by such Rule
430A, and such post-effective amendment shall have become effective; or, if the
Company elected to rely upon Rule 434 under the Securities Act and obtained the
consent of the Representatives thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period required by
such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:
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(i) in the judgment of the Representatives there shall not
have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representative shall have received the
favorable opinion of (i) Stradling, Yocca, Carlson & Rauth, counsel for the
Company, the form of which is attached as Exhibit A, (ii) __________________,
patent counsel for the Company, the form of which is attached as Exhibit D, and
(iii) ________________________, regulatory counsel for the Company, the form of
which is attached as Exhibit C, each dated as of such Closing Date (and the
Representative shall have received an additional [___] conformed copies of such
counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs (i), (vii) (with respect to subparagraph (i) only, (viii),
(ix), (x) (xi), (xii) and (xiii) (with respect to the captions "Description of
Capital Stock" and "Underwriting" under subparagraph (i) only) and the
next-to-last paragraph of Exhibit A (and the Representatives shall have received
an additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct with the
same force and effect as though expressly made on and as of such Closing Date;
and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
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(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from Arthur
Andersen, LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Lock-Up Agreement from Certain Stockholders of the Company. On the
date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit D hereto from each director, officer, and each
beneficial owner of Common Stock (as defined and determined according to Rule
13A-3 under the Exchange Act, except that a one hundred eighty (180) day period
shall be used rather than the sixty (60) day period set forth therein), and such
agreement shall be in full force and effect on each of the First Closing Date
and the Second Closing Date.]
(i) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.
If this Agreement is terminated by the Representatives pursuant to
Section 5, Section 7, Section 10 or Section 11, or if the sale to the
Underwriters of the Common Shares on the First Closing Date is not consummated
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse the Representatives and the other Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel
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expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of
any Underwriter to the Company, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or
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<PAGE> 21
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling person
for any and all expenses (including the fees and disbursements of counsel chosen
by Montgomery Securities) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, or controlling person may become subject, under the Securities Act,
the Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon 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, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer, or controlling person for any legal and other expense
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<PAGE> 22
reasonably incurred by the Company, or any such director, officer, or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The Company hereby acknowledges that the only information that the
Underwriters have furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth (A) as the last [two]
paragraphs on the inside front cover page of the Prospectus concerning
stabilization [and passive market making] by the Underwriters and (B) in the
table in the first paragraph and as the second paragraph [second and [_]
paragraphs] under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity agreement
set forth in this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the
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<PAGE> 23
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set
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<PAGE> 24
forth on the front cover page of the Prospectus (or, if Rule 434 under the
Securities Act is used, the corresponding location on the Term Sheet) bear to
the aggregate initial public offering price of the Common Shares as set forth on
such cover. The relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITER.
If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they
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<PAGE> 25
have agreed to purchase hereunder on such date, and the aggregate number of
Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Common Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Common Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as may be specified by
the Representatives with the consent of the non-defaulting Underwriters, to
purchase the Common Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date. If, on the First Closing
Date or the Second Closing Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Common Shares and the aggregate
number of Common Shares with respect to which such default occurs exceeds 10% of
the aggregate number of Common Shares to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Common Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, Section 6, Section 8 and Section 9
shall at all times be effective and shall survive such termination. In any such
case either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT.
Prior to the First Closing Date this Agreement maybe terminated by the
Representatives by notice given to the Company if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq National Market, or trading in
securities generally on either the Nasdaq National Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York [, Delaware] or California authorities;
(iii) there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall
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<PAGE> 26
have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 11 shall be without liability on the part of (a) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 4 and 6 hereof, (b) any Underwriter to the Company, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
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<PAGE> 27
SECTION 13. NOTICES.
All communications hereunder shall be in writing and shall be mailed,
hand delivered or telecopied and confirmed to the parties hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, Minnesota 55402
Facsimile: (612) 342-6979
Attention: ________________
If to the Company:
Computer Motion, Inc.
130-B Cremona Drive
Coleta, California 93117
Facsimile: (805) 685-9277
Attention: Eugene Wang
With a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive
Newport Beach, California 92660
Facsimile: (714) 725-4100
Attention: Lawrence B. Cohn, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
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<PAGE> 28
SECTION 14. SUCCESSORS.
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 10
hereof, and to the benefit of the employees, officers and directors and
controlling persons referred to in Section 8 and Section 9, and in each case
their respective successors, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.
SECTION 15. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 16. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN SUCH STATE.
SECTION 17. GENERAL PROVISIONS.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party whom
the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the
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<PAGE> 29
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
COMPUTER MOTION, INC.
By:
---------------------------------
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By: MONTGOMERY SECURITIES
By:
-----------------------
Name: Richard A. Smith
Authorized Signatory
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<PAGE> 30
SCHEDULE A
NUMBER OF
FIRM COMMON
UNDERWRITERS SHARES
TO BE PURCHASED
Montgomery Securities [---]
Piper Jaffray Inc. [---]
[---] [---]
[---] [---]
[---] [---]
Total [---]
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<PAGE> 31
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
[__________].
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in [the State of California and] in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions [(other than the State of California)] where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405
under the Securities Act) has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
such significant subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or threatened
claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including
<PAGE> 32
the Common Stock) conform to the descriptions thereof set forth in the
Prospectus. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and, to the best
of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state securities
laws. The form of certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable requirements of the charter and
by-laws of the Company and the General Corporation Law of the State of
[Delaware] [California]. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of [Delaware]
[California] or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order suspending
the effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and no
proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xi) Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus, and each amendment or supplement to the Registration
Statement and the Prospectus [including any document incorporated by reference
therein], as of their respective effective or issue dates (other than the
financial statements and supporting schedules included therein or in
A--2
<PAGE> 33
exhibits to or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the applicable
requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors--[Government Regulation]"; "Risk Factors--[Intellectual Property]";
"Risk Factors--Limitations on Third Party Reimbursement"; "Risk Factors--Shares
Eligible for Future Sale"; "Risk Factors -- [____________]"; "Description of
Capital Stock"; "Management's Discussion and Analysis and Results of
Operations--Liquidity"; "Business--Litigation"; "Business--Intellectual
Property"; "Certain Relationships and Related Transactions"; "Shares Eligible
for Future Sale"; "Certain United States Income Tax Considerations" and
"Underwriting" and (ii) in Item 14 and Item 15 of the Registration Statement,
insofar as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to
therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto; and the descriptions thereof
and references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder (other
than performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be rendered)
(i) have been duly authorized by all necessary corporate action on the part of
the Company; (ii) will not result in any violation of the provisions of the
A--3
<PAGE> 34
charter or by-laws of the Company or any subsidiary; (iii) will not constitute a
breach of, or Default or a Debt Repayment Triggering Event under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to (A)
[_____________] with [______________], as lender, or (B) to the best knowledge
of such counsel, any other material Existing Instrument; or (iv) to the best
knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xix) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary or is in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
Existing Instrument, except in each such case for such violations or Defaults as
would not, individually or in the aggregate, result in a Material Adverse
Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other Representatives of the Company,
Representatives of the independent public or certified public accountants for
the Company and with Representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the
A--4
<PAGE> 35
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief as to the financial statements or
schedules or other financial or statistical data derived therefrom, included [or
incorporated by reference] in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representatives) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.
A--5
<PAGE> 36
EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) such counsel represents the Company in certain matters
relating to intellectual property, including patents, trade secrets and certain
trademark matters, related to the Company's products under development as
described in the Prospectus;
(ii) such counsel is familiar with the foregoing technology
and products as used by the Company in its business and the manner of its use
and has read the portions of the Registration Statement and the Prospectus
entitled "Risk Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Patents and Proprietary Technology" (collectively, the
"Intellectual Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the patent applications filed in the United States and outside
the United States related to the foregoing technology and products (the "Patent
Applications") and issued and allowed patents related to the foregoing
technology and products (the "Patents") and including those patent applications
licensed to the Company (the "Licensed Applications") and the patents licensed
to the Company (the "Licensed Patents"), (the Patent Applications and the
Licensed Applications are referred to collectively herein as the "Company
Applications," and the Patents and the Licensed Patents are referred to
collectively herein as the "Company Patents") each of which Company
Applications, Company Patents shall be listed on exhibits to such opinion, and
fairly summarizes the legal matters, documents and proceedings relating thereto;
(iv) based upon a review of the third party rights made known
to counsel and discussions with scientific personnel of the Company, such
counsel is not aware of any valid United States or foreign patent, that is or
would be infringed by the activities of the Company in the manufacture, use or
sale of any presently proposed product, the technologies employed by the Company
or the method of their use in any presently proposed product, each as described
in the
<PAGE> 37
Prospectus and as such are related to the foregoing technology and products;
(v) such counsel has reviewed the Company Applications, which
Company Applications are described in the Intellectual Property Portion, and in
the opinion of such counsel the Company Applications have been properly prepared
and filed, and are being diligently pursued by the Company, and the inventions
described in the Company Applications are owned by, assigned or licensed to the
Company;
(vi) to such counsel's knowledge, no other entity or
individual has any right or claim in any of the inventions, the Company Patents,
the Company Applications, or any patent to be issued therefrom, and in such
counsel's opinion each of the Company Applications discloses patentable subject
matter;
(vii) such counsel is aware of no pending or threatened claim,
suit, judicial or governmental proceedings relating to the Company Patents or
the Company Applications or the subject matter therein, based upon review of the
Company Patents and the Company Applications, such counsel is not aware of any
rights of third parties to any of the inventions described in the Company
Patents or the Company Applications which could reasonably be expected to
materially affect the ability of the Company to conduct its business as
described in the Prospectus, including the commercialization of its products
currently under development; and
(viii) such counsel has no reason to believe that the
information contained in the Intellectual Property Portion of the Registration
Statement or the Prospectus at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, at the Closing Date, the information contained in the Intellectual
Property Portion of the Prospectus or any amendment or supplement to the
Intellectual Property Portion of the Prospectus contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
B--2
<PAGE> 38
EXHIBIT C
The final opinion in draft form should be attached as Exhibit C at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit C include any supplements
thereto at the Closing Date.
(i) The statements under the captions "Risk Factors--Government
Regulation," "Risk Factors--Limitations on Third Party Reimbursement,"
"Business--Third Party Reimbursement," "Business--Government Regulation,"
"Business--Products" and "Business--New Product Development" (collectively, the
"Regulatory Portion") in the Registration Statement and the Prospectus which
constitutes a part thereof (the "Prospectus") and any amendment or supplement
thereto, to the extent that they reflect matters of law, summaries of law or
regulations, are correct in all material respects, subject to the qualifications
set forth therein.
(ii) Subject to the conditions and limitations expressed in this
opinion letter and in the Prospectus, nothing has come to the attention of such
counsel that would lead such counsel to believe that the Regulatory Portion of
the Registration Statement, at the time it became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or that,
on the closing date of the public offering, the information contained in the
Regulatory Portion of the Prospectus or any amendment or supplement to the
Prospectus contained any untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Terms used but not defined herein shall have the meaning set forth in
the Underwriting Agreement.
We assume no obligations to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. This opinion has been prepared
solely for your use in connection with the subject transaction that is the one
represented by the Registration Statement and the Prospectus. This opinion may
not be used for any other purpose, quoted or otherwise referred to
<PAGE> 39
by any person without the written consent of this law firm.
C--2
<PAGE> 40
EXHIBIT D
LOCK-UP AGREEMENT
May __, 1997
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Re: Computer Motion, Inc.
Ladies and Gentlemen:
The undersigned, is an owner of record or beneficially of certain
shares of Common Stock ("Common Stock") of Computer Motion, Inc., a Delaware
corporation (the "Company") or securities convertible into or exchangeable or
exercisable for the Company's Common Stock. The Company proposes to carry out a
public offering of the Company's Common Stock (the "Offering") pursuant to a
Registration Statement to be filed under the Securities Act of 1933, as amended
(the "Registration Statement") for which you will act as underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering (the "Underwriting Agreement").
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Montgomery
Securities (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract, grant any option to sell or purchase, make
any short sale (including without limitation any "short against the box"),
pledge, transfer, establish an open "put equivalent position" within the meaning
of
<PAGE> 41
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or
otherwise dispose of any shares of the Company's Common Stock, options or
warrants to acquire shares of the Company's Common Stock, or securities
exchangeable or exercisable for or convertible into shares of the Company's
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing to a date
180 days after the date of the Prospectus (as such term is defined in the
Underwriting Agreement). Notwithstanding the foregoing, the undersigned may sell
or otherwise transfer shares of the Company's Common Stock (i) pursuant to the
Underwriting Agreement, (ii) as a bona fide gift or gifts, provided that the
undersigned provides prior written notice of such gift or gifts to you and the
donee or donees thereof agree to be bound by the restrictions set forth herein
or (iii) with the prior written consent of Montgomery Securities. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of any of
the Company's Common Stock or securities convertible into or exchangeable or
exercisable for the Company's Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
The undersigned understands that this agreement is irrevocable and
shall be binding on the undersigned and the respective successors, heirs,
personal representatives and assigns of the undersigned.
Very truly yours,
----------------------------------------------
Signature
----------------------------------------------
Please Type or Print Name
----------------------------------------------
Please Type or Print Title, if applicable
----------------------------------------------
Additional Signature(s), if stock jointly held
D--2
<PAGE> 1
EXIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF COMPUTER MOTION, INC.,
A DELAWARE CORPORATION
AND
COMPUTER MOTION, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER, dated as of _________, 1997 (this
"Agreement"), is between COMPUTER MOTION, INC., a Delaware corporation ("CMI
Delaware"), and COMPUTER MOTION, INC., a California corporation ("CMI
California"), which corporations are sometimes referred to herein as the
"Constituent Corporations".
R E C I T A L S
A. CMI Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of 75,000,000
shares, 25,000,000 of which are designated "Common Stock", $.001 par value, and
50,000,000 of which are designated "Preferred Stock", $.001 par value. As of May
31, 1997, 100 shares of Common Stock were issued and outstanding, all of which
were held by CMI California. No shares of Preferred Stock were outstanding.
B. CMI California is a corporation duly organized and existing under the
laws of the State of California and has an authorized capital of 75,000,000
shares, 25,000,000 of which are designated "Common Stock", no par value and
50,000,000 of which are designated "Preferred Stock", no par value. As of May
31, 1997, 3,364,082 shares of Common Stock were outstanding and 4,335,555 shares
of Preferred Stock were outstanding.
C. The Board of Directors of CMI California has determined that, for the
purpose of effecting the reincorporation of CMI California in the State of
Delaware, it is advisable and in the best interests of CMI California and its
shareholders that CMI California merge with and into CMI Delaware upon the terms
and conditions herein provided.
D. The respective Boards of Directors of CMI Delaware and CMI California
have approved this Agreement and have directed that this Agreement be submitted
to a vote of their respective stockholders and executed by the undersigned
officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, CMI Delaware and CMI California hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
I.
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law, CMI
California shall be merged with and into CMI Delaware (the "Merger"), the
separate existence of CMI California shall cease and CMI Delaware shall be, and
is herein sometimes referred to as, the "Surviving Corporation", and the name of
the Surviving Corporation shall be "Computer Motion, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions have been completed:
(a) This Agreement has been adopted and approved by the stockholders
of each
<PAGE> 2
Constituent Corporation in accordance with the requirements of the
Delaware General Corporation Law and the California General Corporation
Law;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement have been satisfied or duly waived by the
party entitled to satisfaction thereof; and
(c) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the Delaware General
Corporation Law has been filed with the Secretary of State of the State
of Delaware.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger".
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence and corporate organization of CMI California shall cease and
CMI Delaware, as the Surviving Corporation, shall continue its corporate
existence under the laws of the State of Delaware.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
CMI Delaware as in effect immediately before the Effective Date of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended or repealed in accordance with the
provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of CMI Delaware as in effect immediately before
the Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended or repealed in accordance
with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of CMI California
immediately before the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until the expiration of their current
terms and until their successors have been duly elected and qualified, or until
their prior resignation, removal or death, subject to the Certificate of
Incorporation and the Bylaws of the Surviving Corporation.
III.
MANNER OF CONVERSION OF STOCK
3.1 CMI California Shares. Upon the Effective Date of the Merger, each
share of CMI California Common Stock, no par value, issued and outstanding
immediately before the Effective Date of the Merger shall by virtue of the
Merger and without any action by the Constituent Corporations, by the holder of
such shares or by any other person be converted into and exchanged for .51867
fully paid and nonassessable share of Common Stock, $.001 par value, of the
Surviving Corporation. Upon the Effective Date of the Merger, each share of
Series A Preferred Stock, no par value, Series B Preferred Stock, no par value,
Series C Preferred Stock, no par value, Series D Preferred Stock, no par value,
and Series E Preferred Stock, no par value, of CMI California issued and
outstanding immediately before the Effective Date of the Merger shall by virtue
of the Merger and without any action by the Constituent Corporations, by the
holder of such shares or by any other person be converted into and exchanged for
.51867 fully paid and nonassessable share of Series A Preferred Stock, $.001
par value, Series B Preferred Stock, $.001 par value, Series C Preferred Stock,
$.001 par value, Series D Preferred Stock, $.001 par value, and Series E
Preferred Stock, $.001 par value, respectively, of the Surviving Corporation.
2
<PAGE> 3
3.2 CMI California Options, Stock Purchase Rights and Convertible
Securities. Upon the Effective Date of its Merger, the Surviving Corporation
shall assume and continue CMI California's 1993 Tandem Stock Option Plan, its
1997 Stock Incentive Plan and warrant, all other employee benefit plans of CMI
California. Each outstanding and unexercised option, other right to purchase or
security convertible into CMI California Common Stock shall become an option,
right to purchase or a security convertible into the Surviving Corporation's
Common Stock on the basis of .51867 share of the Surviving Corporation's Common
Stock for each share of CMI California Common Stock issuable pursuant to any
such option, stock purchase right or convertible security, under the same terms
and conditions and at an exercise price per share equal to the exercise price
per share applicable to any such CMI California stock option, stock purchase
right or other convertible security at the Effective Date of the Merger.
A number of shares of the Surviving Corporation's Common Stock and
Preferred Stock shall be reserved for issuance upon the exercise of stock
options, stock purchase rights and convertible securities equal to the number of
shares of CMI California Common Stock and Preferred Stock so reserved
immediately before the Effective Date of the Merger.
3.3 Fractional Shares. No fractional shares shall be issued upon such
conversion, and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share and the amount representing less than
one share at the above ratio shall be paid in cash, at a rate equal to the fair
market value of such shares, as determined in good faith by the Board of
Directors of CMI Delaware.
3.4 CMI Delaware Common Stock. Upon the Effective Date of the Merger, each
share of Common Stock, $.001 par value, of CMI Delaware issued and outstanding
immediately before the Effective Date of the Merger shall, by virtue of the
Merger and without any action by CMI Delaware, by the holder of such shares or
by any other person be canceled and returned to the status of authorized but
unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of CMI California
Common Stock may, at such stockholder's option, surrender the same for
cancellation to the Surviving Corporation or to its transfer agent (the
"Exchange Agent"), and each such holder shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock or Preferred Stock into which the
surrendered shares were converted as herein provided. Until so surrendered, each
outstanding certificate theretofore representing shares of CMI California Common
Stock or Preferred Stock shall be deemed for all purposes to represent the
number of shares of the Surviving Corporation's Common Stock or Preferred Stock,
as adjusted pursuant to Section 3.1 above, into which such shares of CMI
California Common Stock or Preferred Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate has been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock or Preferred
Stock of the Surviving Corporation represented by such outstanding certificate
as provided above.
Each certificate representing Common Stock and Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to restrictions on transferability as the certificates of CMI
California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws.
3
<PAGE> 4
If any certificate for shares of CMI Delaware stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of CMI Delaware that such tax has been paid or is not payable.
IV.
TRANSFER OF ASSETS AND LIABILITIES
4.1 Transfer of Assets and Liabilities. On the Effective Date, (i) the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all the disabilities, duties
and restrictions of or upon each of the Constituent Corporations; (ii) all
rights, privileges, powers and franchises of each of the Constituent
Corporations, all property, real, personal and mixed, of each of the Constituent
Corporations, all debts due to each of the Constituent Corporations on whatever
account and all things in action or belonging to each of the Constituent
Corporations shall be transferred to and vested in the Surviving Corporation;
(iii) all property, rights, privileges, powers and franchises, as well as all
other interests, shall be as effectively the property of the Surviving
Corporation as they were of the Constituent Corporations before the Effective
Date; and (iv) the title to any real estate vested by deed or otherwise in
either of the Constituent Corporations shall not revert to either of the
Constituent Corporations or be in any way impaired by reason of the Merger.
Notwithstanding the foregoing, (i) the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall not be
affected by the Merger; (ii) all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved unimpaired
notwithstanding the Merger; and (iii) any claim existing or action or proceeding
pending by or against either of the Constituent Corporations may be prosecuted
to judgment as if the Merger had not taken place; provided, however, that the
claims and rights of the creditors of either or both of the Constituent
Corporations may be modified with the consent of such creditors; and, provided
further, that all debts, liabilities and duties of or upon each of the
Constituent Corporations shall attach to the Surviving Corporation and
accordingly may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
4.2 Further Assurances. From time to time, as and when required by CMI
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of CMI California such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by CMI Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of CMI California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of CMI Delaware are fully authorized
in the name and on behalf of CMI California or otherwise to take all such
actions and to execute and deliver all such deeds and other instruments.
V.
GENERAL
5.1 Covenants of CMI Delaware. CMI Delaware covenants and agrees that it
will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law.
4
<PAGE> 5
(b) File all documents with the California Franchise Tax Board
necessary for the assumption by CMI Delaware of all of the franchise tax
liabilities of CMI California.
(c) Take such other actions as may be required by the California
General Corporation Law.
5.2 Deferral. Consummation of the merger may be deferred by the Board of
Directors of CMI California for a reasonable period of time if the Board of
Directors determines that deferral would be in the best interests of CMI
California and its shareholders.
5.3 Amendment. The parties hereto, by mutual consent of their respective
Boards of Directors, may amend, modify or supplement this Agreement in such
manner as may be agreed upon by them in writing at any time before or after
adoption and approval of this Agreement by the stockholders of CMI Delaware and
CMI California, but not later than the Effective Date; provided, however, that
no such amendment, modification or supplement not adopted and approved by the
stockholders of CMI Delaware and CMI California shall affect the rights of such
stockholders or change any of the principal terms of this Agreement.
5.4 Abandonment. At any time before the Effective Date of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either CMI California or of CMI
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of CMI California or by the stockholders of CMI Delaware, or by
both. In the event of abandonment of this Agreement, as above provided, this
Agreement shall become wholly void and of no effect, and no liability on the
part of either Constituent Corporation or its Board of Directors or its
stockholders shall arise by virtue of such termination except as provided in
Section 5.5 hereof.
5.5 Expenses. If the Merger becomes effective, the Surviving Corporation
shall assume and pay all expenses in connection therewith not theretofore paid
by the respective parties. If for any reason the Merger shall not become
effective, CMI California shall pay all expenses incurred in connection with all
the proceedings taken in respect of this Agreement or relating thereto.
5.6 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at Prentice-Hall Corporation
System, Inc., 1013 Centre Road, Wilmington, Delaware 19805, and The
Prentice-Hall Corporation System, Inc. is the registered agent of the
Surviving Corporation at such address.
5.7 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 130-B Cremona Drive,
Goleta, CA 93117 , and, upon request and without cost, copies thereof will be
furnished to any stockholder of either Constituent Corporation.
5.8 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the Merger provisions of the
California General Corporation Law.
5.9 Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by
resolutions of the Boards of Directors of CMI Delaware and CMI California is
hereby executed on behalf of each of such two corporations and attested by their
respective officers thereunto duly authorized.
5
<PAGE> 6
Computer Motion, Inc.,
a Delaware corporation
By:
------------------------------------
Eugene Wang
Chief Executive Officer and President
Computer Motion, Inc.,
a California corporation
By:
------------------------------------
Eugene Wang
Chief Executive Officer and President
6
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
COMPUTER MOTION, INC.
SECTION 1. LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
1.1 These Bylaws are subject to the Certificate of
Incorporation of the Corporation. In these Bylaws, references to law, the
Certificate of Incorporation and Bylaws mean the law, the provisions of the
Certificate of Incorporation and the Bylaws as from time to time in effect.
SECTION 2. STOCKHOLDERS
2.1 Annual Meeting. The annual meeting of stockholders shall
be held at 10:00 a.m. on the first Tuesday in June in each year, unless that day
be a legal holiday at the place where the meeting is to be held, in which case
the meeting shall be held at the same hour on the next succeeding day not a
legal holiday, or at such other date and time as shall be designated from time
to time by the board of directors and stated in the notice of the meeting, at
which they shall elect a board of directors and transact such other business as
may be required by law or these Bylaws or as may properly come before the
meeting.
2.2 Special Meetings. A special meeting of the stockholders
may be called at any time by the chairman of the board, if any, the president or
the board of directors. A special meeting of the stockholders shall be called by
the secretary, or in the case of the death, absence, incapacity or refusal of
the secretary, by an assistant secretary or some other officer, upon application
of a majority of the directors. Any such application shall state the purpose or
purposes of the proposed meeting. Any such call shall state the place, date,
hour, and purposes of the meeting.
2.3 Place of Meeting. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at such place
within or without the State of Delaware as may be determined from time to time
by the chairman of the board, if any, the president or the board of directors.
Any adjourned session of any meeting of the stockholders shall be held at the
place designated in the vote of adjournment.
2.4 Notice of Meetings. Except as otherwise provided by law, a
written notice of each meeting of stockholders stating the place, day and hour
thereof and, in the case of a special meeting, the purposes for which the
meeting is called, shall be given not less than ten nor more than sixty days
before the meeting, to each stockholder entitled to vote thereat, and to each
stockholder who, by law, by the Certificate of Incorporation or by these Bylaws,
is entitled to notice, by leaving such notice with him or at his residence or
usual place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. Such notice shall be given by the secretary, or by
an officer or person designated by the board of directors, or in the case of a
special meeting by the officer calling the meeting. As to any adjourned session
of any meeting of stockholders, notice of the adjourned meeting need not be
given if the time and place thereof are announced at the meeting at which the
<PAGE> 2
adjournment was taken except that if the adjournment is for more than thirty
days or if after the adjournment a new record date is set for the adjourned
session, notice of any such adjourned session of the meeting shall be given in
the manner heretofore described. No notice of any meeting of stockholders or any
adjourned session thereof need be given to a stockholder if a written waiver of
notice, executed before or after the meeting or such adjourned session by such
stockholder, is filed with the records of the meeting or if the stockholder
attends such meeting without objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the stockholders or any adjourned session thereof need be specified
in any written waiver of notice.
2.5 Quorum of Stockholders. At any meeting of the stockholders
a quorum as to any matter shall consist of a majority of the votes entitled to
be cast on the matter, except where a larger quorum is required by law, by the
Certificate of Incorporation or by these Bylaws. Any meeting may be adjourned
from time to time by a majority of the votes properly cast upon the question,
whether or not a quorum is present. If a quorum is present at an original
meeting, a quorum need not be present at an adjourned session of that meeting.
Shares of its own stock belonging to the corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
2.6 Action by Vote. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Certificate of Incorporation or by these Bylaws.
No ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7 Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
the stockholders of the Corporation which may be effected at a duly called
annual or special meeting of the stockholders, may be effected by a consent in
writing by the stockholders.
2.8 Proxy Representation. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, objecting to or voting or participating at a meeting, or expressing
consent or dissent without a meeting. Every proxy must be signed by the
stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon
after three years from its date unless such proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and, if, and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the corporation generally. The authorization of a proxy may
but need not be limited to specified action, provided, however, that if a proxy
limits its authorization to a meeting or meetings of stockholders, unless
otherwise specifically provided such proxy shall entitle the holder thereof to
vote at any adjourned session but shall not be valid after the final adjournment
thereof.
2.9 Notifications of Nominations and Stockholder Proposals.
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, (a)
nominations for the election of directors, and (b) business
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proposed to be brought before any stockholder meeting may be made by or at the
direction of the Board of Directors or by any stockholder entitled to vote in
the election of directors generally. However, any such stockholder may nominate
one or more persons for election as directors at a meeting or propose business
to be brought before a meeting, or both, only if such stockholder has given
timely notice in proper written form of his intent to make such nomination or
nominations or to propose such business. To be timely, a stockholder's notice
must be delivered to or mailed and received by the Secretary of the Corporation
not later than forty-five (45) days nor more than ninety (90) days prior to such
meeting; provided, however, in the event that less than fifty-five (55) days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the date of
which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth:
(i) the name and address of the stockholder who intends to
make the nominations or propose the business and, as the case may be,
of the person or persons to be nominated or of the business to be
proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed by the Board of Directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
2.10 Inspectors. The directors or the person presiding at the
meeting may, but need not, appoint one or more inspectors of election and any
substitute inspectors to act at the meeting or any adjournment thereof. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors, if
any, shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the results, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. Notwithstanding the
foregoing, in the event that a stockholder seeks to propose business to be
brought before a meeting or to nominate one or more directors pursuant to
Section 2.10 of these Bylaws, the directors shall appoint two inspectors, who
shall not be affiliated with the Corporation, to determine whether a stockholder
has complied with Section 2.10 of these Bylaws. If the inspectors shall
determine that a stockholder has not complied with Section 2.10 of these Bylaws,
the inspectors shall direct the person presiding over the meeting to declare to
the meeting that a proposal or nomination, as the
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case may be, was not made in accordance with the procedures prescribed by the
Bylaws; and the person presiding over the meeting shall so declare to the
meeting and the defective proposal or nomination shall be disregarded. On
request of the person presiding at the meeting, the inspectors shall make a
report in writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them.
2.11 List of Stockholders. The secretary shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in his name. The stock ledger shall be the only evidence as to who
are stockholders entitled to examine such list or to vote in person or by proxy
at such meeting.
SECTION 3. BOARD OF DIRECTORS
3.1 Number. The number of directors which shall constitute the
whole board shall be seven (7). The number of directors may be increased at any
time or from time to time by the stockholders or by the directors by vote of a
majority of the directors then in office. The number of directors may be
decreased to any number permitted by the foregoing at any time either by the
stockholders or by the directors by vote of a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation or removal of one or more directors. Directors need not be
stockholders.
3.2 Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws, each director shall hold office
until the successors of such director's class are elected and qualified, or
until he sooner dies, resigns, is removed or becomes disqualified.
3.3 Powers. The business and affairs of the corporation shall
be managed by or under the direction of the board of directors who shall have
and may exercise all the powers of the corporation and do all such lawful acts
and things as are not by law, the Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders.
3.4 Vacancies. Vacancies and any newly created directorships
resulting from any increase in the number of directors may be filled by vote of
the stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the Certificate of Incorporation or of
these Bylaws as to the number of directors required for a quorum or for any vote
or other actions.
3.5 Committees. The board of directors may, by vote of a
majority of the whole board, (a) designate, change the membership of or
terminate the existence of any committee or committees, each committee to
consist of one or more of the directors; (b) designate one or more directors as
alternate members of any such committee who may replace any absent or
disqualified member at any meeting of the committee; and (c) determine the
extent to which each such committee shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation, including the power to authorize the seal of the corporation to be
affixed to all papers which require it and the power and authority to declare
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dividends or to authorize the issuance of stock; excepting, however, such powers
which by law, by the Certificate of Incorporation or by these or by these Bylaws
they are prohibited from so delegating. In the absence or disqualification of
any member of such committee and his alternate, if any, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Except as the board of directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the board or such rules, its business shall be conducted as nearly as may be in
the same manner as is provided by these Bylaws for the conduct of business by
the board of directors. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors upon request.
3.6 Regular Meetings. Regular meetings of the board of
directors may be held without call or notice at such places within or without
the State of Delaware and at such times as the board may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of the stockholders.
3.7 Special Meetings. Special meetings of the board of
directors may be held at any time and at any place within or without the State
of Delaware designated in the notice of the meting, when called by the chairman
of the board, if any, the president, or by one-third or more in number of the
directors, reasonable notice thereof being given to each director by the
secretary or by the chairman of the board, if any, the president or any one of
the directors calling the meeting.
3.8 Notice. It shall be reasonable and sufficient notice to a
director to send notice by mail at least forty-eight hours or by telegram or
facsimile at least twenty-four hours before the meeting addressed to him at his
usual or last known business or residence address or to give notice to him in
person or by telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given to any director if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
meeting, or to any director who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him. Neither notice of a
meeting nor a wavier of a notice need specify the purposes of the meeting.
3.9 Quorum. Except as may be otherwise provided by law, by the
Certificate of Incorporation or these Bylaws, at any meeting of the directors a
majority of the directors then in office shall constitute a quorum; a quorum
shall not in any case be less than one-third of the total number of directors
constituting the whole board. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.10 Action by Vote. Except as may be otherwise provided by
law, by the Certificate of Incorporation or by these Bylaws, when a quorum is
present at any meeting the vote of a majority of the directors present shall be
the act of the board of directors.
3.11 Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the board of directors or a committee
thereof may be taken without a meeting if all the members of the board or of
such committee, as the case may be, consent thereto in writing, and such writing
or writings are filed with the records of the meetings of the board or of such
committee. Such consent shall be treated for all purposes as the act of the
board or of such committee, as the case may be.
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3.12 Participation in Meetings by Conference Telephone.
Members of the board of directors, or any committee designated by such board,
may participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meting can hear each other or by any other means permitted
by law. Such participation shall constitute presence in person at such meeting.
3.13 Compensation. In the discretion of the board of
directors, each director may be paid such fees for his services as director and
be reimbursed from his reasonable expenses incurred in the performance of his
duties as director as the board of directors from time to time may determine.
Nothing contained in this section shall be construed to preclude any director
from serving the corporation in any other capacity and receiving reasonable
compensation therefor.
3.14 Interested Directors and Officers.
(a) No contract or transaction between the
corporation and one or more of its directors or officers, or between the
corporation and any other corporation, partnership, association, or other
organization in which one or more of the corporation's directors or officers are
directors or officers, or have a financial interest, shall be void or voidable,
solely for this reason, or solely because the director officer is present at or
participates in the meeting of the board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if:
(1) The material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
(2) The material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholder entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or
(3) The contract or transaction is fair as
to the corporation as of the time it is authorized, approved or ratified by the
board of directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorized the contract or transaction.
SECTION 4. OFFICERS AND AGENTS.
4.1 Enumeration; Qualification. The officers of the
corporation shall be a president, a treasurer, a secretary and such other
officers, if any, as the board of directors from time to time may in its
discretion elect or appoint including without limitation a chairman of the
board, one or more vice presidents and a controller. The corporation may also
have such agents, if any, as the board of directors from time to time may in its
discretion choose. Any officer may be but none need be a director or
stockholder. Any two or more offices may be held by the same person. Any officer
may be required by the board of directors to secure the faithful performance of
his duties to the corporation by giving bond in such amount and with sureties or
otherwise as the board of directors may determine.
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4.2 Powers. Subject to law, to the Certificate of
Incorporation and to the other provisions of these Bylaws, each officer shall
have, in addition to the duties and powers herein set forth, such duties and
powers as are commonly incident to his office and such additional duties and
powers as the board of directors may from time to time designate.
4.3 Election. The officers may be elected by the board of
directors at their first meeting following the annual meeting of the
stockholders or at any other time. At any time or from time to time the
directors may delegate to any officer their power to elect or appoint any other
officer or any agents.
4.4 Tenure. Each officer shall hold office until the first
meeting of the board of directors following the next annual meeting of the
stockholders and until his respective successor is chosen and qualified unless a
shorter period shall have been specified by the terms of his election or
appointment, or in each case until he sooner dies, resigns, is removed or
becomes disqualified. Each agent shall retain his authority at the pleasure of
the directors, or the officer by whom he was appointed or by the officer who
then holds agent appointive power.
4.5 Chairman of the Board of Directors, President and Vice
President. The chairman of the board, if any, shall have such duties and powers
as shall be designated from time to time by the board of directors. Unless the
board of directors otherwise specifies, the chairman of the board, or if there
is none the chief executive officer, shall preside, or designate the person who
shall preside, at all meetings of the stockholders and of the board of
directors.
Unless the board of directors otherwise specifies, the
president shall be the chief executive officer and shall have direct charge of
all business operations of the corporation and, subject to the control of the
directors, shall have general charge and supervision of the business of the
corporation.
Any vice president shall have such duties and powers as shall
be set forth in these by-laws or as shall be designated from time to time by the
board of directors or by the president.
4.6 Chief Financial Officer and Assistant Treasurers. Unless
the board of directors otherwise specifies, the chief financial officer shall be
the treasurer of the corporation and shall be in charge of its funds and
valuable papers, and shall have such other duties and powers as may be
designated from time to time by the board of directors or by the president. If
no controller is elected, the chief financial officer shall, unless the board of
directors otherwise specifies, also have the duties and powers of the
controller.
Any assistant treasurers shall have such duties and powers as
shall be designated from time to time by the board of directors, the president
or the chief financial officer.
4.7 Controller and Assistant Controller. If a controller is
elected, he shall, unless the board of directors otherwise specifies, be the
chief accounting officer of the corporation and be in charge of its books of
account and accounting records, and of its accounting procedures. He shall have
such other duties and powers and may be designated from time to time by the
board of directors, the president or the treasurer.
Any assistant controller shall have such duties and powers as
shall be designated from time to time by the board of directors, the president,
the treasurer or the controller.
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4.8 Secretary and Assistant Secretaries. The secretary shall
record all proceedings of the stockholders, of the board of directors and of
committees of the board of directors in a book or series of books to be kept
therefore and shall file therein all actions by written consent of stockholders
or directors. In the absence of the secretary from any meeting, an assistant
secretary, or if there be none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. He shall have such other duties and powers as may from time to
time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as
shall be designated from time to time by the board of directors, the president
or the secretary.
SECTION 5. RESIGNATIONS AND REMOVALS.
5.1 Any director or officer may resign at any time by
delivering his resignation in writing to the chairman of the board, if any, the
president, or the secretary or to a meeting of the board of directors. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time, and without in either case the necessity of its being accepted
unless the resignation shall so state. A director (including persons elected by
directors to fill vacancies in the board) may be removed from office with or
without cause by the vote of the holders of a majority of the shares issued and
outstanding and entitled to vote in the election of directors. The board of
directors may at any time remove any officer either with or without cause. The
board of directors may at any time terminate or modify the authority of any
agent. No director or officer resigning and (except where a right to receive
compensation shall be expressly provided in a duly authorized written agreement
with the corporation) no director or officer removed shall have any right to any
compensation as such director or officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; unless, in
the case of a resignation, the directors, or, in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.
SECTION 6. VACANCIES.
6.1 If the office of the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor by vote of a
majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that officer
may choose a successor. Each such successor shall hold office for the unexpired
term, and in the case of the president, the treasurer and the secretary until
his successor is chosen and qualified or in each case he sooner dies, resigns,
is removed or becomes disqualified. Any vacancy of a directorship shall be
filled as specified in Section 3.4 of these Bylaws.
SECTION 7. CAPITAL STOCK.
7.1 Stock Certificates. Each stockholder shall be entitled to
a certificate stating the number and the class and the designation of the
series, if any, of the shares held by him, in such form as shall, in conformity
to law, the Certificate of Incorporation and the Bylaws, be prescribed from time
to time by the board of directors. Such certificate shall be signed by the
chairman or vice chairman of the board, if any, or the president or a vice
president and by the treasurer or an assistant treasurer or by the secretary or
an assistant secretary. Any of or all the signatures on the certificate may be a
facsimile. In case an officer, transfer agent, or registrar who has signed or
whose facsimile
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signature has been placed on such certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the time of its issue.
7.2 Loss of Certificates. In the case of the alleged theft,
loss, destruction or mutilation of a certificate of stock, a duplicate
certificate may be issued in place thereof, upon such terms, including receipt
of a bond sufficient to indemnify the corporation against any claim on account
thereof, as the board of directors may prescribe.
SECTION 8. TRANSFER OF SHARES OF STOCK.
8.1 Transfer on Books. Subject to the restrictions, if any,
stated or noted on the stock certificate, shares of stock may be transferred on
the books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
board of directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Certificate of
Incorporation or by these Bylaws, the corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to receive notice and
to vote or to give any consent with respect thereto and to be held liable for
such calls and assessments, if any, as may lawfully be made thereon, regardless
of any transfer, pledge or other disposition of such stock until the shares have
been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the
corporation of his post office address.
8.2 Record Date and Closing Transfer Books. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no such record date is fixed by the board of directors,
the record date for determining the stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders or record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no such record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the General Corporation Law of the State of Delaware, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware by hand or certified or registered mail, return
receipt requested, to its principal place of business or to an officer or agent
of the corporation
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having custody of the book in which proceedings of meetings of stockholders are
recorded. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by the General Corporation Law of
the State of Delaware, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the board of directors adopts the resolution
taking such prior action.
In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty days prior to such payment, exercise or other
action. If no such record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
SECTION 9. INDEMNIFICATION.
9.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than such law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in this Section 9.1 with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the board of
directors of the corporation. The right to indemnification conferred in this
Section 9.1 shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is not further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Section 9 or otherwise
(hereinafter an "undertaking").
9.2 Right of Indemnitee to Bring Suit. If a claim under
Section 9.1 of these Bylaws is not paid in full by the corporation within
forty-five (45) days after a written claim has been received by the corporation,
the indemnitee may at any time thereafter bring suit against the
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<PAGE> 11
corporation to recover the unpaid amount of the claim. If successful in whole or
part in any such suit or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) any suit by the corporation to recover an advancement of expenses pursuant
to the terms of an undertaking the corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General Corporation
Law. Neither the failure of the corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its board of directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified or to
such advancement of expenses under this Section 9 or otherwise shall be on the
corporation.
9.3 Non-Exclusivity of Rights. The rights of indemnification
and to the advancement of expenses conferred in this Section 9 shall not be
exclusive of any other right which any person may have or thereafter acquire
under any statue, provision of the Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person.
9.4 Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
9.5 Indemnification of Employees or Agents of the Corporation.
The corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the corporation to the fullest extent of the
provisions of this Section 9 with respect to the indemnification and advancement
of expenses of directors or officers of the corporation.
9.6 Indemnification Contracts. The board of directors is
authorized to enter into a contract with any director, officer, employee or
agent of the corporation, or any person serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
board of directors so determines, greater than, those provided for in this
Section 9.
9.7 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Section 9 by the stockholders or the directors of the
corporation shall not adversely affect any right or protection of a director or
officer of the corporation existing at the time of such amendment, repeal or
modification.
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<PAGE> 12
SECTION 10. CORPORATE SEAL.
10.1 Subject to alteration by the directors, the seal of the
corporation shall consist of a flat-faced circular die with the word "Delaware"
and the name of the corporation cut or engraved thereon, together with such
other words, dates or images as may be approved from time to time by the
directors.
SECTION 11. EXECUTION OF PAPERS.
11.1 Except as the board of directors may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other
obligations made, accepted or endorsed by the corporation shall be signed by the
chairman of the board, if any, the president, a vice president or the treasurer.
SECTION 12. FISCAL YEAR.
12.1 The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SECTION 13. AMENDMENTS.
13.1 These Bylaws may be adopted, amended or repealed by vote
of a majority of the directors then in office or by vote of a majority of the
stock outstanding and entitled to vote. Any by-law, whether adopted, amended or
repealed by the stockholders or directors, may be amended or reinstated by the
stockholders or the directors.
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<PAGE> 1
Exhibit 10.1
COMPUTER MOTION, INC.
TANDEM STOCK OPTION PLAN
THIS TANDEM STOCK OPTION PLAN (the "Plan") is adopted by COMPUTER
MOTION, INC., A CALIFORNIA CORPORATION (the "Company"), with reference to the
following facts:
RECITALS:
---------
A. The Company desires to issue shares of its common stock to certain
employees, consultants and independent contractors (the "Recipients") in order
to reward those Recipients for their contributions to the growth and profits of
the Company.
B. To accomplish that goal, the Company is adopting this Plan to
establish the terms and conditions on which the Company shall issue to such
Recipients options to acquire the Company's common stock.
PLAN:
-----
NOW, THEREFORE, the Company hereby adopts the following Plan:
1. DEFINITIONS
-----------
The following terms shall have the meanings indicated below:
1.1 "BOARD" means the Board of Directors of the Company.
1.2 "CODE" means the Internal Revenue Code of 1986, as amended.
1.3 "EMPLOYMENT TERMINATION DATE" means the date on which a Recipient
ceases to be employed by the Company for any reason.
1.4 "EXERCISE DATE" means the date on which the Recipient delivers to
the Company a written notice that such Recipient elects to exercise an Option
with respect to some or all of the Shares of Stock subject to that Option.
1.5 "EXPIRATION DATE" means, with respect to each Option, the date
specified by the Board as the last date on which the Option may be exercised.
1.6 "GRANT DATE" means the date on which the Board grants an Option to
a Recipient pursuant to this Plan.
1.7 "INCENTIVE OPTION" means an Option which satisfies the requirements
of Code Section 422.
1.8 "NONQUALIFIED OPTION" means an Option which is not an Incentive
Option.
1.9 "OPTION" means an option granted under this Plan to a Recipient
which entitles the Recipient to acquire Shares.
<PAGE> 2
1.10 "OPTION TERM" means the period of time which commences on the
Grant Date and ends on the earlier of the Expiration Date or the date which is
thirty (30) days after the Recipient's Employment Termination Date, during which
the Recipient may exercise an Option granted to the Recipient pursuant to this
Plan.
1.11 "RECIPIENT" means an employee, consultant or independent
contractor of the Company to whom an Option is granted pursuant to this Plan.
1.12 "SHARES" means the shares of common stock of the Company.
1.13 "VESTED PERCENTAGE" means, with respect to each Option, the
portion of the Option in which the Recipient has become vested, as determined
under Section 4.3.2, below.
1.14 "VESTED SHARES" means, with respect to each Option the number of
Shares determined by multiplying (a) the total number of Shares subject to the
Option, times (b) the Recipient's Vested Percentage.
2. COVERED OPTIONS
---------------
2.1 TYPES OF OPTIONS. The Company may grant to Recipients either
Incentive Options or Nonqualified Options. Unless the Board of Directors
designates an Option as an Incentive Option at the time the Option is granted to
the Recipient, the Option shall be a Nonqualified Option.
2.2 APPLICATION OF PLAN. Except as otherwise expressly provided in this
Plan, all the provisions of this Plan relate equally to both Incentive Options
and Nonqualified Options.
3. RESERVATION OF SHARES
---------------------
3.1 NUMBER OF SHARES RESERVED. The Company shall establish a Stock
Option Reserve ("Stock Option Reserve") to which it shall credit Three Million
(3,000,000) Shares of its authorized and unissued stock.
3.2 ISSUANCE OF OPTIONS. The Company may not grant an Option to acquire
Shares unless there are credited to the Stock Option Reserve, immediately prior
to the grant of the Option, the number of Shares to which the Option is to
apply. If an Option is granted for a number of Shares which exceeds the number
of Shares then credited to the Stock Option Reserve, then the Option shall be
effective only with respect to the number of Shares then credited to the Stock
Option Reserve.
3.3 ADJUSTMENT TO RESERVE. So long as this Plan is in effect, the
Company shall not issue any of the Shares credited to the Stock Option Reserve,
except pursuant to the exercise of Options granted under this Plan.
3.3.1 STOCK SPLIT, ETC. If the Company effects a subdivision
or consolidation of Shares or any other capital readjustment, the payment of a
stock dividend, a stock split or reverse stock split, or any other increase or
decrease in the number of the outstanding Shares without receiving compensation
therefor in money, services, or property, then the number of Shares then
credited to the Stock Option Reserve shall:
A. In the event of an increase in the number of
outstanding Shares, be proportionately increased;
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B. In the event of a decrease in the number of
outstanding Shares, be proportionately decreased.
3.3.2 GRANT AND EXERCISE OF OPTIONS. The number of Shares
credited to the Stock Option Reserve shall be (a) reduced by the number of
Shares for which Options are granted under this Plan and (b) increased, upon the
expiration or sooner termination of an Option, by the number of Shares which
were subject to that Option but for which the Option was not exercised.
4. GRANT OF OPTIONS
----------------
4.1 ELIGIBLE INDIVIDUALS. The Company may grant:
4.1.1 INCENTIVE OPTIONS. Incentive Options only to employees
of the Company; provided, a person who is a member of the Board of Directors of
the Company shall be eligible to receive an Incentive Option only if that person
also is an employee of the Company.
4.1.2 NONQUALIFIED OPTIONS. Nonqualified Options to any
employee, independent contractor or consultant of the Company.
4.2 DISCRETIONARY TERMS. Subject to Section 4.3, below, the Board in
its discretion shall determine with respect to each Option granted under this
Plan:
4.2.1 RECIPIENTS. Those Recipients, if any, to whom Options
shall be granted under this Plan.
4.2.2 NUMBER OF SHARES. The number of Shares subject to the
Option;
4.2.3 PRICE. The purchase price per Share subject to each
Option; provided, if the Option is an Incentive Option, then:
A. The purchase price per Share shall be equal to the
fair market value of each such Share as of the Grant Date, as determined by the
Board in good faith; and
B. If the Recipient directly or indirectly owns stock
of the Company possessing more than ten percent (10%) of the total voting power
of all classes of stock of the Company or any parent corporation or subsidiary
of the Company, then (1) the purchase price for the Shares subject to the Option
shall be equal to or greater than one hundred ten percent (110%) of the fair
market value of such Shares as of the Grant Date, and (2) the Option Term for
such Option may not exceed five (5) years.
4.2.4 OTHER MATTERS. Whether:
A. To impose on each Option terms and conditions
which are in addition to, or different from, those imposed on other Options; and
B. To require as a condition to the receipt of an
Option that the Recipient surrender any Options then held by the Recipient to
purchase Shares, whether pursuant to options previously granted to the Recipient
under an employee stock option plan or pursuant to any other option, warrant or
other right then held by the Recipient.
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<PAGE> 4
4.3 MANDATORY TERMS. Each Option granted pursuant to this Plan shall be
subject to the following terms and conditions:
4.3.1 VESTED SHARES. A Recipient may exercise an Option at any
time only with respect to the number of Vested Shares under the Option.
4.3.2 VESTING. Unless a different schedule has been prescribed
by the Board at the time an Option is granted, an Option shall vest at a rate of
five percent (5%) per calendar quarter.
4.3.3 ASSIGNMENTS. No Option granted under this Plan may be
assigned or transferred, except by will or the laws of descent and distribution,
and during the life of the Recipient no Option shall be exercisable by any
person other than the Recipient.
4.3.4 LIMITS ON INCENTIVE OPTIONS. With respect to Incentive
Options only:
A. No Incentive Option granted under this Plan may be
exercised unless the Recipient to whom such Option was granted was an employee
of the Company (or a successor thereto pursuant to a transaction described in
Section 424 of the Code) at all times during the period beginning on the Grant
Date and ending no more than three (3) months prior to the date on which the
option is exercised (subject to the 30-day period set forth in Section 4.3.7,
below).
B. At no time shall the aggregate fair market value
(determined at the time the option is granted) of all Shares with respect to
which Incentive Options (whether they are Options granted under this Plan or are
incentive stock options granted under any other plan sponsored by the Company)
are exercisable for the first time by any employee during any calendar year,
exceed $100,000.
C. Each Incentive Option shall expire to the extent
it is not exercised within ten (10) years after the Grant Date.
4.3.5 TIME OF EXERCISE. Options may be exercised only once
during any calendar quarter and not more than four times in any calendar year.
4.3.6 PARTIAL EXERCISE. If a Recipient exercises an Option as
to some but not all the Shares which are subject to the Option, then the
remaining Shares subject to the Option shall continue to be subject to the
Option and may be purchased upon any subsequent exercise of the Option prior to
the end of the Option Term.
4.3.7 TERMINATION OF OPTION. If a Recipient of an Option who
is an employee terminates employment with the Company, then the Option shall
terminate on the earlier of (a) the Expiration Date, or (b) the date which is
thirty (30) days after the Recipient's Employment Termination Date; provided,
prior to termination the Recipient shall be entitled to exercise the Option with
respect to Vested Shares by delivering the Exercise Notice (as defined in
Section 5.1) to the Company prior to termination of the Option.
4.3.8 ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the
event that the outstanding shares of common stock of the Company are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of a recapitalization, stock
split, combination of shares, reclassification, stock dividend or other change
in the capital structure of the Company, then appropriate adjustment shall be
made by the Board to
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<PAGE> 5
the number of Option Shares subject to the unexercised portion of this Option
and to the exercise price per share, in order to preserve, as nearly as
practical, but not to increase, the benefits of the Recipient under this Option.
Any such adjustment made by the Board shall be conclusive.
4.3.9 MERGERS, REORGANIZATIONS, ETC. In the event that the
Company at any time proposes to sell substantially all of its assets, merge
into, consolidate with or to enter into any other reorganization in which the
Company is not the surviving corporation, the Company shall cause either (a)
outstanding Options to be assumed by the successor corporation or (b) a new
option covering shares of the successor corporation of comparable value to
outstanding Options, with appropriate adjustments as to the number and kind of
shares and the exercise price, be granted to the Recipients. Upon such
assumption or substitution, the terms of the assumed or substituted Option shall
provide that if Recipient is terminated without cause by the successor
corporation all Options shall become immediately exercisable and remain
exercisable for a period of three (3) months after such termination.
4.3.10 RIGHTS AS SHAREHOLDER. No Recipient shall have any
rights as a shareholder of the Company with respect to any Share subject to an
Option until after (a) the Recipient has exercised the Option, and (b) there is
issued to the Recipient a stock certificate evidencing ownership of such share.
No adjustments shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
4.3.11 LISTING AND REGISTRATION. If at any time the Board
determines, in its discretion, that the listing, registration or qualification
of Options granted pursuant to the Plan, or the Shares to be sold and issued
upon exercise of such Options, upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to or in connection with the granting
of Options pursuant to the Plan, or the sale of Shares upon the exercise of such
Options, then no further Options may be granted or Shares sold unless such
listing, registration, qualification, consent or approval shall have been
obtained free of any conditions not acceptable to the Board. The Board may cause
the Company, at its expense, to take any action related to the Plan which may be
required in connection with such listing, registration, qualification, consent
or approval.
4.3.12 STOCK OPTION AGREEMENT. Options granted under this Plan
shall be evidenced by a written Stock Option Agreement, substantially in the
form attached as Exhibit A to this Plan (in the case of Incentive Options), or
by a written Nonqualified Stock Option Agreement substantially in the form
attached as Exhibit B to this Plan (in the case of Nonqualified Options), and in
each case containing such additional terms and conditions consistent with the
provisions of the Plan as are imposed by the Board and which, in the opinion of
the Board, are necessary or desirable for the protection of the Company.
4.4 NOTICE. The Board shall give written notice of any Option granted
under this Plan to the Recipient and to the Company within ten (10) days after
the Grant Date. Each such notice shall specify (a) the number of shares subject
to the Option, (b) the type of Option (Incentive or Nonqualified), (c) the
purchase price for Shares under the Option, (d) the Option Term and (e) the
times at which the Option may be exercised.
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<PAGE> 6
5. ISSUANCE OF SHARES
------------------
5.1 NOTICE OF EXERCISE. To the extent that an Option may be exercised
with respect to Vested Shares under Section 4, above, such Option shall be
exercised only by the Recipient delivering to the Company a written notice (the
"Exercise Notice") stating the number of Shares with respect to which the Option
is being exercised.
5.2 CLOSING. The closing of the purchase and sale of Shares pursuant to
the exercise of an Option shall occur at the offices of the Company on a
mutually agreeable date not more than thirty (30) days after the date on which
the Exercise Notice is delivered to the Company pursuant to Section 5.1, above
(or, if later, the third business day after the date on which the condition
specified in Section 5.2.1, below, is satisfied).
5.2.1 CONDITION PRECEDENT. The obligations of the parties at
the closing shall be subject to the Company's obtaining any permits,
qualifications or other consents that may be required under state or federal
securities laws in connection with the issuance of the Shares.
5.2.2 DELIVERIES AT CLOSING. At the closing:
A. The Recipient shall deliver:
(1) The purchase price for the Shares being
purchased, either in cash or by certified or cashier's check or money order or,
in the discretion of the Company, a number of Shares having a fair market value
as of the date of the closing (as determined by the Board in good faith) equal
to the purchase price due the Company.
(2) An executed Stock Transfer Agreement
pursuant to Section 6, below;
(3) An executed Investment Letter, in
substantially the form set forth as Exhibit C to this Plan; and
(4) Such other documents and instruments as
the Company reasonably may request to effect the closing in compliance with this
Plan and applicable law.
B. The Company shall deliver:
(1) One or more stock certificates
evidencing the Shares being purchased by the Recipient; and
(2) An executed Stock Transfer Agreement
pursuant to Section 6, below.
5.3 LEGEND. All certificates evidencing Shares purchased pursuant to
exercise of an Option shall be imprinted with such legends, if any, as may be
necessary to comply with applicable federal and State securities laws, and also
bear a legend in substantially the following form:
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THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS OF THAT CERTAIN STOCK TRANSFER AGREEMENT BETWEEN THE
COMPANY AND (RECIPIENT) DATED ____________, 19___, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY.
5.4 FAILURE TO COMPLETE PURCHASE. If, upon tender and delivery by the
Company at the closing of the stock certificates required pursuant to Section
5.2, above, the Recipient fails to accept delivery of and to pay for all or any
part of the number of Shares specified in the Exercise Notice, then the Board,
in its discretion, may terminate the Recipient's right to exercise the Option
with respect to such undelivered shares and any other Shares subject to the
Option.
5.5 FULLY PAID SHARES. All Shares issued upon the exercise of Options
granted under this Plan shall be fully paid and nonassessable shares.
6. RESTRICTIONS ON SHARE TRANSFER
------------------------------
6.1 GRANT OF RIGHTS. With respect to all Shares purchased pursuant to
the exercise of an Option (the "Option Shares"), the Company shall have:
6.1.1 FIRST REFUSAL. A right of first refusal to purchase the
Option Shares prior to any sale, encumbrance, or other transfer, whether
voluntarily or by operation of law, other than a transfer to a revocable inter
vivos trust of which the Recipient is the trustor, trustee, and beneficiary, as
further described in Section 6.2, below; and
6.1.2 REPURCHASE OPTION. The right and option (the "Repurchase
Option"), but not the obligation, to purchase such Option Shares upon (a) the
termination of the Recipient's employment or other service engagement with the
Company for any reason, and (b) the death of the Recipient, as further described
in Section 6.3, below.
6.2 FIRST REFUSAL RIGHTS. Prior to any transfer of any Option Shares,
the Recipient shall deliver to the Company a written notice (the "Transfer
Notice") describing (a) the name and address of the proposed transferee; (b) the
proposed purchase price; (c) the number of Option Shares to be sold or
transferred; and (d) the other terms and conditions of the transfer. Such
Transfer Notice shall be treated as an offer by the Recipient to sell the Option
Shares to the Company at the same price, and on the same other terms, as in the
proposed transfer described in the Transfer Notice.
6.2.1 EXERCISE. If the Company wishes to purchase the Option
Shares, then the Company shall deliver to the Recipient, within thirty (30) days
after receiving the Transfer Notice, a written acceptance of the offer. The
closing of the sale of the Option Shares to the Company thereafter shall occur,
at the offices of the Company, within thirty (30) days after the Company accepts
the Recipient's offer.
6.2.2 FAILURE TO EXERCISE. If the Company fails to deliver to
the Recipient within such 30-day period a written acceptance of the Recipient's
offer, then the Recipient may proceed with the proposed transfer to the proposed
transferee, and on the same terms and conditions, described in the Transfer
Notice. If such transfer fails to close within 60 days after the end of such
30-day period, then the Recipient shall be obligated to offer the Option Shares
to the Company
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<PAGE> 8
pursuant to this Section 6.2 prior to transferring those Shares to the proposed
transferee or any other person.
6.3 REPURCHASE OPTION. If a Recipient dies or the Recipient's
employment or other service engagement with the Company is terminated for any
other reason, then during the 90-day period after the occurrence of such event
(the "Marketing Period"), the Recipient shall have the opportunity to sell or
attempt to sell, to any purchaser at whatever price the Recipient is able to
negotiate, any Option Shares then owned by the Recipient. Any such sale or
attempted sale of those Option Shares shall be subject to the right of first
refusal described in Sections 6.1.1 and 6.2, above.
6.3.1 OPTION EXERCISE. If, during the Marketing Period, the
Recipient:
A. Delivers to the Company a Transfer Notice pursuant
to Section 6.2, above, describing a bona fide offer to purchase the Option
shares described in the notice, then the sale of such Option Shares shall be
governed by that Section. If the Company declines to exercise its right of first
refusal and the sale to the proposed transferee fails to close within the 60-day
period described in Section 6.2.2, above, then the Company thereafter shall be
entitled to exercise its Repurchase Option with respect to such Option Shares by
delivering to the Recipient, within 180 days after the end of such 60-day
period, a written notice of its election to exercise of that option (the
"Exercise Notice").
B. Fails to deliver to the Company a Transfer Notice
regarding a bona fide offer to purchase any Option Shares then held by the
Recipient, then the Company may exercise the Repurchase Option with respect to
those Option Shares by delivering an Exercise Notice to the Recipient within one
hundred eighty (180) days after the end of the Marketing Period.
6.3.2 CLOSING. The closing of the sale of the Option Shares to
the Company pursuant to the exercise of the Repurchase Option shall occur at the
offices of the Company on a mutually acceptable date within thirty (30) days
after delivery of the Exercise Notice.
6.3.3 PRICE. The purchase price for each of the Option Shares
shall be determined in accordance with this Section 6.3.3.
A. If the Shares:
(1) Are then traded on an established
securities market, then the purchase price per Share shall be the closing bid
price per share of the Company's Stock quoted on the second business day prior
to the date of the closing; or
(2) Are not then traded on an established
securities market, then the purchase price per Share shall be the greater of (a)
the net book value of such Shares as of the last day of the last calendar month
preceding the date of the closing, or (b) an amount determined by multiplying
ten (10) times the Company's earnings per Share during the twelve-month period
ending on the last day of the last full calendar month immediately preceding the
date of the closing.
B. The net book value per Share shall be determined,
by the Company's independent certified public accountant, by (1) first
allocating the book value of the Company to all of its outstanding capital stock
in such manner as that accountant deems appropriate, and (2) then dividing that
portion of such net book value allocable to all the Shares, by the number of
Shares outstanding on the last day of the last full calendar month preceding the
closing. The Company's net
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<PAGE> 9
book value shall be the excess of the amount of the Company's total assets over
the amount of the Company's total liabilities.
C. The Company's earnings per Share shall be
determined, by the Company's independent certified public accountant, by (1)
allocating the Company's earnings for the 12-month period described in Section
6.3.3.A(2)(b), above, to all the Company's outstanding capital stock in such
manner as that accountant deems appropriate, and (2) then dividing that portion
of such earnings allocable to all the Shares, by the number of Shares
outstanding on the last day of the 12-month period described in Section
6.3.3A(2)(b).
D. All such determinations shall be made in
accordance with generally accepted accounting principles applied on a basis
consistent with those previously applied by the Company.
6.4 STOCK TRANSFER AGREEMENT. Concurrently with a Recipient's purchase
of Shares pursuant to the exercise of an Option, the Recipient and the Company
shall execute a Stock Transfer Agreement in substantially the form set forth at
Exhibit D, evidencing the right of first refusal and Repurchase Option described
in this Section 6.
7. TERM AND AMENDMENT OF PLAN
--------------------------
7.1 TERM. Unless sooner terminated pursuant to Section 7.2, below, this
Plan shall have a term of ten (10) years and shall expire on the tenth (10th)
anniversary of (a) the date of its adoption by the Board, or (b) the date of its
approval by the shareholders of the Company, whichever first occurs.
7.2 AMENDMENT AND TERMINATION. The Board in its sole and absolute
discretion may amend, suspend or terminate the Plan in whole or in part at any
time, but no such amendment, suspension or termination shall adversely affect
the rights or obligations of Recipients with respect to Options granted prior to
the date of any such amendment, suspension or termination; provided,
notwithstanding the foregoing, the shareholders shall be required to approve any
amendment which has the effect of (a) increasing the number of shares subject to
the Plan or (b) changing the designation of the class of employees eligible to
receive options under the Plan.
8. MISCELLANEOUS
-------------
8.1 APPROVAL OF SHAREHOLDERS. This Plan shall be effective only if it
is approved by the shareholders of the Company within the period beginning
twelve (12) months before and ending within twelve (12) months after the date of
its adoption by the Board. Options may be granted under this Plan prior to the
date of its approval by the Company's shareholders, but no such Option may be
exercised until this Plan has been so approved by the shareholders. Upon such
approval, Options previously granted under this Plan shall be given effect
retroactive to their Grant Date.
8.2 USE OF PROCEEDS. The proceeds from the sale of Shares pursuant to
Options granted under this Plan shall constitute general funds of the Company.
8.3 NO RIGHT TO ALLOCATION. No person shall be entitled to receive an
Option under this Plan and no person shall have authority to enter into an
agreement for the granting of an Option or to make any representation or
warranty with respect thereto. No Options shall be earmarked for the
-9-
<PAGE> 10
account of a Recipient nor shall a Recipient have any rights with respect to
such Options until such Options have been issued in accordance with the
provisions of this Plan.
8.4 NO EMPLOYMENT RIGHTS. Neither the adoption of this Plan, nor any
action taken by the Board under the Plan, nor any provision of the Plan, shall
be construed as giving to any person the right to be retained in the employ of
the Company.
8.5 NOTICES. All notices permitted or required by this Plan shall be in
writing and shall be deemed to be delivered and received (a) when personally
delivered, or (b) on the day on which telecopied, or (c) on the third (3rd)
business day after the day on which deposited in the United States mail,
first-class-certified mail, postage prepaid, transmitted or addressed to the
person for whom intended, at the telecopy number or address appearing on the
records of the Company, or such other telecopy number or address, notice of
which is given in the manner contemplated by this Section 8.5.
8.6 GOVERNING LAW. The Plan shall be governed by the Internal Revenue
Code of 1986, as amended, and by the laws of the State of California.
8.7 EFFECTIVE DATE. The effective date of this Plan shall be March 1,
1993.
EXHIBITS
- --------
A Stock Option Agreement (Incentive Options)
B Stock Option Agreement (Nonqualified Options)
C Form of Investment Letter
D Stock Purchase Agreement
-10-
<PAGE> 1
EXHIBIT 10.2
STOCK OPTION AGREEMENT
----------------------
(INCENTIVE STOCK OPTION)
THIS STOCK OPTION AGREEMENT (The "Agreement") is made and entered into,
effective on the date set forth below, by and between COMPUTER MOTION, INC., a
California corporation (the "Company"), and Name (the "Recipient"), with
reference to the following facts:
RECITALS:
- ---------
A. The Company has adopted a Tandem Stock Option Plan (the "Option
Plan") which provides for the issuance of Incentive Stock Options
meeting the requirements of Internal Revenue Code (the "Code")
Section 422 ("Incentive Options") ; and
B. The Recipient is eligible to participate in the Option Plan and
has been selected by the Board of Directors of the Company, which
administers the Plan, to receive an Incentive Option under the
Plan.
AGREEMENT:
- ----------
NOW, THEREFORE, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. GRANT OF OPTION
---------------
1.1 NUMBER OF SHARES. Subject to the terms and conditions of this
Agreement, the Company hereby grants to Recipient an option
(the "Option") to purchase ANumber (BNumber) shares of the
Company's Common Stock (the "Option Shares") at a price of
APrice ($BPrice) per share, which the Board of Directors of
the Company has determined to be at or above the fair market
value of the Option Shares as of the "Grant Date" (as defined
in Section 1.2, below). The parties intend that the Option
shall be treated as an Incentive Option, and the Option
therefore is subject to all restrictions imposed on "incentive
stock options" under the Code and all restrictions imposed on
"Incentive Options" under the Option Plan.
1.2 DATE OF GRANT. The Option is granted as of the GrantDayOfMonth
day of GrantMonth, GrantYear (the "Grant Date").
1.3 OPTION NON-TRANSFERABLE. The Option shall not be assignable or
transferable (except by will or by the laws of intestacy, to
the extent that the representative, heirs, or other successors
of Recipient may exercise the Option within the 30-day period
described in Section 1.5, below), and any attempt at
assignment or other transfer shall cause the Option (and all
of Recipient's Rights hereunder) to expire as of the date of
such attempted transfer.
1.4 TERM. Subject to earlier termination pursuant to Section 1.5,
below, the term of the Option shall (a) commence on the Grant
Date, and (b) continue until the TermDayOfMonth day of
TermMonth, TermYear . To the extent the Option is not
exercised within such period of time (as the same may be
terminated pursuant to Section 1.5, below), the Option and all
of Recipient's rights under this Agreement
1 of 7
<PAGE> 2
(including all such rights with respect to "Vested Shares" as
defined in Section 3, below, and otherwise) shall expire at
the end of that period of time.
1.5 TERMINATION OF OPTION. Notwithstanding any other provision of
this Agreement to the contrary, the Option shall terminate as
to all Option Shares, including both "Vested Shares" (as
defined in Section 3, below) and other Option Shares, and all
of Recipient's rights under this Agreement shall expire,
thirty (30) days following the date on which Recipient's
employment or other service engagement with the Company
terminates for any reason.
2. RIGHTS PRIOR TO EXERCISE OF OPTION
----------------------------------
Prior to the time that the Recipient exercises the Option in the manner
required by this Agreement and receives a share certificate evidencing
the Option Shares, the Recipient shall have no rights as a stockholder
with respect to any Option Shares.
3. VESTING AND EXERCISE
--------------------
3.1 VESTING OF OPTION. The Recipient may exercise the Option only
with respect to Vested Shares.
3.1.1 VESTED SHARES. The number of Vested Shares (the
"Vested Shares") at any time shall be determined by
multiplying (a) the total number of Option Shares set
forth in Section 1.1, above, times (b) the
Recipient's Vested Percentage (as determined in
Section 3.1.2, below).
3.1.2 VESTED PERCENTAGE. Subject to Section 3.1.3 and 4.3,
below, the Recipient's Vested Percentage (the" Vested
Percentage") initially shall be zero, until
completion of the first year of employment at which
time shall be twenty (20.0%), and thereafter shall be
increased by five percent (5.0%) as of each March 31,
June 30, September 30, and December 31 during the
term of the Option until 100% vesting is complete.
3.1.3 ACCELERATION OF VESTING. The Company at any time, in
its sole and absolute discretion, may (but is not
obligated to) increase the Recipient's Vested
Percentage.
3.2 NOTICE. If the Recipient desires to exercise the Option with
respect to some or all of the Vested Shares, then the
Recipient shall deliver to the Company a written notice (the
"Exercise Notice") describing the number of Vested Shares
which the Recipient then desires to purchase.
3.3 TIMING OF EXERCISE. Notwithstanding any other provision of
this Agreement to the contrary, the Option may be exercised
(a) only as to Vested Shares, (b) only once during any
calendar quarter during the term of the Option, and (c) no
more than four times during each calendar year. If the
Recipient exercises the Option with respect to only some of
the Vested Shares, then the Recipient may purchase the
remaining Vested Shares upon any subsequent exercise of the
Option.
2 of 7
<PAGE> 3
4. PURCHASE OF SHARES
------------------
4.1 CLOSING. The closing of the purchase and sale of Vested Shares
pursuant to the exercise of the Option shall occur at the
offices of the Company on a mutually agreeable date not more
than thirty (30) days after the date on which the Exercise
Notice is delivered to the Company pursuant to Section 3.2,
above (or, if later, the third business day after the date on
which the condition specified in Section 4.1.1, below, is
satisfied).
4.1.1 CONDITION PRECEDENT. The obligations of the parties
at the closing shall be subject to the Company's
obtaining any permits, qualifications or other
consents that may be required under state or federal
securities laws in connection with the issuance of
the Vested Shares to be purchased by the Recipient
pursuant to exercise of the Option.
4.1.2 DELIVERIES AT CLOSING. At the closing:
A. The Recipient shall deliver:
(1) the purchase price (as determined under
Section 1.1, above) for the Vested Shares
being purchased, either (a) in cash or by
certified cashier's check or money order, or
(b) in the discretion of the Company, a number
of shares of the Company's outstanding capital
stock having a fair market value as of the
date of the closing (as determined by the
Company's Board of Directors in good faith)
equal to the purchase price due to the
Company.
(2) An executed Stock Transfer Agreement
pursuant to Section 5.2 , below;
(3) An executed Investment Letter, in
substantially the form set forth as an
exhibit to the Option Plan; and
(4) Such other documents and instruments as
the Company reasonably may request to effect
the closing in compliance with the Option
Plan and applicable law.
B. The Company shall deliver:
(1) One or more stock certificates evidencing
the Vested Shares being purchased by the
Recipient; and
(2) An executed Stock Transfer Agreement
pursuant to Section 5.2, below.
4.2 LEGEND. All certificates evidencing Shares purchased pursuant
to exercise of the Option shall be imprinted with such
legends, if any, as may be necessary to comply with applicable
Federal and State securities laws, and also shall bear a
legend in substantially the following form:
3 of 7
<PAGE> 4
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARESUBJECT TO THE
TERMS OF THAT CERTAIN STOCK TRANSFER AGREEMENT BETWEEN THE COMPANY AND
[RECIPIENT] DATED ________________, 19___, A COPY OF WHICH IS AVAILABLE
FOR INSPECTION AT THE OFFICES OF THE COMPANY.
4.3 FAILURE TO COMPLETE PURCHASE. If, upon tender and delivery by
the Company at the closing of the stock certificates required
pursuant to Section 4.1.2, above, the Recipient fails to
accept delivery of and to pay for all or any part of the
number of Vested Shares specified in the Exercise Notice, then
the Board, in its discretion, may terminate the Recipient's
right to Exercise the Option with respect to such undelivered
shares and any other Option Shares not previously purchased by
the Recipient.
4.4 FULLY PAID SHARES. All Option Shares issued upon the exercise
of the Option shall be fully paid and nonassessable shares.
4.5 INVESTMENT REPRESENTATION. RECIPIENT HEREBY REPRESENTS AND
WARRANTS TO THE COMPANY THAT RECIPIENT IS ACQUIRING THE
OPTION, AND SHALL PURCHASE ALL SHARES ACQUIRED PURSUANT TO
EXERCISE OF THE OPTION, SOLELY AS AN INVESTMENT FOR
RECIPIENT'S OWN ACCOUNT, AND NOT WITH A VIEW TOWARDS OR IN
CONNECTION WITH OR WITH ANY INTENTION OF ANY SUBSEQUENT SALE,
TRANSFER OR OTHER DISTRIBUTION OF THE SHARES.
5. ADDITIONAL CONDITIONS OF OPTION
-------------------------------
In addition to the other terms and conditions set forth in this
Agreement:
5.1 ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event
that the outstanding shares of common stock of the Company are
hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities
of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or
other change in the capital structure of the Company, than
appropriate adjustment shall be made by the Board of Directors
to the number of Option Shares subject to the unexercised
portion of this Option and to the exercise price per share, in
order to preserve, as nearly as practical, but not to
increase, the benefits of the Recipient under this Option, in
accordance with the provisions of Section 4.3.8 of the Plan.
5.2 MERGERS, REORGANIZATION, ETC. In the event that the Company at
any time proposes to sell substantially all of its assets,
merge into, consolidate with or to enter into any other
reorganization in which the Company is not the surviving
corporation, the Company shall cause either (a) this Option to
be assumed by the successor corporation or (b) a new option
covering shares of the successor corporation of comparable
value to this Option, with appropriate adjustments as to the
number and kind of shares and the exercise price, be granted
to the Recipient. In such event, upon such assumption or
substitution, the terms of the assumed or substituted. Option
shall provide that if Recipient is terminated without cause by
the successor corporation all Options shall become immediately
exercisable and remain exercisable for a period of three (3)
months after such termination.
4 of 7
<PAGE> 5
5.3 RESTRICTION ON TRANSFER. Recipient acknowledges and agrees
that all Option Shares purchased pursuant to exercise of the
Option shall be subject to the restrictions on transfer
described in the Option Plan, and as a condition of purchasing
any such Option Shares, the Recipient shall execute a Stock
Transfer Agreement, in the form described in the Option Plan,
evidencing those restrictions.
5.4 LISTING AND REGISTRATION. If at any time the Board of
Directors of the Company shall determine, in its discretion,
that it is necessary or desirable either (a) to list,
register, or qualify options granted pursuant to the Plan, or
the shares to be sold and issued upon exercise of such
options, upon any securities exchange or under any state or
federal law, or (b) to obtain the consent or approval of any
governmental regulatory body, to the issuance of such options
or sale of such shares, then no further Option Shares shall be
sold unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors. The Board
of Directors shall have the authority to cause the Company, at
its expense, to take any action related to the Plan which may
be required in connection with such listing, registration,
qualification, consent or approval.
5.5 TERMS OF OPTION PLAN. This Agreement is entered into pursuant
to the terms and conditions of the Company's Option Plan and
is subject to all of the terms and conditions of such Plan.
Any conflict between this Agreement and the terms and
conditions of the Option Plan shall be resolved in favor of
the provisions of the Option Plan.
5.6 ACKNOWLEDGMENT RE TAX MATTERS. Recipient acknowledges and
agrees that:
5.6.1 ADVISORS. The Company has urged Recipient to seek
advice from a tax advisor regarding the income tax
consequences of the granting of the Option and the
issuance of Options Shares pursuant to the exercise
of the Options:
5.6.2 NO RELIANCE. The Recipient shall not rely upon
Company, or any of its agents, regarding the income
tax consequences of such matters; and
5.6.3 COMPANY NOT RESPONSIBLE. The Company shall not be
responsible for ensuring that the granting of the
Option, or the exercise of the Option, or the holding
or sale of Option Shares by Recipient, or any other
matter or aspect of such transactions, enable
Recipient to achieve any particular income tax
result, including but not limited to treatment of the
Option as an "Incentive Stock Option" under Code
Section 422.
6. MISCELLANEOUS
-------------
6.1 BINDING EFFECT. This Agreement shall be binding upon, and
inure to the benefit of, the Company and the Recipient,
respectively, and their respective executors, administrators,
successors, and assigns.
6.2 COMPLIANCE WITH LAWS. The Company may file such forms,
reports, and other information (including information
pertaining to Recipient) as may be necessary or appropriate
for ensuring that the granting of the Option, the exercise of
the Option,
5 of 7
<PAGE> 6
and the sale of Option Shares to Recipient pursuant to
exercise of the Option comply fully with cognizant provisions
of federal and California laws regulating the sale, issuance,
or other transfer of securities.
6.3 EFFECTIVE DATE. The effective date of this Agreement shall be
the Grant Date set forth in Section 1.2, above.
(Signatures appear on the following page)
6 of 7
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement on the
date set forth opposite their respective names.
"COMPANY"
COMPUTER MOTION, INC.
__________________________ By: ____________________________
Date
Title: _________________________
Address for Notices:
Computer Motion, Inc.
130 Cremona Drive, Suite B
Goleta, California 93117
"RECIPIENT"
___________________________ By: ____________________________
Date Signature of Recipient
--------------------------------
(Printed Name of Recipient)
--------------------------------
Recipient's Social Security Number
Address for Notices:
__________________________________
__________________________________
__________________________________
__________________________________
7 of 7
<PAGE> 8
STOCK OPTION AGREEMENT
(NONQUALIFIED STOCK OPTION)
THIS STOCK OPTION AGREEMENT (The "Agreement") is made and entered into,
effective on the date set forth below, by and between COMPUTER MOTION, INC., a
California corporation (the "Company"), and Name (the "Recipient"), with
reference to the following facts:
RECITALS:
- ---------
1. The Company has adopted a Tandem Stock Option Plan (the "Option Plan")
which provides for the issuance of Stock Options to its employees and
other persons providing services to the Company; and
2. The Recipient is eligible to participate in the Option Plan and has
been selected by the Board of Directors of the Company, which
administers the Plan, to receive a Stock Option under the plan.
AGREEMENT:
- ----------
NOW, THEREFORE, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. GRANT OF OPTION
1.1 NUMBER OF SHARES. Subject to the terms and conditions of this
Agreement, the Company hereby grants to Recipient an option
(the "Option") to purchase ANumberOfShares (BNumberOfShares)
shares of the Company's Common Stock (the "Option Shares") at
a price of APriceOfShares ($ BPriceOfShares) per share. The
parties intend that the Option shall not be treated as an
"Incentive Option" (as such term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended).
1.2 DATE OF GRANT. The Option is granted as of the GrantDayOfMonth
day of GrantMonth, GrantY (the "Grant Date").
1.3 OPTION NON-TRANSFERABLE. The Option shall not be assignable or
transferable (except by will or by the laws of intestacy, to
the extent that the representative, heirs, or other successors
of Recipient may exercise the Option within the 30-day period
described in Section 1.5, below), and any attempt at
assignment or other transfer shall cause the Option (and all
of Recipient's Rights hereunder) to expire as of the date of
such attempted transfer.
<PAGE> 9
1.4 TERM. Subject to earlier termination pursuant to Section 1.5,
below, the term of the Option shall (a) commence on the Grant
Date, and (b) continue until the TermDayOfMonth day of
TermMonth, TermYear . To the extent the Option is not
exercised within such period of time (as the same may be
terminated pursuant to Section 1.5, below), the Option and all
of Recipient's rights under this Agreement (including all such
rights with respect to "Vested Shares" as defined in Section
3, below, and otherwise) shall expire at the end of that
period of time.
1.5 TERMINATION OF OPTION. Notwithstanding any other provision of
this Agreement to the contrary, the Option shall terminate as
to all Option Shares, including both "Vested Shares" (as
defined in Section 3, below) and other Option Shares, and all
of Recipient's rights under this Agreement shall expire,
thirty (30) days following the date on which Recipient's
employment or other service engagement with the Company
terminates for any reason.
2. RIGHTS PRIOR TO EXERCISE OF OPTION
----------------------------------
Prior to the time that the Recipient exercises the Option in the manner
required by this Agreement and receives a share certificate evidencing
the Option Shares, the Recipient shall have no rights as a stockholder
with respect to any Option Shares.
3. VESTING AND EXERCISE
--------------------
3.1 VESTING OF OPTION. The Recipient may exercise the Option only
with respect to Vested Shares.
3.1.1 VESTED SHARES. The number of Vested Shares (the
"Vested Shares") at any time shall be determined by
multiplying (a) the total number of Option Shares set
forth in Section 1.1, above, times (b) the
Recipient's Vested Percentage (as determined in
Section 3.1.2, below).
3.1.2 VESTED PERCENTAGE. Subject to Section 3.1.3 and 4.3,
below, the Recipient's Vested Percentage (the "Vested
Percentage") initially shall be zero and thereafter
shall be increased by eight point three seven percent
(8.37%) on September 30, 1996 and thereafter shall be
increased by eight point three three percent (8.33%)
as of each March 31, June 30, September 30, and
December 31 during the term of the Option until 100%
vesting is complete.
3.1.3 ACCELERATION OF VESTING. The Company at any time, in
its sole and absolute discretion, may (but is not
obligated to) increase the Recipient's Vested
Percentage.
3.2 NOTICE. If the Recipient desires to exercise the Option with
respect to some or all of the Vested Shares, then the
Recipient shall deliver to the Company a written notice (the
"Exercise Notice") describing the number of Vested Shares
which the Recipient then desires to purchase.
<PAGE> 10
3.3 TIMING OF EXERCISE. Notwithstanding any other provision of
this Agreement to the contrary, the Option may be exercised
(a) only as to Vested Shares, (b) only once during any
calendar quarter during the term of the Option, and (c) no
more than four times during each calendar year. If the
Recipient exercises the Option with respect to only some of
the Vested Shares, then the Recipient may purchase the
remaining Vested Shares upon any subsequent exercise of the
Option.
4. PURCHASE OF SHARES
------------------
4.1 CLOSING. The closing of the purchase and sale of Vested Shares
pursuant to the exercise of the Option shall occur at the
offices of the Company on a mutually agreeable date not more
than thirty (30) days after the date on which the Exercise
Notice is delivered to the Company pursuant to Section 3.2,
above (or, if later, the third business day after the date on
which the condition specified in Section 4.1.1, below, is
satisfied).
4.1.1 CONDITION PRECEDENT. The obligations of the parties
at the closing shall be subject to the Company's
obtaining any permits, qualifications or other
consents that may be required under state or federal
securities laws in connection with the issuance of
the Vested Shares to be purchased by the Recipient
pursuant to exercise of the Option.
4.1.2 DELIVERIES AT CLOSING. At the closing:
A. The Recipient shall deliver:
(1) the purchase price (as determined under
Section 1.1, above) for the Vested
Shares being purchased, either (a) in
cash or by certified cashier's check or
money order, or (b) in the discretion of
the Company, a number of shares of the
Company's outstanding capital stock
having a fair market value as of the
date of the closing (as determined by
the Company's Board of Directors in good
faith) equal to the purchase price due
to the Company.
(2) an executed Stock Transfer Agreement
pursuant to Section 5.2, below;
(3) an executed Investment Letter, in
substantially the form set forth as an
exhibit to the Option Plan; and
(4) such other documents and instruments as
the Company reasonably may request to
effect the closing in compliance with
the Option Plan and applicable law.
B. The Company shall deliver:
(1) One or more stock certificates
evidencing the Vested Shares being
purchased by the Recipient; and
(2) An executed Stock Transfer Agreement
pursuant to Section 5.2, below.
<PAGE> 11
4.2 LEGEND. All certificates evidencing Shares purchased pursuant
to exercise of the Option shall be imprinted with such
legends, if any, as may be necessary to comply with applicable
Federal and State securities laws, and also shall bear a
legend in substantially the following form:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS OF THAT CERTAIN STOCK TRANSFER AGREEMENT BETWEEN
THE COMPANY AND [RECIPIENT] DATED ________________, 19___, A
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF
THE COMPANY.
4.3 FAILURE TO COMPLETE PURCHASE. If, upon tender and delivery by
the Company at the closing of the stock certificates required
pursuant to Section 4.1.2, above, the Recipient fails to
accept delivery of and to pay for all or any part of the
number of Vested Shares specified in the Exercise Notice, then
the Board, in its discretion, may terminate the Recipient's
right to Exercise the Option with respect to such undelivered
shares and any other Option Shares not previously purchased by
the Recipient.
4.4 FULLY PAID SHARES. All Option Shares issued upon the exercise
of the Option shall be fully paid and nonassessable shares.
4.5 INVESTMENT REPRESENTATION. RECIPIENT HEREBY REPRESENTS AND
WARRANTS TO THE COMPANY THAT RECIPIENT IS ACQUIRING THE
OPTION, AND SHALL PURCHASE ALL SHARES ACQUIRED PURSUANT TO
EXERCISE OF THE OPTION, SOLELY AS AN INVESTMENT FOR
RECIPIENT'S OWN ACCOUNT, AND NOT WITH A VIEW TOWARDS OR IN
CONNECTION WITH OR WITH ANY INTENTION OF ANY SUBSEQUENT SALE,
TRANSFER OR OTHER DISTRIBUTION OF THE SHARES.
5. ADDITIONAL CONDITIONS OF OPTION
In addition to the other terms and conditions set forth in this
Agreement:
5.1 ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event
that the outstanding shares of common stock of the Company are
hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities
of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or
other change in the capital structure of the Company, than
appropriate adjustment shall be made by the Board of Directors
to the number of Option Shares subject to the unexercised
portion of this Option and to the exercise price per share, in
order to preserve, as nearly as practical, but not to
increase, the benefits of the Recipient under this Option, in
accordance with the provisions of Section 4.3.8 of the Plan.
<PAGE> 12
5.2 MERGERS, REORGANIZATION, ETC. In the event that the Company at
any time proposes to sell substantially all of its assets,
merge into, consolidate with or to enter into any other
reorganization in which the Company is not the surviving
corporation, the Company shall cause either (a) this Option to
be assumed by the successor corporation or (b) a new option
covering shares of the successor corporation of comparable
value to this Option, with appropriate adjustments as to the
number and kind of shares and the exercise price, be granted
to the Recipient. In such event, upon such assumption or
substitution, the terms of the assumed or substituted. Option
shall provide that if Recipient is terminated without cause by
the successor corporation all Options shall become immediately
exercisable and remain exercisable for a period of three (3)
months after such termination.
5.3. RESTRICTION ON TRANSFER. Recipient acknowledges and agrees
that all Option Shares purchased pursuant to exercise of the
Option shall be subject to the restrictions on transfer
described in the Option Plan, and as a condition of purchasing
any such Option Shares, the Recipient shall execute a Stock
Transfer Agreement, in the form described in the Option Plan,
evidencing those restrictions.
5.4 LISTING AND REGISTRATION. If at any time the Board of
Directors of the Company shall determine, in its discretion,
that it is necessary or desirable either (a) to list,
register, or qualify options granted pursuant to the Plan, or
the shares to be sold and issued upon exercise of such
options, upon any securities exchange or under any state or
federal law, or (b) to obtain the consent or approval of any
governmental regulatory body, to the issuance of such options
or sale of such shares, then no further Option Shares shall be
sold unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors. The Board
of Directors shall have the authority to cause the Company, at
its expense, to take any action related to the Plan which may
be required in connection with such listing, registration,
qualification, consent or approval.
5.5 TERMS OF OPTION PLAN. This Agreement is entered into pursuant
to the terms and conditions of the Company's Option Plan and
is subject to all of the terms and conditions of such Plan.
Any conflict between this Agreement and the terms and
conditions of the Option Plan shall be resolved in favor of
the provisions of the Option Plan.
5.6 ACKNOWLEDGMENT RE TAX MATTERS. Recipient acknowledges and
agrees that:
5.6.1 ADVISORS. The Company has urged Recipient to seek
advice from a tax advisor regarding the income tax
consequences of the granting of the Option and the
issuance of Options Shares pursuant to the exercise
of the Options;
5.6.2 NO RELIANCE. The Recipient shall not rely upon
Company, or any of its agents, regarding the income
tax consequences of such matters; and
<PAGE> 13
5.6.3 COMPANY NOT RESPONSIBLE. The Company shall not be
responsible for ensuring that the granting of the
Option, or the exercise of the Option, or the holding
or sale of Option Shares by Recipient, or any other
matter or aspect of such transactions, enable
Recipient to achieve any particular income tax
result, including but not limited to treatment of the
Option as an "Incentive Stock Option" under Code
Section 422.
6. MISCELLANEOUS
-------------
6.1 BINDING EFFECT. This Agreement shall be binding upon, and
inure to the benefit of, the Company and the Recipient,
respectively, and their respective executors, administrators,
successors, and assigns.
6.2 COMPLIANCE WITH LAWS. The Company may file such forms,
reports, and other information (including information
pertaining to Recipient) as may be necessary or appropriate
for ensuring that the granting of the Option, the exercise of
the Option, and the sale of Option Shares to Recipient
pursuant to exercise of the Option comply fully with cognizant
provisions of federal and California laws regulating the sale,
issuance, or other transfer of securities.
6.3 EFFECTIVE DATE. The effective date of this Agreement shall be
the Grant Date set forth in Section 1.2, above.
(Signatures appear on the following page)
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Stock Option Agreement on the
date set forth opposite their respective names.
"COMPANY"
COMPUTER MOTION, INC.
________________________________ By: _______________________________
Date
Title: _______________________________
Address for Notices:
Computer Motion, Inc.
130 Cremona Drive, Suite B
Goleta, California 93117
"RECIPIENT"
_________________________________ By: __________________________________
Date
----------------------------------
Signature of Recipient
----------------------------------
Printed Name of Recipient
----------------------------------
Recipient's Social Security Number
Address for Notices:
__________________________________
__________________________________
__________________________________
__________________________________
<PAGE> 1
EXHIBIT 10.3
COMPUTER MOTION, INC.
1997 STOCK INCENTIVE PLAN
This 1997 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
Computer Motion, Inc., a California corporation (the "Company"), and adopted by
its Board of Directors as of the ____ day of April, 1997 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction in which the holders of the
outstanding voting securities of the Company immediately prior to such merger or
consolidation hold, in the aggregate, securities possessing more than fifty
percent (50%) of the total combined voting power of all outstanding voting
securities of the surviving entity immediately after such merger or
consolidation; (iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of all outstanding voting securities of the Company
are transferred to or acquired by a person or persons different from the persons
holding
<PAGE> 2
those securities immediately prior to such merger; (iv) the sale, transfer or
other disposition (in one transaction or a series of related transactions) of
all or substantially all of the assets of the Company; or (v) approval by the
shareholders of a plan or proposal for the liquidation or dissolution of the
Company.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, no par value,
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan
is adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per
share of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading
on a NASDAQ market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on such NASDAQ market system or principal stock exchange on which the Common
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted on such day, then the Fair Market Value shall be the closing sale price
of the Common Stock on such NASDAQ market system or such exchange on the next
preceding day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to
trading on a NASDAQ market system or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of valuation, which determination
shall be conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
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<PAGE> 3
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that
is not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per
share of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
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<PAGE> 4
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company
or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 2,000,000 shares of Common
Stock may be issued under the Plan, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option or Right to Purchase
granted or offered under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
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<PAGE> 5
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall
be evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
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<PAGE> 6
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise; (d)
the
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<PAGE> 7
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant's employment, service as a director of the Company
or Service Provider status for any reason whatsoever (including death or
disability), the Stock Purchase Agreement may provide, in the discretion of the
Administrator, that the Company shall have the right, exercisable at the
discretion of the Administrator, to repurchase (i) at the original Purchase
Price, any shares of Restricted Stock which have not vested as of the date of
termination, and (ii) at Fair Market Value, any shares of Restricted Stock which
have vested as of such date, on such terms as may be provided in the Stock
Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be
assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
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<PAGE> 8
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights with
respect to Options and Rights to Purchase in the event of a Change in Control of
the Company, (i) the vesting of Options or Rights to Purchase shall
automatically accelerate immediately prior to the consummation of such Change in
Control, and (ii) the Administrator in its discretion may, at any time an Option
or Right to Purchase is granted, or at any time thereafter, take one or more of
the following actions: (A) provide for the purchase or exchange of each Option
or Right to Purchase for an amount of cash or other property having a value
equal to the difference, or spread, between (x) the value of the cash or other
property that the Participant would have received pursuant to such Change in
Control transaction in exchange for the shares issuable upon exercise of the
Option or Right to Purchase had the Option or Right to Purchase been exercised
immediately prior to such Change in Control transaction and (y) the Exercise
Price of such Option or the Purchase Price under such Right to Purchase, (B)
adjust the terms of the Options and Rights to Purchase in a manner determined by
the Administrator to reflect the Change in Control, (C) cause the Options and
Rights to Purchase to be assumed, or new rights substituted therefor, by another
entity, through the continuance of the Plan and the assumption of outstanding
Options and Rights to Purchase, or the substitution for such Options and Rights
to Purchase of new options and
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<PAGE> 9
new rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the number and kind of shares
and Exercise Prices, in which event the Plan and such Options and Rights to
Purchase, or the new options and rights to purchase substituted therefor, shall
continue in the manner and under the terms so provided, or (D) make such other
provision as the Administrator may consider equitable. If the Administrator does
not take any of the forgoing actions, all Options and Rights to Purchase shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to all
Participants not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction. If the Administrator does not cause the
assumption or substitution as set forth in clause (C) of the preceding sentence,
the time periods relating to the exercise or realization of all outstanding
Options, Rights to Purchase and Restricted Stock shall automatically accelerate
immediately prior to the consummation of such Change in Control. If the
Administrator does cause such assumption or substitution, and a Participant is
subsequently terminated involuntarily and without cause, then the time periods
relating to the exercise or realization of all Options, Rights to Purchase and
Restricted Stock that were held by such Participant at the time of the Change of
Control and which remain unexercised or subject to forfeiture shall
automatically accelerate immediately prior to such termination or resignation.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend
or terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in
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<PAGE> 10
part, up to an amount determined on the basis of the highest marginal tax rate
applicable to such Participant, by (a) directing the Company to apply shares of
Common Stock to which the Participant is entitled as a result of the exercise of
an Option or as a result of the purchase of or lapse of restrictions on
Restricted Stock or (b) delivering to the Company shares of Common Stock owned
by the Participant. The shares of Common Stock so applied or delivered in
satisfaction of the Participant's tax withholding obligation shall be valued at
their Fair Market Value as of the date of measurement of the amount of income
subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to limit the right of the Company or any Affiliated Company to
discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company
or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 2,000,000 shares of Common
Stock may be issued under the Plan, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option or Right to Purchase
granted or offered under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
<PAGE> 1
EXHIBIT 10.4
COMPUTER MOTION, INC
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This Stock Option Agreement (the "Agreement") is entered into as of
, 19__, by and between Computer Motion, Inc., a California corporation
(the "Company"), and_______________________________ (the "Optionee") pursuant to
the Company's 1997 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(the "Option") to purchase all or any portion of a total of ___________________
(________________) shares (the "Shares") of the Common Stock of the Company at a
purchase price of ________________________($________ ) per share (the "Exercise
Price"), subject to the terms and conditions set forth herein and the provisions
of the Plan. If the box marked "Incentive" above is checked, then this Option is
intended to qualify as an "incentive stock option" as defined in Section 422 of
the Internal Revenue Code of l986, as amended (the "Code"). If this Option fails
in whole or in part to qualify as an incentive stock option, or if the box
marked "Nonqualified" is checked, then this Option shall to that extent
constitute a nonqualified stock option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment, as follows:
<TABLE>
<CAPTION>
(_______) This Option shall be
On or After: Exercisable as to:
------------ ------------------
<S> <C> <S>
(i)___________________ , 19___: _____________________ shares
(ii)__________________ , 19___: an additional _____________________ shares
(iii)_________________ , 19___: an additional _____________________ shares
(iv)__________________ , 19___: an additional _____________________ shares
</TABLE>
No additional shares shall vest after the date of termination of Optionee's
"Continuous Service" (as defined in Section 3 below), but this Option shall
continue to be exercisable in accordance with Section 3 hereof with respect to
that number of shares that have vested as of the date of termination of
Optionee's Continuous Service.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
terminate upon the first to occur of the following:
(a) the expiration of ____ (___) years from the date of this
Agreement;
(b) the expiration of three (3) months from the date of termination
of Optionee's Continuous Service if such termination occurs for any reason other
than permanent disability, death or
<PAGE> 2
voluntary resignation; provided, however, that if Optionee dies during such
three-month period the provisions of Section 3(e) below shall apply;
(c) the expiration of one (1) month from the date of termination of
Optionee's Continuous Service if such termination occurs due to voluntary
resignation; provided, however, that if Optionee dies during such one-month
period the provisions of Section 3(e) below shall apply;
(d the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to permanent disability
of the Optionee (as defined in Section 22(e)(3) of the Code);
(e) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or
(f) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 11
below.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code), or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the Company
until Optionee resigns, is removed from office, or Optionee's term of office
expires and he or she is not reelected, or (iii) so long as Optionee is engaged
as a consultant or service provider to the Company or other corporation referred
to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of
this Option in accordance with Sections 2 or 11 hereof, and until termination of
the right to exercise this Option in accordance with Section 3 above, the
portion of this Option which has vested may be exercised in whole or in part by
the Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment
of the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any, recognized
by the Optionee in connection with the exercise of this Option (unless the
Company and Optionee shall have made other arrangements for deductions or
withholding from Optionee's wages, bonus or other compensation payable to
Optionee, or by the withholding of Shares issuable upon exercise of this Option
or the delivery of Shares owned by the Optionee in accordance with Section 10.1
of the Plan, provided such arrangements satisfy the requirements of applicable
tax laws); and
2
<PAGE> 3
(d) a letter, if requested by the Company, in such form and
substance as the Company may require, setting forth the investment intent of the
Optionee, or person designated in Section 5 below, as the case may be.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee
under this Agreement may not be assigned or transferred except by will or by the
laws of descent and distribution, and may be exercised during the lifetime of
the Optionee only by such Optionee. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of this Option in contravention of this
Agreement or the Plan shall be void and shall have no effect. If the Optionee's
Continuous Service terminates as a result of his or her death, and provided
Optionee's rights hereunder shall have vested pursuant to Section 2 hereof,
Optionee's legal representative, his or her legatee, or the person who acquired
the right to exercise this Option by reason of the death of the Optionee
(individually, a "Successor") shall succeed to the Optionee's rights and
obligations under this Agreement. After the death of the Optionee, only a
Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Shares under the Securities Act
of l933, as amended (the "Securities Act"), on the basis of certain exemptions
from such registration requirement. Accordingly, Optionee agrees that his or her
exercise of the Option may be expressly conditioned upon his or her delivery to
the Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such
non-registration under the Securities Act and the resulting restrictions on
transfer. Optionee acknowledges that, because Shares received upon exercise of
an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RIGHT OF FIRST REFUSAL.
(a) The Shares acquired pursuant to the exercise of this Option may
be sold by the Optionee only in compliance with the provisions of this Section
7, and subject in all cases to compliance with the provisions of Section 6(b)
hereof. Prior to any intended sale, Optionee shall first give written notice
(the "Offer Notice") to the Company specifying (i) his or her bona fide
intention to sell or otherwise transfer such Shares, (ii) the name and address
of the proposed purchaser(s), (iii) the number of Shares the Optionee proposes
to sell (the "Offered Shares"), (iv) the price for which he or she proposes to
sell the Offered Shares, and (v) all other material terms and conditions of the
proposed sale.
3
<PAGE> 4
(b) Within 30 days after receipt of the Offer Notice, the Company or
its nominee(s) may elect to purchase all or any portion of the Offered Shares at
the price and on the terms and conditions set forth in the Offer Notice by
delivery of written notice (the "Acceptance Notice") to the Optionee specifying
the number of Offered Shares that the Company or its nominees elect to purchase.
Within 15 days after delivery of the Acceptance Notice to the Optionee, the
Company and/or its nominee(s) shall deliver to the Optionee payment of the
amount of the purchase price of the Offered Shares to be purchased pursuant to
this Section 7, against delivery by the Optionee of a certificate or
certificates representing the Offered Shares to be purchased, duly endorsed for
transfer to the Company or such nominee(s), as the case may be. Payment shall be
made on the same terms as set forth in the Offer Notice or, at the election of
the Company or its nominees(s), by check or wire transfer of funds. If the
Company and/or its nominee(s) do not elect to purchase all of the Offered
Shares, the Optionee shall be entitled to sell the balance of the Offered Shares
to the purchaser(s) named in the Offer Notice at the price specified in the
Offer Notice or at a higher price and on the terms and conditions set forth in
the Offer Notice; provided, however, that such sale or other transfer must be
consummated within 60 days from the date of the Offer Notice and any proposed
sale after such 60-day period may be made only by again complying with the
procedures set forth in this Section 7.
(c) The Optionee may transfer all or any portion of the Shares to a
trust established for the sole benefit of the Optionee and/or his or her spouse
or children without such transfer being subject to the right of first refusal
set forth in this Section 7, provided that the Shares so transferred shall
remain subject to the terms and conditions of this Agreement and no further
transfer of such Shares may be made without complying with the provisions of
this Section 7.
(d) Any Successor of Optionee pursuant to Section 5 hereof, and any
transferee of the Shares pursuant to this Section 7, shall hold the Shares
subject to the terms and conditions of this Agreement and no further transfer of
the Shares may be made without complying with the provisions of this Section 7.
(e) The provisions of this Section 7 shall not apply to a sale of
the Shares to the Company pursuant to Section 8 below.
(f) The rights provided the Company and its nominee(s) under this
Section 7 shall terminate upon the closing of the initial public offering of
shares of the Company's Common Stock pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act.
8. COMPANY'S REPURCHASE RIGHT.
(a) The Company shall have the right (but not the obligation) to
repurchase (the "Repurchase Right") any or all of the Shares acquired pursuant
to the exercise of this Option in the event that the Optionee's Continuous
Service (as defined in Section 3 above) should terminate for any reason
whatsoever, including without limitation Optionee's death, disability, voluntary
resignation or termination by the Company with or without cause. Upon exercise
of the Repurchase Right, the Optionee shall be obligated to sell his or her
Shares to the Company, as provided in this Section 8. The Repurchase Right may
be exercised by the Company at any time during the period commencing on the date
of termination of Optionee's Continuous Service and ending sixty (60) days after
the last to occur of the following:
(i) the termination of Optionee's Continuous Service;
4
<PAGE> 5
(ii) the expiration of Optionee's right to exercise this
Option pursuant to Section 3 hereof; or
(iii) in the event of Optionee's death, receipt by the
Company of notice of the identity and address of Optionee's Successor (as
defined in Section 5 hereof).
(b) The purchase price for Shares repurchased hereunder (the
"Repurchase Price") shall be the Fair Market Value per share of Common Stock
(determined in accordance with Section 2.11 of the Plan) as of the date of
termination of Optionee's Continuous Service.
(c) Written notice of exercise of the Repurchase Right, stating the
number of Shares to be repurchased and the Repurchase Price per Share, shall be
given by the Company to the Optionee or his or her Successor, as the case may
be, during the period specified in Section 8(a) above.
(d) The Repurchase Price shall be payable, at the option of the
Company, by check or by cancellation of all or a portion of any outstanding
indebtedness of Optionee to the Company, or by any combination thereof. The
Repurchase Price shall be paid without interest within thirty (30) days after
delivery of the notice of exercise of the Repurchase Right, against delivery by
the Optionee or his or her Successor of a certificate or certificates
representing the Shares to be repurchased, duly endorsed for transfer to the
Company.
(e) The rights provided the Company under this Section 8 shall
terminate upon the closing of the initial public offering of shares of the
Company's Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act.
9. RESTRICTIVE LEGENDS.
(a) Optionee hereby acknowledges that federal securities laws and
the securities laws of the state in which he or she resides may require the
placement of certain restrictive legends upon the Shares issued upon exercise of
this Option, and Optionee hereby consents to the placing of any such legends
upon certificates evidencing the Shares as the Company, or its counsel, may deem
necessary or advisable.
(b) In addition, all stock certificates evidencing the Shares shall
be imprinted with a legend substantially as follows:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS
AND A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION
AND/OR ITS NOMINEE(S), AS SET FORTH IN A STOCK OPTION
AGREEMENT DATED _________ __, 19__. TRANSFER OF THESE SHARES
MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF SAID
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF SAID CORPORATION. SUCH TRANSFER RESTRICTIONS, REPURCHASE
RIGHTS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES."
10. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that
the outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or
5
<PAGE> 6
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend or other change in the capital structure of the
Company, then appropriate adjustment shall be made by the Administrator to the
number of Shares subject to the unexercised portion of this Option and to the
Exercise Price per share, in order to preserve, as nearly as practical, but not
to increase, the benefits of the Optionee under this Option, in accordance with
the provisions of Section 4.2 of the Plan.
11. CHANGE IN CONTROL. In the event of a Change in Control (as
defined in Section 2.4 of the Plan) of the Company, (i) the vesting of this
Option pursuant to Section 2 above shall automatically accelerate immediately
prior to the consummation of such Change in Control, and (ii) the Administrator
in its discretion may take one or more of the following actions: (A) provide for
the purchase or exchange of this Option for an amount of cash or other property
having a value equal to the difference, or spread, between (x) the value of the
cash or other property that the Optionee would have received pursuant to such
Change in Control transaction in exchange for the shares issuable upon exercise
of this Option had this Option been exercised immediately prior to such Change
in Control transaction and (y) the Exercise Price, (B) adjust the terms of this
Option in a manner determined by the Administrator to reflect the Change in
Control, (C) cause this Option to be assumed, or new rights substituted
therefor, by another entity, through the continuance of the Plan and the
assumption of this Option, or the substitution for this Option of a new option
of comparable value covering shares of a successor corporation, with appropriate
adjustments as to the number and kind of shares and Exercise Price, in which
event the Plan and this Option, or the new option substituted therefor, shall
continue in the manner and under the terms so provided, or (D) make such other
provision as the Administrator may consider equitable. If the Administrator does
not take any of the forgoing actions, this Option shall terminate upon the
consummation of the Change in Control and the Administrator shall cause written
notice of the proposed transaction to be given to the Optionee not less than
fifteen (15) days prior to the anticipated effective date of the proposed
transaction.
12. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this
Option nor the exercise hereof shall be construed as granting to the Optionee
any right with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved.
13. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this
option by will or by the laws of descent and distribution) shall have no rights
as a shareholder with respect to any Shares covered by this Option until the
date of the issuance of a stock certificate or certificates to him or her for
such Shares, notwithstanding the exercise of this Option.
14. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested
by the Company or the managing underwriter of any proposed public offering of
the Company's securities, Optionee will not sell or otherwise transfer or
dispose of any Shares held by Optionee without the prior written consent of the
Company or such underwriter, as the case may be, during such period of time, not
to exceed 180 days following the effective date of the registration statement
filed by the Company with respect to such offering, as the Company or the
underwriter may specify.
15. INTERPRETATION. This Option is granted pursuant to the terms of
the Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company
6
<PAGE> 7
appointed to administer the Plan, and if no such committee has been appointed,
the term Administrator shall mean the Board of Directors.
16. NOTICES. Any notice, demand or request required or permitted to
be given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention: the
Chief Financial Officer, and if to the Optionee, at his or her most recent
address as shown in the employment or stock records of the Company.
17. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this
Agreement, the Company will furnish to the Optionee copies of all annual and
other periodic financial and informational reports that the Company distributes
generally to its shareholders.
18. GOVERNING LAW. The validity, construction, interpretation, and
effect of this Option shall be governed by and determined in accordance with the
laws of the State of California.
19. SEVERABILITY. Should any provision or portion of this Agreement
be held to be unenforceable or invalid for any reason, the remaining provisions
and portions of this Agreement shall be unaffected by such holding.
20. 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 be deemed one instrument.
21, CALIFORNIA CORPORATE SECURITIES LAW. The sale of the shares that
are the subject of this Agreement has not been qualified with the Commissioner
of Corporations of the State of California and the issuance of such shares or
the payment or receipt of any part of the consideration therefor prior to such
qualification is unlawful, unless the sale of such shares is exempt from such
qualification by Section 25100, 25102 or 25105 of the California Corporate
Securities Law of l968, as amended. The rights of all parties to this Agreement
are expressly conditioned upon such qualification being obtained, unless the
sale is so exempt.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
COMPUTER MOTION, INC. "OPTIONEE"
By:____________________________ __________________________
(Signature)
Name:__________________________
Title:_________________________ __________________________
(Type or print name)
8
<PAGE> 1
EXHIBIT 10.5
COMPUTER MOTION, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
COMPUTER MOTION, INC., a California corporation (the "Company") effective as of
the Effective Date, as defined below.
1.
PURPOSE OF THE PLAN
1.1 Purpose. The Company has determined that it is in its best interest
to provide incentives to attract and retain employees and to increase employee
morale by providing a program through which employees of the Company, and of
such of the Company's subsidiaries as the Company's Board of Directors (the
"Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the common
stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
2.
DEFINITIONS
2.1 Compensation. "Compensation" means the amount indicated on the Form
W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 Eligible Employee. "Eligible Employee" means any person currently
employed by the Company or any of its Designated Subsidiaries, any portion of
whose income is subject to withholding of income tax or for whom Social Security
retirement contributions are made by the Company or any Designated Subsidiary
who is regularly scheduled for not less then 20 hours of work per week and who
has been so employed for not less than ninety (90) days.
2.3 Effective Date. "Effective Date" means the effective date of the
Company's first Registration Statement filed with the Securities and Exchange
Commission registering Company Stock.
2.4 Entry Date. "Entry Date" means the date an Eligible Employee first
joins an Offering Period. The earliest Entry Date shall be the Effective Date.
<PAGE> 2
2.5 5% Owner. "5% Owner" means an Employee who, immediately after the
grant of any rights under the Plan, would own Company Stock or hold outstanding
options to purchase Company Stock possessing 5% or more of the total combined
voting power of all classes of stock of the Company. For purposes of this
Section, the ownership attribution rules of Code Section 425(d) shall apply.
2.6 Participant. "Participant" means an employee who has satisfied the
definition of Eligible Employee and has become a participant in the Plan in
accordance with Section 3.2.
2.7 Plan Year. "Plan Year" means the twelve consecutive month period
ending on the last day of December.
2.8 Offering Period. "Offering Period" means a period of approximately
twenty-four (24) months beginning July 1 and January 1 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
on June 30, 1999, regardless of the fact that such initial Offering Period shall
be less than twenty-four months.
2.9 Purchase Date. "Purchase Date" means the last trading day of each
Semi-Annual Period of Participation.
2.10 Semi-Annual Period of Participation means each semiannual period
for which the Participant actually participates in an Offering Period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. The first such semi-annual period
(which may actually be more or less than six (6) months for the initial offering
period) shall extend from the Effective Time through the last trading day in
December 1997. Subsequent semi-annual periods shall be measured from the first
trading day of January to the last trading day of June each calendar year and
from the first trading day of July to the last trading day of December each
calendar year.
3.
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. Each Eligible Employee may participate in the Plan in
accordance with the following provisions.
(a) An individual who is an Eligible Employee on the first day
of any Offering Period under the Plan shall be eligible to commence
participation in that Offering Period on such day. Such date shall become such
individual's Entry Date for the Offering Period, and on that date such
individual shall be granted his/her purchase right for the Offering Period.
Should any such Eligible Employee not enter the Offering Period on the start
date, then he/she may not subsequently join that particular Offering Period on
any later date.
(b) If an offering period has a duration of more than six
months, the provisions of this Section 3.1(b) shall apply. An individual who
first becomes an Eligible Employee after the start date of any Offering Period
under the Plan may enter that Offering Period on the first Semi-Annual Entry
Date on which he/she is an Eligible Employee. Such Semi-Annual Entry Date shall
become such individual's Entry Date for the Offering Period, and on that date
such individual
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<PAGE> 3
shall be granted his/her purchase right for the Offering Period. Should such an
Eligible Employee not enter the Offering Period on the first Semi-Annual Entry
Date on which he/she is eligible to join the Offering Period, then he/she may
not subsequently join that particular Offering Period on any later date.
3.2 Participation. An Eligible Employee may become a Participant in the
Plan upon his completion and delivery to the Human Resources Department of the
Company of a stock purchase agreement provided by the Company (the "Stock
Purchase Agreement") authorizing payroll deductions. Payroll deductions for a
Participant shall commence on the Entry Date coincident with or next following
the filing of the Participant's Stock Purchase Agreement and shall remain in
effect until revoked by the Participant by the filing of a notice of withdrawal
from the Plan under Article 8 or by the filing of a new Stock Purchase Agreement
providing for a change in the Participant's payroll deduction rate under Section
5.2.
3.3 Special Rules. Under no circumstances shall
(a) A 5% Owner be granted a right to purchase Company Stock under
the Plan;
(b) A Participant be entitled to purchase Company Stock under the
Plan which, when aggregated with all other employee stock purchase plans of the
Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum"
means an amount equal to $25,000 worth of Company Stock (determined using the
fair market value of such Company Stock at each applicable Entry Date) during
each calendar year; or
(c) The number of shares of Company Stock purchasable by a
Participant on any Purchase Date exceed 5,000 shares, subject to periodic
adjustments under Section 10.4.
4.
OFFERING PERIODS
4.1 Offering Periods.
(a) Initially, each Offering Period shall have a duration of
twenty-four (24) months; provided, however that the Plan Administrator may
designate the duration of future Offering Periods prior to the start date of the
Offering Period and in the absence of any express determination otherwise, each
Offering Period shall have a duration equal to that of the Preceding Offering
Period. Semi-Annual Period of Participation shall begin the first trading day of
July and January and shall end on the next succeeding Semi-Annual Purchase Date.
Notwithstanding the foregoing, the initial Offering Period shall begin on the
Effective Date and end on the last trading day in June of 1999. The next
Offering Period shall commence on the first trading day in January 1998, and
subsequent Offering Periods shall commence as indicated above.
(b) The Participant shall be granted a separate purchase right for
each Offering Period in which he or she participates. The purchase right shall
be granted on the Entry Date on which such individual first joins the Offering
Period in effect under the Plan and shall be
3
<PAGE> 4
automatically exercised on the last trading day of each December and June
occurring within the Offering Period.
(c) Except as otherwise provided in this Plan, the Participant's
acquisition of Common Stock under the Plan on any Semi-Annual Purchase Date
shall neither limit nor require the Participant's acquisition of Common Stock on
any subsequent Semi-Annual Purchase Date.
5.
PAYROLL DEDUCTIONS
5.1 Participant Election. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation or in whole dollar amounts, not to exceed 10% of Compensation. The
amount so designated upon the Stock Purchase Agreement shall be effective as of
the next Entry Date and shall continue until terminated or altered in accordance
with Section 5.2 below.
5.2 Changes in Election. A Participant may terminate participation in
the Plan at any time prior to the close of an Offering Period as provided in
Article 8. A Participant may decrease or increase the rate of payroll deductions
one time during any Offering Period by completing and delivering to the Human
Resources Department of the Company a new Stock Purchase Agreement setting forth
the desired change. A Participant may also terminate payroll deductions and have
accumulated deductions for the Offering Period applied to the purchase of
Company Stock as of the next Purchase Date by completing and delivering to the
Human Resources Department a new Stock Purchase Agreement setting forth the
desired change. Any change under this Section shall become effective on the next
payroll period (to the extent practical under the Company's payroll practices)
following the delivery of the new Stock Purchase Agreement.
5.3 Participant Accounts. The Company shall establish and maintain a
separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
6.
GRANT OF PURCHASE RIGHTS
6.1 Right to Purchase Shares. On each Entry Date, each Participant
shall be granted a right to purchase at the price determined under Section 6.2
that number of shares and partial shares of Company Stock that can be purchased
or issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that there
are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 Purchase Price. The purchase price for any Offering Period shall be
the lesser of:
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<PAGE> 5
(a) 85% of the Fair Market Value of Company Stock on the Entry
Date in that Offering Period; or
(b) 85% of the Fair Market Value of Company Stock on the Purchase
Date.
6.3 Fair Market Value. "Fair Market Value" means for the initial Entry
Date (which is the Effective Date), the price per share at which the Common
Stock is to be sold to the public in the initial public offering of the Common
Stock. For any subsequent date thereafter, "Fair Market Value" shall mean the
value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to trading on
the Nasdaq Stock Market or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on the Nasdaq Stock Market or principal stock exchange on which the Company
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted or no sale takes place on such day, then the Fair Market Value shall be
the closing sale price of the Company Stock on the Nasdaq Stock Market or such
exchange on the next preceding day on which a sale occurred.
(b) If the Company Stock is not then listed or admitted to trading
on the Nasdaq Stock Market or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Company Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of valuation, which determination
shall be conclusive and binding on all interested parties.
7.
PURCHASE OF STOCK
7.1 Purchase of Company Stock. Absent an election by the Participant to
terminate and have his or her Account returned, on each Purchase Date, the Plan
shall purchase on behalf of each Participant the maximum number of whole shares
of Company Stock at the purchase price determined under Section 6.2 above as can
be purchased with the amounts held in each Participant's Account. In the event
that there are amounts held in a Participant's Account that are not used to
purchase Company Stock, all such amounts shall be held in the Participant's
Account and carried forward to the next Offering Period.
7.2 Delivery of Company Stock.
(a) Company Stock acquired under the Plan may either be issued
directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under Article 9.
If the Company Stock is issued in the name of the Administrator, all Company
Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number
5
<PAGE> 6
of shares of Company Stock that are being held by the Administrator for the
benefit of each Participant.
(b) Any Participant may elect to have the Company Stock purchased
under the Plan from his or her Account be issued directly to the Participant.
Any election under this paragraph shall be on the forms provided by the Company
and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is issued
directly to a Participant, the Company will deliver to each Participant a stock
certificate or certificates issued in his name for the number of shares of
Company Stock purchased as soon as practicable after the Purchase Date. Where
Company Stock is issued under this paragraph, only full shares of stock will be
issued to a Participant. The time of issuance and delivery of shares may be
postponed for such period as may be necessary to comply with the registration
requirements under the Securities Act of 1933, as amended, the listing
requirements of any securities exchange on which the Company Stock may then be
listed, or the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
8.
WITHDRAWAL
8.1 In Service Withdrawals. At any time prior to the Purchase Date of
an Offering Period, any Participant may withdraw the amounts held in his Account
by executing and delivering to the Human Resources Department for the Company
written notice of withdrawal on the form provided by the Company. In such a
case, the entire balance of the Participant's Account shall be paid to the
Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given, and for the
immediately following Offering Period. Any Employee who has withdrawn under this
Section may thereafter be reinstated as a Participant for a subsequent Offering
Period by executing and delivering a new Stock Purchase Agreement to the Human
Resources Department of the Company.
8.2 Termination of Employment.
(a) In the event that a Participant's employment with the Company
terminates for any reason, the Participant shall cease to participate in the
Plan on the date of termination. As soon as is practical following the date of
termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary
who is to receive any shares of Company Stock purchased under the Plan or any
cash from the Participant's Account in the event of his or her death subsequent
to a Purchase Date, but prior to delivery of such shares and cash. In addition,
a Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of his death
prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above may be
changed by the Participant at any time by written notice. In the event of the
death of a Participant, the Committee may rely upon the most recent beneficiary
designation it has on file as being the appropriate beneficiary. In the event of
the death of a Participant where no valid beneficiary designation exists or the
beneficiary
6
<PAGE> 7
has predeceased the Participant, the Committee shall deliver any cash or shares
of Company Stock to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed to the
knowledge of the Committee, the Committee, in its sole discretion, may deliver
such shares of Company Stock or cash to the spouse or any one or more dependents
or relatives of the Participant, or if no spouse, dependent or relative is known
to the Committee, then to such other person as the Committee may designate.
9.
PLAN ADMINISTRATION
9.1 Plan Administration.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors (the
"Board") for the Company, or a committee ("Committee") thereof. The Board or
Committee shall have all powers necessary to supervise the administration of the
Plan and control its operations.
(b) In addition to any powers and authority conferred on the Board
or Committee elsewhere in the Plan or by law, the Board or the Committee shall
have the following powers and authority:
(i) To designate agents to carry out responsibilities relating
to the Plan;
(ii) To administer, interpret, construe and apply this Plan
and to a swer all questions which may arise or which may be raised under this
Plan by a Participant, his beneficiary or any other person whatsoever;
(iii) To establish rules and procedures from time to time for
the conduct of its business and for the administration and effectuation of its
responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts as
it may deem to be necessary, appropriate, or convenient for the operation of the
Plan.
(c) Any action taken in good faith by the Board or Committee in
the exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon a Participant and his beneficiaries. All discretionary powers
conferred upon the Board shall be absolute.
9.2 Limitation on Liability. No Employee of the Company nor member of
the Board or Committee shall be subject to any liability with respect to his
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any other Employee of the Company with duties under the
Plan who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative, or investigative, by reason of the person's conduct in the
performance of his duties under the Plan.
10.
COMPANY STOCK
7
<PAGE> 8
10.1 Limitations on Purchase of Shares. The maximum number of shares of
Company Stock that shall be made available for sale under the Plan shall be
250,000 shares, subject to adjustment under Section 10.4 below. The shares of
Company Stock to be sold to Participants under the Plan will be issued by the
Company. If the total number of shares of Company Stock that would otherwise be
issuable pursuant to rights granted pursuant to Section 6.1 of the Plan at the
Purchase Date exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available in as
uniform and equitable manner as is practicable. In such event, the Company shall
give written notice of such reduction of the number of shares to each
participant affected thereby and any unused payroll deductions shall be returned
to such participant if necessary.
10.2 Company Stock. The Participant will have no interest or voting
right in shares to be purchased under Section 6.1 of the Plan until such shares
have been purchased.
10.3 Registration of Company Stock. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 Changes in Capitalization of the Company. Subject to any required
action by the stockholders of the Company, the number of shares of Company Stock
covered by each right under the Plan which has not yet been exercised and the
number of shares of Company Stock which have been authorized for issuance under
the Plan but have not yet been placed under rights or which have been returned
to the Plan upon the cancellation of a right, as well as the Purchase Price per
share of Company Stock covered by each right under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Company Stock resulting from a stock split,
stock dividend, spin-off, reorganization, recapitalization, merger,
consolidation, exchange of shares or the like. Such adjustment shall be made by
the Board of Directors for the Company, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Company
Stock subject to any right granted hereunder.
10.5 Merger of Company. In the event that the Company at any time
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall continue in the manner and under the terms so provided. If such
provision is not made in such transaction for the continuance of the Plan and
the assumption of rights theretofore granted or the substitution for such rights
of new rights covering the shares of a successor corporation, then the Board of
Directors or its committee shall cause written notice of the proposed
transaction to be given to the persons holding rights not less than 10 days
prior to the anticipated effective date of the proposed transaction, and,
concurrent with the effective date of the proposed transaction, such rights
shall be exercised automatically in accordance with Section 7.1 as if such
effective date were a Purchase Date of the applicable Offering Period unless a
Participant withdraws from the Plan as provided in Section 8.1.
8
<PAGE> 9
11.
MISCELLANEOUS MATTERS
11.1 Amendment and Termination. The Plan shall terminate not later than
June 30, 2007. Since future conditions affecting the Company cannot be
anticipated or foreseen, the Company reserves the right to amend, modify, or
terminate the Plan at any time. Upon termination of the Plan, all benefits shall
become payable immediately. Notwithstanding the foregoing, no such amendment or
termination shall affect rights previously granted, nor may an amendment make
any change in any right previously granted which adversely affects the rights of
any Participant. In addition, no amendment may be made without prior approval of
the stockholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be
issued under the Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
(c) Materially increase the benefits which accrue to Participants
under the Plan.
11.2 Stockholder Approval. Continuance of the Plan and the
effectiveness of any right granted hereunder shall be subject to approval by the
stockholders of the Company, within twelve months before or after the date the
Plan is adopted by the Board.
11.3 Benefits Not Alienable. Benefits under the Plan may not be
assigned or alienated, whether voluntarily or involuntarily. Any attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Article 8.
11.4 No Enlargement of Employee Rights. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee or to be
consideration for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall be deemed to give the right to any
Employee to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Employee at any time.
11.5 Governing Law. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the state of incorporation of the Company.
11.6 Non-trading Days. When any act under the Plan is required to be
performed on a day that falls on a Saturday, Sunday or legal or stock market
holiday, that act shall be performed on the next succeeding day which is not a
Saturday, Sunday or holiday. Notwithstanding the above, Fair Market Value shall
be determined in accordance with Section 6.3.
11.7 Compliance With Securities Laws. Notwithstanding any provision of
the Plan, the Committee shall administer the Plan in such a way to ensure that
the Plan at all times complies with any requirements of Federal Securities Laws.
For example, affiliates may be required to make
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<PAGE> 10
irrevocable elections in accordance with the rules set forth under Section 16b-3
of the Securities Exchange Act of 1934.
10
<PAGE> 1
EXHIBIT 10.6
DEVELOPMENT AND SUPPLY AGREEMENT dated as of this
21st day of August 1996, by and between THE STRYKER ENDOSCOPY DIVISION of
Stryker Corporation, a Michigan corporation ("Stryker"), and COMPUTER MOTION
INCORPORATED, a California corporation ("CMI").
WITNESSETH:
WHEREAS, CMI has designed, engineered and developed and is the owner of
all right, title and interest in and to the intellectual and commercial rights
relating to a voice activated system for controlling surgical equipment that
incorporates (a) know-how, drawings, sketches, configurations, models,
prototypes, designs, schematics, layouts, inventions, processes, machines,
ideas, concepts and other information developed by CMI used in the design,
development, modification, improvement and manufacture of such system (the "CMI
Technology") and (b) patents controlled by CMI or patent applications filed by
CMI with respect to the CMI Technology and any reissues, reexaminations,
continuations or continuations-in-part thereof (the "CMI Patent Rights");
WHEREAS, Stryker believes that the System (as that term is defined in
Section I hereof) is complementary to its existing business and desires that CMI
and Stryker engage in a joint development project (the "Development Project") to
adapt the System for use in conjunction with the medical products manufactured
and/or marketed by Stryker that are listed on Schedule A hereto (the "Stryker
Products") and CMI has agreed to undertake its portion of the development
program, all upon the terms and subject to the conditions hereinafter set forth;
and WHEREAS, Stryker and CMI have agreed that, if Stryker determines to market
the System in conjunction with Stryker Products, CMI shall manufacture and
supply the System to Stryker and Stryker shall purchase the System from CMI for
resale in conjunction with the Stryker Products, all upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in reliance upon the representations, warranties and
agreements herein contained and other valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The System. As used in this Agreement, the term "System" shall mean CD4I's
"Hermes Surgical Equipment Control System," as more fully described on Schedule
B attached hereto, and modifications and improvements thereof hereafter
developed by CMI or in which CMI has any rights.
2. Development Project. CMI agrees to diligently conduct research and
development with a view toward completing the System development and engineering
work to be performed by it as more fully described on Schedule C hereto (the
"CMI Tasks"). Stryker agrees to fund [*] of the cost of the CD4I Tasks, up to a
maximum expenditure therefor by Stryker of
<PAGE> 2
[*], but subject, unless Stryker agrees otherwise in writing, to the maximum
amount budgeted for each Phase of the Development Project specified in Schedule
C. CMI shall keep Stryker informed at reasonable times, orally or in writing,
with respect to the status of the CMI Tasks and the overall Development Project
and shall provide Stryker with a written report at the conclusion of each Phase.
Promptly after the delivery of each such report, CMI shall, if requested to do
so by Stryker, also give an oral presentation describing in reasonable detail
the results of the Development Project through the end of that Phase as defined
in Schedule C to persons designated by Stryker at a "Phase-End Meeting." The
Phase-End Meetings shall be held within twenty-one (21) days of the end of that
phase at locations alternately determined by CMI and Stryker. Stryker shall have
the right, within 45 days of the holding of each Phase-End Meeting, to cancel
the Development Project without further obligation to CMI except as set forth in
paragraph 16 if the results thereof are unsatisfactory to Stryker or if Stryker
shall have determined not to proceed with commercialization of the Systems.
Stryker's share of the expenses for each Phase as set forth above shall be paid
within forty-five (45) days after receipt of an invoice therefor, which shall be
issued by CMI monthly subject to the maximum ceiling for each Phase of the
Development Project and shall document in reasonable detail the total expenses
incurred by CMI during the month to which it relates. As part of the Development
Project, Stryker shall be responsible for the performance of the tasks assigned
to it in Schedule C that are necessary to permit the interface of the System
with the Stryker Products (the "Stryker Tasks"). Each of Stryker and CMI agrees
to use its reasonable best efforts to perform the tasks for which it is
responsible within the time allotted thereto in Schedule C. In the event that
the entire project is delayed by six months or more, the party responsible
therefor shall be penalized -- by a one-month reduction of the Exclusivity
Period (as defined in Section 4) if Stryker's failure to perform the Stryker
Tasks in a timely manner is the cause of the delay or a one-month increase in
the Exclusivity Period if CMI's failure to perform the CMI Tasks in a timely
manner is the cause of the delay. If the failure is a result of both CMI and
Stryker actions, no change will be made to the Exclusivity Period. If the
Development Project has not been completed on or before June 30, 1998 or such
later date as the parties may agree in writing, this Agreement shall terminate
and neither party shall have any continuing obligation to the other except as
set forth in Section 16 hereof. In consideration of the payments to be made by
Stryker hereunder, CMI agrees that it shall not conduct research and development
activities with respect to products of the type described in Schedule B for use
with products of the type described on Schedule A for any party other than
Stryker as long as the Development Project is continuing and, thereafter, until
the end of the Exclusivity Period.
3. Ownership of Rights. CMI shall remain the owner of the CMI
Technology and the CMI Patent Rights. Stryker shall own patent rights, if any,
that arise out of inventions or
<PAGE> 3
discoveries conceived, made or reduced to practice by it as a result of the
performance by it of the Stryker Tasks. The intellectual property and commercial
rights that arise out of inventions or discoveries conceived, made or reduced to
practice by CMI as a result of the performance by it of the CMI Tasks shall be
owned by CMI and deemed "CMI Technology" or "CMI Patent Rights," as the case may
be.
4. Manufacturing and Supply of the Systems.
(a) Exclusivity of Stryker. If the Development Project is successfully
completed and Stryker advises CMI of its intention to market the System in
conjunction with the Stryker Products which it shall do within forty-five (45)
days of the completion of Phase 4 as set forth on Schedule C or this Agreement
shall terminate, CMI agrees that it shall supply the System to Stryker for use
in conjunction with the Stryker Products and that it will not supply the System
to any other manufacturer or marketer of products of the type described in
Schedule A for as long as Stryker meets the minimum purchase requirements set
forth below (the "Annual Minimum") for the successive twelve-month periods (each
an "Agreement Year") commencing on the date that the first 30 Systems have been
delivered to Stryker as provided herein (the "Exclusivity Period"):
First Agreement Year [*] Systems
(including the first
[*] Systems)
Second Agreement Year [*] Systems
Third Agreement Year [*] Systems
Thereafter [*] Annual Growth
In the event that Stryker fails to purchase the Annual Minimum in any Agreement
Year, CMI shall thereafter be free to sell Systems to any other party. In
addition, in the event that Stryker fails to purchase more than [*] percent
([*]) of any Annual Minimum in any Agreement Year, CMI may, at any time within
ninety (90) days after the end of such Agreement Year, give written notice to
Stryker of its intention to terminate this Agreement. Such termination shall be
effective on the date specified in such notice, which date shall not be earlier
than six (6) months after the date such notice is given. CMI will continue to
deliver product to Stryker for twelve (12) months following the effective
termination date for all "Active Customers", defined as customers which Stryker
has submitted quotations and/or has received purchase orders at the time written
notice of termination is submitted by CMI. Stryker shall supply CMI with a list
of such Active Customers within thirty (30) days of receipt of such notice of
termination. CMI shall have the right to reasonably request copies of
documentation required to substantiate the propriety of customers being
categorized as Active Customers. In consideration of the exclusivity of supply
provided in this Section 4(a), Stryker shall pay $[*] to CMI in three (3)
equal monthly installments commencing on the date of execution and delivery of
this Agreement, and, thereafter, on the same date in each of the two (2)
succeeding months. During the Exclusivity Period, Stryker shall not develop,
have developed, purchase or utilize any products serving
<PAGE> 4
the same function as the System with the products described in Schedule A unless
technology with greater market acceptance or a lower cost is available. In the
event Stryker intends to develop, have developed, purchase or utilize any such
other products, it shall provide to CMI, at least forty-five (45) days prior to
such action, a statement setting out Stryker's intent and the basis for
Stryker's bona fide belief that such other products have technology with greater
market acceptance or are available at a lower cost. For purposes hereof, lower
cost shall mean at least [*] percent ([*]%) less than the then current cost of
the similar System from CMI. During the forty-five (45) day period following
Stryker's notice, CMI and Stryker shall confer with the goal of retaining CMI as
Stryker's exclusive supplier by mutually agreed changes to the Systems and/or
the prices therefor. It is understood and agreed by the parties hereto that the
only consequence of a failure of Stryker's purchases from CMI to meet the Annual
Minimum for any Agreement Year shall be the loss of exclusivity of supply or
termination of this Agreement as provided in this Section 4(a) and that Stryker
shall have no obligation to CMI for the shortfall in revenues or profit as a
result of such failure. Stryker shall sell Systems only in conjunction with the
products listed on Schedule A.
(b) Pricing. CMI agrees to price the System components sold to Stryker
hereunder at an amount no more than [*] times the direct manufacturing cost (as
defined by generally accepted accounting principles ("GAAP") and including costs
of raw materials, direct labor, indirect labor and overhead) thereof and, in any
event, not more than the amount set forth therefor on Schedule D hereto. CMI
further agrees to reduce the overall System price by [*] percent ([*]%) in each
successive Agreement Year during the Exclusivity Period and that the price for
new models of the System will not exceed the price then in effect for existing
Systems unless additional features requested by Stryker increase the cost
thereof, in which case CMI may increase the price in proportion to the increased
costs.
Notwithstanding the foregoing, CMI agrees to sell Systems to Stryker
for use as sales and marketing samples and up to [*] ([*]) Systems as
requested by Stryker for placement in "Centers of Excellence" at one and one
half times CMI's direct manufacturing cost.
(c) Ordering and Delivery. Commencing on the date after completion of
the Development Project that Stryker confirms to CMI its intention to market the
System in conjunction with the Stryker Products, Stryker shall place purchase
orders with CMI, at least quarterly, specifying quantities and shipment dates,
which shall be not less than sixty (60) days after the placing of such order
unless otherwise agreed by CMI. Each quarterly order shall be accompanied by a
forecast of Stryker's anticipated requirements for Systems for the next three
quarters. Stryker shall not be obligated to purchase any System that is not the
subject of a confirmed purchase order. If CMI foresees any problem in meeting
the proposed delivery schedule set forth in any purchase order, it shall
promptly advise Stryker in writing. In the event that CMI does not deliver
Systems that are accepted by Stryker in a quantity at least equal to [*]
percent ([*]%) of the Systems ordered within the time period specified in
Stryker's purchase orders for delivery in quarter of any
<PAGE> 5
Agreement Year, provided such purchase orders for such quarter do not exceed
[*] percent ([*]%) of the amounts forecast by Stryker for such
quarter at the time of its order for the preceding quarter as set forth above,
the Annual Minimum for such Agreement Year shall be reduced by the number of
Systems not supplied on a timely basis. CMI will package and ship the Systems to
such Stryker facility as is designated by Stryker in accordance with such other
instructions as Stryker shall specify in the applicable purchase order. CMI's
prices to Stryker are F.O.B. Santa Barbara, California, with Stryker being
obligated to pay for shipping and insurance. Title and risk of loss to the
Systems delivered hereunder shall pass to Stryker at such time as they are
delivered to and accepted by Stryker or its agents and, in any event, within 15
business days of receipt unless rejected as non-conforming.
(d) Invoicing. upon shipment of each order, CMI will invoice Stryker
therefor. All such invoices for Components accepted by Stryker shall be paid
within forty-five (45) days of their receipt.
(e) Quality and Inspection. CMI warrants and agrees that the Systems
will be manufactured in accordance with Good Manufacturing Practice (IIGMP") as
required pursuant to applicable provisions of the U.S. Food, Drug, Cosmetic and
Device Act, as amended, and promulgated by the Food and Drug Administration
("FDA"). CMI further specifically agrees that it will use commercially
reasonable efforts to assure that the Systems will comply with the electrical
safety requirements of UL and CSA per IEC 601-1 and with the Quality Assurance
and Good Manufacturing Practice requirements of ISO 9000/EN46000 as soon as
possible and that the Products will be EMC compliant and carry the 'ICE" mark,
all expenses in connection therewith to be borne by CMI. CMI agrees to undertake
such quality control and inspection procedures as required by the FDA or any
other appropriate regulatory agency and to provide Stryker with access to its
manufacturing facilities in order that Stryker may make GMP audits at such
reasonable times as Stryker shall deem necessary. If, within thirty (30) days
after receiving any shipment of Systems, Stryker shall, in its reasonable
judgment and in accordance with applicable GMP regulations, determine that any
of the Systems in such shipment is non-conforming, CMI will, unless it disputes
such claim within fifteen (15) business days after receiving notice of
non-conformity from Stryker, ship new Systems to Stryker in replacement for the
non-conforming Systems within fourteen (14) days. Stryker shall return
non-conforming Systems to CMI at CMI's expense or otherwise hold or dispose of
them at CMI's expense as CMI may direct.
(f) Product Labeling. The Systems sold to Stryker for marketing in
conjunction with the Stryker Products shall be labeled and advertised under
Stryker's name but shall refer to CMI as the manufacturer thereof. The type size
of CMI's name on System labeling and in brochures and demonstration videos shall
be approximately one-half the size of Stryker's name unless otherwise agreed by
CMI. CMI's name shall also appear on each System in a position visible to users
thereof.
<PAGE> 6
(g) Manufacture by Stryker. In the event that CMI shall fail to supply
[*] percent ([*]%) of the quantity of Systems ordered by Stryker pursuant to
subsection (c) of this Section 4 to Stryker in a timely manner for [*] ([*])
consecutive quarters during the first two Agreement Years or shall fail to
deliver [*] percent ([*]%) of the quantity of Systems ordered by Stryker
pursuant to subsection (e) of this Section 4 to Stryker in a timely manner for
[*] ([*]) consecutive quarters during any subsequent two Agreement Years, (ii)
the Systems delivered to Stryker shall consistently fail to meet the
requirements set forth in subsection (e) of this Section 4 and, in either case,
such failure shall continue for thirty (30) days after written notice from
Stryker or (iii) CMI shall become insolvent or admit in writing the inability to
pay its debts as they fall due, shall make an assignment for the benefit of
creditors or shall apply for, consent to or acquiesce in the appointment of a
trustee or receiver for it or any substantial part of its property; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
similar officer is appointed for it or for a substantial part of its property
and is not discharged within thirty (30) days; or any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is instituted by
or against it and is consented to or acquiesced in by it or remains undismissed
for thirty (30) days, CMI shall grant Stryker the irrevocable right and
exclusive, royalty-bearing license to use all CMI Technology and CMI Patent
Rights in the manufacture of Systems for use in, and only in, conjunction with
products having the same or similar applications as the Stryker Products. Such
license shall continue to be exclusive as long as Stryker has paid royalties on
sales of a number of Systems at least equal to the Annual Minimum that it would
have been required to purchase in order that the Exclusivity Period continue in
effect pursuant to subsection (a) of this Section 4 for the prior Agreement
Year, commencing with the Agreement Year in which the first System manufactured
by Stryker is sold (if the first System manufactured by Stryker is sold during
an Agreement Year, Stryker shall only be required to have paid royalties on
sales of a number of Systems in such Agreement Year equal to that proportion of
the applicable Annual Minimum that the number of full months after such first
sale is to twelve (12)) and shall be non-exclusive thereafter. CMI may elect to
terminate such license at any time after it becomes non-exclusive by giving
Stryker at least six (6) months, prior written notice of its intention to do so.
Such right and license shall not be assignable by Stryker and shall not be
sublicensable by Stryker, except to the extent necessary for Stryker to have
Systems manufactured by a third party for resale by Stryker. In the event
Stryker exercises its rights hereunder, Stryker shall pay CMI royalties equal to
[*] percent ([*]%) of the Net Sales Price of the Systems sold by Stryker. For
purposes hereof, "Net Sales Price,, shall mean the standard cost of Stryker's
Endoscopy Division plus [*] in the case of intra-company sales of Systems to
any other division or subsidiary of Stryker and the gross
<PAGE> 7
sales price billed for all other sales of Systems less, in each case:
(i) transportation and insurance charges or allowances, if included in
such amount;
(ii) discounts allowed, and commissions paid in lieu of trade discounts
(other than commissions paid to the seller's employees) in amounts customary in
the trade;
(iii) credits and allowances, if any, given or made on account of the
return or rejection of Systems previously delivered or retroactive price
reductions; and
(iv) any tax or other governmental charge on the sale, transportation
or use of Systems that is paid, absorbed or allowed by the seller.
Stryker shall deliver to CMI within [*] ([*]) days after the end of each
calendar quarter, a true and accurate report, covering the preceding calendar
quarter in sufficient detail to accurately account for the number of Systems or
components thereof sold, and Stryker's Net Sales Price therefor. Royalties shown
by such report to be due shall accompany such report. Stryker shall keep full,
true and accurate books of accounts containing all particulars which may be
necessary for the purpose of determining the number of Systems or components
thereof sold, the Net Sales Price thereof and royalty payments. Stryker agrees,
at the request of CMI and at CMI's expense, to permit an independent certified
accountant selected by CMI and reasonably acceptable to Stryker, to have access
upon at least ten (10) business days, prior notice and no more than once per
calendar year to such books of accounts for the purpose of verifying the
statements described herein. Such accountant shall not be entitled to disclose
any information relating to the business of Stryker except that which should be
properly contained in any report to CMI contemplated in this Section 4(g). Such
inspection shall be at the sole cost and expense of CMI; provided, however, that
if such inspection reveals a deficiency of five percent (5%) or more in the
payment of royalties due hereunder, the cost of such inspection shall be paid by
Stryker. Interest at the rate of ten percent (10%) per annum shall accrue and be
paid by Stryker on all delinquent payments. CMI agrees that it will execute such
documents as Stryker shall reasonably request in order to confirm the grant of
such license and shall instruct the employees of CMI to cooperate with employees
and representatives of Stryker or any third party with which Stryker has
contracted for the manufacture of the Systems and answer questions they may have
concerning the CMI Technology and CMI Patent Rights. In connection with the
transfer of the CMI Technology and CMI Patent Rights at such time as Stryker is
entitled under the terms of this Agreement to manufacture or cause third parties
designated by it to manufacture Systems, CMI shall make available to Stryker the
services of such personnel of CMI as Stryker may reasonably request in order to
assist Stryker or its designee in establishing production facilities for the
manufacture of Systems and otherwise to assist in the transfer of the CMI
Technology and the CMI Patent Rights to Stryker and/or its designee. Stryker
<PAGE> 8
shall pay reasonable out-of-pocket expenses incurred by such employees in
connection with the performance of such services.
5. Warranty and Repairs; Defective Products; Recalls. (a) CMI hereby
warrants that the Systems manufactured and sold hereunder by it to Stryker shall
meet the performance characteristics, specifications and drawings in the most
recent form agreed to by Stryker and CMI and shall be free from defects in
material and workmanship for a period of [*] ([*]) [*] from the date of purchase
from Stryker by the end user of a System. During the [*] warranty period,
CMI agrees that it shall correct or cause to be corrected, by repair or
replacement at its option, any System that proves to be defective within
[*] ([*]) hours of receipt of the defective System at a designated CMI
repair station. CMI agrees to maintain a field clinical specialist force of at
least [*] specialists during the Exclusivity Period to support the Stryker Sales
Force with respect to training, in-servicing and related marketing issues and to
provide an "800" technical support phone service for sales representatives and
customers of Stryker to be manned between 6 A.M. and 5:30 P.M. (Pacific time) on
each Monday through Friday (other than federal holidays) during such period.
(b) CMI shall notify Stryker promptly upon becoming aware of any
defect in any of the Systems and shall initiate corrective action at CMI's
expense. In the event that a recall is required by a governmental agency or
deemed advisable by Stryker or CMI, CMI shall, at its expense, develop and
implement a recall program. Defective and recalled Systems will be returned to
CMI for credit.
6. Regulatory Approvals. CMI shall be primarily responsible for
obtaining ETL, CSA, and IEC 601 approval and any other regulatory approvals
required from the FDA (or other equivalent regulatory authorities) for the
manufacture of the Systems. Stryker shall be primarily responsible for obtaining
such acceptance and approvals that are required for the marketing of the
Systems, including 510(k) clearance in conjunction with Stryker Products. CMI
and Stryker each agree to cooperate with the other in connection with the
obtaining of such approvals.
7. Marketing Assistance. CMI agrees to provide Stryker with reasonable
sales and marketing assistance as may be requested by Stryker in connection with
its sales, marketing and promotional programs, which assistance shall include
providing sales or technical service support and providing training courses for
personnel of Stryker and its dealers and distributors and educational programs
for surgical personnel. In connection with such activities, during the
Exclusivity Period CMI agrees to reasonably make available the services of its
employees, including at least [*] ([*]) field clinical specialists who will
assist Stryker's marketing efforts with key accounts as requested and provide
training and support for Stryker's customers, upon the reasonable request of
Stryker. Stryker acknowledges that such field clinical specialists shall also
support other CMI products and will not be exclusively devoted to the support of
<PAGE> 9
Stryker's customers. Stryker and CMI will cooperate regarding exhibitions at
trade shows and conventions demonstrating the use of Systems in conjunction with
the Stryker Products.
8. Indemnification; Insurance. (a) CMI indemnities and holds Stryker
harmless from any and all loss, liability and expense arising out of (i) the
death or injury to any person or damage to property resulting from any
negligence or defect in the design or manufacture of any System furnished by CMI
in the performance of this Agreement or (ii) any claim of patent infringement
with respect to any System furnished by CMI in the performance of this
Agreement, except to the extent such claims arise from modifications to the
Systems made by Stryker after delivery thereof by CMI or as a result of the use
of the Systems in a manner not in compliance with the directions for use as
approved by CMI or the use of the Systems in connection with products not listed
on Schedule A. CMI shall, on behalf of Stryker, defend any action brought
against Stryker for any such claim, shall bear all the costs and expenses,
including reasonable attorneys' fees, in the defense thereof and shall pay any
judgment that may be awarded against Stryker in respect thereof.
(b) CMI shall carry and maintain in force at least [*] dollars
($[*]) per occurrence of product liability coverage with respect to the
Systems sold to Stryker pursuant to this Agreement and shall provide Stryker
with a Certificate of Insurance evidencing that such coverage extends to Stryker
under a Broad Form Vendors Endorsement.
(c) Stryker indemnifies and holds CMI harmless from any and all loss,
liability and expense arising out of the death or injury to any person or damage
to property resulting from the marketing or sale by Stryker of products
incorporating Systems or any use thereof, except to the extent such death or
injury or damage results, in whole or in part, from any negligence or defect in
the design or manufacture of any System furnished by CMI in the performance of
this Agreement. Stryker shall, on behalf of CMI, defend any action brought
against CMI for any such claim, shall bear all the costs and expenses, including
reasonable attorneys' fees, in the defense thereof and shall pay any judgment
that may be awarded against CMI in respect thereof. Stryker shall carry and
maintain in force product liability coverage in amounts determined by it from
time to time to be appropriate and shall provide CMI with a Certificate of
Insurance evidencing such coverage and naming CMI as an additional insured
thereunder.
9. Representations and Warranties.
(a) Organization; Authority. CMI is a corporation duly organized and
validly existing in good standing under the laws of the State of California. CMI
has the corporate power to execute, deliver and perform this Agreement.
(b) Binding Obligation. The execution and delivery of this Agreement by
CMI does not, and the performance of its obligations hereunder will not, violate
any
<PAGE> 10
provision of the articles of incorporation or by-laws of CMI or violate any
provisions of, or result in a breach of any of the terms or provisions of or the
acceleration of any of the obligations under, or constitute a default under, any
mortgage, lease, agreement, instrument, order, arbitration award, judgment or
decree to which CMI is a party or to which CMI or its assets, properties or
business are subject. This Agreement is a valid and binding agreement of CMI
enforceable against it in accordance with its terms.
10. Representations and Warranties of Stryker.
(a) Organization. Stryker is a corporation duly organized and validly
existing in good standing under the laws of the State of Michigan.
(b) Binding Obligation. The execution and delivery of this Agreement by
Stryker does not, and the performance of its obligations hereunder will not,
violate any provision of the certificate of incorporation or by-laws of Stryker
or violate any provisions of, or result in a breach of any of the terms or
provisions of or the acceleration of any of the obligations under, or constitute
a default under, any mortgage, lease, agreement, instrument, order, arbitration
award, judgment or decree to which Stryker is a party or to which Stryker or its
assets, properties or business are subject. This Agreement is a valid and
binding agreement of Stryker enforceable against it in accordance with its
terms.
11. Prosecution and Maintenance of Patents. CMI, through its own patent
attorney and at its own cost and expense, shall cause to be filed and prosecuted
patent applications corresponding to the CMI Patent Rights in such other
countries as Stryker shall reasonably request, in which event such patent
applications and any patents issued thereon shall become a part of the CMI
Patent Rights as that term is used in this Agreement. CMI agrees to exercise all
reasonable efforts to cause such applications to be prosecuted and all patents
issued in respect thereof to be maintained in such manner that the best possible
patent protection may be obtained thereon. In the event that CMI fails to take
action with respect to the CMI Patent Rights under the patent law of any country
pursuant to Stryker's request, Stryker may, on behalf and in the name of CMI but
at Stryker's own cost and expense and through patent attorneys designated by it,
cause to be filed and/or prosecute applications for patents, and cause to be
maintained all patents, in such country, in which case Stryker shall be entitled
to take a credit against payments that are or become due as a result of
purchases of Systems in an amount equal to the out-of-pocket expenses and costs
incurred by Stryker in connection with the filing, prosecution and/or
maintenance of any application or patent in such country.
12. Infringement of Licensed Patents. In the event that either party
shall become aware that the CMI Patent Rights are being infringed by a third
party, such party shall notify the other of the facts in respect thereof. In the
event Stryker deems that a CMI Patent Right is being or has been infringed by a
third party and CMI does not file suit or resolve the matter within a period of
90 days after notice from Stryker, then and in such event Stryker shall have the
right to file suit, at its
<PAGE> 11
own expense and for its own benefit as regards any damages and costs recovered,
and shall have the right to join CMI in the event CMI is determined to be an
indispensable party. In any such suit brought by Stryker, CMI shall have the
right to be represented by counsel of its selection at its expense.
13. Unforeseen Occurrences. Neither party to this Agreement shall be
liable for any delay or failure of performance that is the result of any
happening or event that could not reasonably have been avoided or that is
otherwise beyond its control. Such happenings or events shall include, but not
be limited to, fire, flood, explosion, action of the elements, inability to
obtain or shortage of material, equipment or transportation, governmental
orders, regulations, restrictions, priorities or rationing, acts of God,
accidents and strikes, lockouts or other labor trouble or shortage.
14. Confidentiality. Each party agrees that, except to the extent
necessary for the commercialization of Stryker Products in conjunction with the
System, all information relating to the design, manufacture, assembly, testing
and marketing of the products of the other, whether of a technical, engineering,
manufacturing, operational or economic nature, that comes into its possession as
a result of this Agreement that is not generally known to the public shall be
held in confidence and safeguarded by it with the same care and precautionary
procedures that it would use to hold and safeguard its own proprietary
information. Each party further agrees that it will not disclose the existence
of this Agreement or the terms hereof through a press release, public filing or
otherwise, unless required to do so by applicable disclosure requirements and
that, if any such disclosure is required, it will submit the text of the
proposed disclosure to the other party and consult with the other party hereto
regarding the form and content thereof. Notwithstanding the foregoing, CMI may
disclose the existence of this Agreement on a confidential basis to noncompeting
customers with which it is negotiating similar agreements and to potential
investors and their advisors, to which investors and representatives CMI may
also disclose the terms hereof provided that the Annual Minimums are disclosed
as targets to preserve exclusivity rather than commitments and provided further
that any written disclosure regarding such terms is first submitted to Stryker
for its review.
15. Termination. This Agreement shall terminate on the [*] ([*])
anniversary hereof. This Agreement shall also terminate if the Development
Project is not completed as provided in Section 2 and may be terminated by
Stryker within forty-five (45) days of the holding of each Phase-End meeting as
provided in section 2 hereof, by CMI as provided in Section 4(a) hereof and
otherwise upon the earlier to occur of any of the following:
(a) By either party for breach of this Agreement, unless the
breaching party shall have corrected such breach within ninety (90)
days from the receipt by it of written notice thereof from the other
party; and (b) By either party in the event that the other shall go
into liquidation, or seek the benefit of any bankruptcy or insolvency
act, or a
<PAGE> 12
receiver or trustee is appointed for its property or estate, or it
makes an assignment for the benefit of creditors, whether any of the
aforesaid events be the outcome of the voluntary act of Stryker or
otherwise.
The termination of this Agreement for any reason shall be without prejudice to
CMI's right to receive all payments accrued and unpaid for development expenses
and for Systems delivered at or prior to the effective date of such termination
and to the remedy of either party hereto in respect of any previous breach of
any of the covenants herein contained. The termination of this Agreement shall
not release CMI from its obligation to deliver all Products theretofore ordered
by Stryker. Section 14 shall survive the termination hereof.
16. Notices. All notices and consents hereunder shall be in writing and
shall be deemed to have been properly given and to be effective on the date of
delivery if delivered in person, by one-day courier service or by facsimile
transmission (provided a copy is sent by one-day courier service) to the
respective address or facsimile number provided below or to such other address
or facsimile number as either party shall designate by written notice to the
other in such manner:
If to Stryker:
2590 Walsh Avenue
Santa Clara, California 95051
Attention: Michael A. Pierce
Facsimile: 408-567-2505
If to CMI:
130-B Cremona Drive
Goleta, California 93117
Attention: President
Facsimile: 805-685-9277
17. Entire Agreement. This Agreement supersedes all prior agreements,
understandings, representations, and statements, if any, regarding the subject
matter contained herein, whether oral or written, and no amendment of this
Agreement shall be valid and binding upon the parties unless made in writing and
signed on behalf of each of such parties BY an authorized officer.
18. Governing Law; Dispute Resolution. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California. In an effort to resolve informally and amicably any claim,
controversy, or dispute arising out of or related to the interpretation,
performance, or breach of this Agreement (a "Dispute") without resorting to
litigation, each party shall notify the other party to the Dispute in writing of
any Dispute hereunder that requires resolution. Such notice shall set forth the
nature of the Dispute, the amount involved, if any, and the remedy sought. Each
party shall promptly designate an employee to investigate, discuss and seek to
settle the matter between them. If the two designated representatives are unable
to settle the matter within thirty (30) days after such notification, the matter
shall be submitted to CMI's Chief
<PAGE> 13
Executive Officer and the General Manager of the Stryker Endoscopy Division for
consideration. If settlement cannot be reached through their efforts within an
additional thirty (30) days (or such longer time period as they shall agree upon
in writing) then either party may thereafter take such actions as they deem
appropriate. The parties agree that any applicable statute of limitations shall
be tolled during the pendency of such informal dispute resolution process and
that neither party shall raise or assert any claim of laches or other legal or
equitable principle of limitation or repose of action based upon such process.
Each of the parties hereto submits to the jurisdiction of any California state
court or United States federal court sitting in Santa Clara County, California
for the purposes of any suit, action or proceeding arising out of or related to
this Agreement and the transactions contemplated hereby.
19. Waiver of Default. The waiver of any default under this Agreement
by either party shall not constitute a waiver of any rights for any subsequent
default.
20. Assignability, Successors and Assigns. Neither party shall be
entitled to assign its rights and obligations under this Agreement without the
other party's written consent, provided however either party (after providing
written notice thereof to the other party) may assign this Agreement in
connection with any sale or transfer of substantially all of its business,
whether by way of sale of assets, sale of stock, merger or otherwise. This
Agreement shall be binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto and, to the extent any successor or
assign is not bound by operation of law, each party shall cause such successor
or assign to expressly agree in writing to be bound by this Agreement.
21. Severing Clause. If any portion of this Agreement is held invalid
by a court of competent jurisdiction, such portion shall be deemed to be of no
force and effect and the Agreement shall be construed as if such portion had not
been included herein; provided however, if the deletion of such provision
materially impairs the commercial value of this Agreement to either party, the
parties shall attempt to renegotiate such provision in good faith. If after
ninety (90) days the parties are unsuccessful in negotiating an appropriate
remedy, a party so impaired may terminate this Agreement on ninety (90) days
notice to the other party.
22. Independent Contractor. Each party hereto shall be and remain an
independent contractor and nothing herein shall be deemed to constitute the
parties as partners. Further, neither party shall have any authority to act, or
attempt to act, or represent itself, directly or by implication, as an agent of
the other or in any manner assume or create, or attempt to assume or create, any
obligation on behalf of or in the name of the other, nor shall either be deemed
the agent of the other. IN WITNESS WHEREOF, the parties have executed this
agreement as of the day and year first above written.
STRYKER CORPORATION COMPUTER MOTION INCORPORATED
/s/ /s/
---------------------------- ----------------------------
<PAGE> 14
SCHEDULE "A"
[*]
[*]
[*]
[*]
[*]
SCHEDULE "B"
,4 system for the control of surgical devices composed of some combination of
the following:
[*]
[*]
[*]
[*]
[*]
[*]
[*]
System components listed above will at a minimum control the following functions
and provide [*] feedback on the status of the Stryker Products
as specified below:
The functional specifications of the System Components are described below:
[*] CONTROLLED
- - The HERMES INTERFACE COMPUTER will be manufactured by CMI, and have the
ability to interpret information via [*] control from selected Stryker
Equipment through various interfaces.
- - The [*] control unit should interface with the Hermes Interface Computer
to provide functional control of the specified Stryker Equipment as well
as display feedback on the Monitor for said equipment. The [*] will be
designed and manufactured by CMI to operate all of the specified controls
of the Stryker equipment and should also trigger the [*] feedback on the
monitor. The [*] Control should also have the ability to control [*]
feedback independent of function controls.
- - The Hermes Interface Computer should be able to interface with the Stryker
Equipment via [*] that will be co-designed by Stryker and CMI and
manufactured by Stryker, and will also be incorporated into the Hermes
Interface Computer.
- - The [*] will be designed and manufactured by CMI, and will be incorporated
into the Hermes Interface Computer to generate [*] feedback [*].
- - CONTROLLED COMPONENTS
-[*]
-[*]
<PAGE> 15
-[*]
-[*]
-[*]
[*] CONTROLLED
- - The HERMES INTERFACE COMPUTER will be manufactured by CNU, and have the
ability to interpret information via [*] from selected Stryker Equipment
through [*] interfaces.
- - The [*] should interface with the Hermes Interface Computer to provide
functional control of the specified Stryker Equipment as well as display
feedback on the Monitor for said equipment by [*] commands that have been
stored [*]. The [*] will be designed and manufactured by CMI to operate
all of the specified controls of the Stryker equipment which should also
trigger the [*] feedback [*]. This will be accomplished by issuing [*]
commands stored on the [*] card. The [*] Interfaces should also have the
ability to control [*] feedback independent of function controls.
- - The Hermes Interface Computer should be able to interface to the Stryker
Equipment via [*] that will be co-designed by Stryker and CMI and
manufactured by Stryker, and will be incorporated into the Hermes
Interface Computer.
- - The [*] will be designed and manufactured by CMI, and will be incorporated
into the Hermes Interface Computer to generate [*] feedback [*].
- - The [*] will be an OEM Product with [*] technology modifications performed
by CMI to allow [*] command and control all of the functions outlined for
the Stryker equipment. This [*] will be inserted into [*] the Hermes
Computer to activate the [*] capabilities.
- - CONTROLLED COMPONENTS
-[*]
-[*]
-[*]
-[*]
-[*]
[*] COMPUTER
The [*] COMPUTER will be a Hermes Computer without the Interface card
capabilities. The Training Computer should provide a [*] slot, and have the
capability of teaching individual [*] cards and their respective [*] commands
which will be recognized by the Hermes Interface Computer for all interfaces and
functional capabilities.
<PAGE> 16
<TABLE>
<CAPTION>
SCHEDULE "C"
Hermes Project Milestones
<S> <C>
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
</TABLE>
<TABLE>
<S> <C>
[*]
[*]
[*]
[*]
[*]
[*]
[*]
</TABLE>
CMI TASKS
Functional Design Specification - a document which describes in detail all of
the functionality of the complete system.
High Level Design - a schematic block diagram of the entire system, which
includes the selection of all of the major components used in the design (e.g.
processors, memory type and sizes).
[*] Feedback defined - CMI and Stryker agree on the [*] feedback parameters
for all of the devices.
[*] defined - CMI and Stryker agree on all of the [*] chosen to control and
status each device.
IF Card Schematically Defined - CMI will develop a generic schematic definition
and then work with Stryker to refine this design to the specific requirements of
each device to be controlled.
<PAGE> 17
[*] Display card working - CMI will demonstrate to Stryker a card which can
plug into the Hermes box, accept [*] input, and can superimpose the agreed
upon [*] feedback onto the accepted [*] input.
Hermes working prototype - CMI will demonstrate to Stryker the Hermes box
working and running test programs which demonstrate its operation.
IF Bus Prototype we - CMI will demonstrate Hermes controlling and receiving
[*] feedback information from the Stryker devices.
[*] Prototype working - CMI will demonstrate Hermes controlling the Stryker
devices through a [*] control.
[*] Interface working - CMI will demonstrate Hermes controlling the Stryker
devices with the [*] interface.
[*] Computer working - CMI will demonstrate the [*] training process for the
Stryker [*] card which can enable the controlling of the Stryker devices [*].
Safety agency approvals - IEC-601 and ETL listings received.
Pilot Production Run - CMI will deliver to Stryker [*] working Hermes system.
STRYKER TASKS
Define Interfaces to Devices - Stryker defines all of the interfaces to each of
the Stryker devices which need to be controlled in terms of an analog voltage, a
binary logic level, a relay, or other.
Prototype Devices with Connection points - Stryker physically demonstrates to
CMI how each of their devices can be controlled by the appropriate control
means.
Prototype IF cards installed in units - Stryker will deliver to CMI one of each
type of unit with prototype IF cards installed.
FDA filing for Stryker devices - Stryker will file the appropriate FDA
documentation, including the 51O(k), for each of the devices which require FDA
clearance. Computer Motion will assist in this process with specifications,
validations, and documentation for the Hermes component.
<TABLE>
<CAPTION>
SCHEDULE "D"
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
<PAGE> 18
AMENDMENT #1 TO:
CMI/STRYKER DEVELOPMENT AND SUPPLY AGREEMENT
The Development and Supply Agreement between the Stryker Endoscopy Company
("Stryker") and Computer Motion Incorporated ("CMI") is hereby amended in order
to include the [*] at an additional cost to Stryker of up to $[*]. Of this cost,
up to $[*] will be funded in cash in accordance with the payment terms of the
Development and Supply Agreement, Section 2. The remainder will be paid to CMI
in the form of video equipment valued at $[*], to be delivered to CMI by May 15,
1997. Modifications to the Development and Supply Agreement are as follows:
Clause 2, Paragraph 1, which currently reads:
- ---------------------------------------------
"Stryker agrees to fund [*] percent ([*]%) of the cost of the CMI Tasks, up to
a maximum expenditure therefore by Stryker of $[*], but subject, unless Stryker
agrees otherwise in writing, to the maximum amount budgeted for each Phase of
the Development Project specified in Schedule C."
is hereby modified to read:
- ---------------------------
"Stryker agrees to fund [*] percent ([*]%) of the cost of the CMI Tasks, up
to a maximum expenditure therefore by Stryker of $[*], but with Stryker's
maximum cost liability per Phase subject, unless Stryker agrees otherwise in
writing, to the maximum amount budgeted for each Phase of the Development
Project, as specified in Schedule C."
Schedule "A" currently reads as follows:
- -------------------------------------------
[*]
[*]
[*]
[*]
[*]
Schedule "A" is modified to read as follows:
- --------------------------------------------
[*]
[*]
[*]
[*]
[*]
[*]
[*]
<PAGE> 19
Schedule "B" is amended to include the following text:
- ------------------------------------------------------
[*]
- ---
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
- ---
[*]
[*]
[*]
[*]
[*]
[*]
Paragraph 4(a) "Exclusive of Stryker", First Sentence Modified as Follows (new
text in italics):
". . . CMI agrees that it shall supply the System to Stryker for use in
conjunction with the Stryker Products and that it will not supply the System to
any other manufacturer or marketer of products of the type described in
Schedule A, with the exception of the [*] for as long as Stryker meets the
minimum purchase requirements,. . . "
IN WITNESS WHEREOF, the parties have executed this amendment as of the date and
year first written below.
STRYKER CORPORATION COMPUTER MOTION INCORPORATED
By: /s/ By: /s/
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
------------------------- -------------------------
2
<PAGE> 1
EXHIBIT 10.7
SERIES D CONVERTIBLE PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
DATED AS OF AUGUST 24, 1994
BETWEEN CHASE MANHATTAN CAPITAL CORPORATION
AS PURCHASER
AND COMPUTER MOTION, INC.
AS SELLER
<PAGE> 2
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of August 24, 1994, between Chase Manhattan
Capital Corporation, a New York corporation (purchaser") and Computer Motion,
Inc., a California corporation (the "Company"). Except as otherwise indicated,
capitalized terms used herein are defined in paragraph 6A hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Series D Preferred and the Warrant. The
Company shall duly adopt, authorize, execute and file the Certificate of
Determination and authorize the issuance and sale to Purchaser of (i) 1,052,632
shares of its Series D Convertible Preferred Stock, no par value per share (the
"Series D Preferred") having the rights and preferences set forth in Exhibit A
attached hereto, and (ii) a Stock Purchase Warrant in the form of Exhibit B
attached hereto (the "Warrant") to purchase up to 1,052,632 shares of the
Company's Common Stock, no par value per share (the "Common Stock"). The Series
D Preferred is convertible into shares of Common Stock.
1B. Purchase and Sale of the Series D Preferred and the Warrant. At the
Closing, subject to the terms and conditions set forth herein, the Company shall
sell to Purchaser and Purchaser shall purchase from the Company 1,052,632 shares
of Series D Preferred and the Warrant at a price of $4.75 for each share of
Series D Preferred and $100 for the Warrant for an aggregate purchase price of
$5,000,102.
1C. The Closing. The Closing of the purchase and sale of the Series D
Preferred and the Warrant shall take place at the offices of Kirkland ~ Ellis,
200 East Randolph Drive, Chicago, Illinois at 10:00 a.m. on August 24, 1994, or
at such other place or on such other date as may be mutually agreeable to the
Company and Purchaser, but in no event later than August 26, 1994. At the
Closing, the Company shall deliver to Purchaser stock certificates evidencing
the Series D Preferred and the Warrant to be purchased by Purchaser, registered
in Purchaser's or its nominee's name, upon payment of the purchase price thereof
by a cashier's or certified check, or by wire transfer of immediately available
funds to an account designated by the Company in an amount equal to $5,000,002.
Section 2. Conditions of Purchaser's Obligation at the Closing. The
obligation of Purchaser to purchase and pay for the Series D Preferred and the
Warrant being purchased at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
2A. Representations and Warranties: Covenants. The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. Certificate of Determination. The Company shall have duly adopted,
executed, and filed with the Secretary of State of California the Certificate of
Determination and the Company shall not have adopted or filed any other document
designating terms or relative rights or preferences
<PAGE> 3
of its Preferred Stock. The Certificate of Determination shall be in full force
and effect under the laws of California as of the Closing.
2C. Registration Agreement. The Company and Purchaser shall have
entered into the Registration Agreement and the Registration Agreement shall be
in full force and effect as of the Closing.
2D. Stockholders Agreement. The Company, certain of the Company's
executives and the Purchaser shall have entered into the Stockholders Agreement
and the Stockholders Agreement shall be in full force and effect as of the
Closing.
2E. Non-Competition Agreements. The Company and each of Mr. Robert W.
Duggan and Dr. Yulun Wang shall have entered into the applicable Non-Competition
Agreements, and such Non-Competition Agreements shall be in full force and
effect as of the Closing.
2F. Sale of Series D Preferred and Warrant. The Company shall have sold
and delivered to Purchaser the Series D Preferred and the Warrant to be
purchased by Purchaser hereunder at the Closing and the Company shall have
received payment therefor in full.
2G. Compliance With Law. The transactions contemplated hereby shall
comply with all laws and regulations applicable thereto. The Company shall have
made all filings under all applicable federal and state securities laws
necessary to consummate the issuance of the Series D Preferred and the Warrant
pursuant to this Agreement in compliance with such laws.
2H. Due Diligence. Purchaser shall have completed and shall be
satisfied with the results of its legal, accounting, financial and business due
diligence of the Company.
2I. Opinion of the Company's Counsel. Purchaser shall have received
from Stradling, Yocca, Carlson & Rauth, special counsel for the Company, an
opinion with respect to the matters set forth in Exhibit E attached hereto,
dated the date of the Closing and in form and substance Satisfactory to
Purchaser.
2J. Closing Documents. The Company shall have delivered to Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in Section 1
and paragraphs 2A through 2G, inclusive, have been fully
satisfied;
(ii) certified copies of the resolutions duly adopted
by the Company's Board of Directors authorizing the execution,
delivery and performance of this Agreement, the Registration
Agreement, the Stockholders Agreement and each of the other
agreements contemplated hereby or thereby, the filing of the
Certificate of Determination, the issuance and sale of the
Series D Preferred and the Warrant, the reservation for
issuance upon conversion of the Series D Preferred or exercise
of the Warrant issued at the Closing of an aggregate of
1,052,632 shares of Common Stock, and the consummation of all
other transactions contemplated by this Agreement;
<PAGE> 4
(iii) certified copies of the Articles of
Incorporation, the Certificate of Determination, and the
bylaws of the Company, and of the partnership agreement or
charter and bylaws of each Subsidiary, each as in effect at
the Closing;
(iv) copies of all third-party and governmental
consents, approvals and filings required in connection with
the consummation of the transactions hereunder (including,
without limitation, all blue sky law filings and waivers of
all preemptive rights and rights of first refusal);
(vi) duly completed and executed SBA Forms 480, 652
and 1031 and a list of (a) the name of each of the Company's
directors as of the Closing, (b) the name and title of each of
the Company's officers as of the Closing, and (c) after giving
effect to the transactions contemplated by this Agreement, the
name of each of the Company's stockholders setting forth the
number and class of shares held; and
(vii) such other documents relating to the
transactions contemplated by this Agreement as Purchaser or
its special counsel may reasonably request.
2K. Expenses. At the Closing, the Company shall have reimbursed
Purchaser for all fees and expenses as provided in paragraph 6B hereof.
2L. Proceedings. All corporate and other proceedings taken or required
to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be satisfactory in form and substance to Purchaser and its special
counsel.
2M. Waiver. Any condition specified in this Section 2 may be waived if
consented to by Purchaser; provided that no such waiver shall be effective
against Purchaser unless it is set forth in a writing executed by Purchaser.
Section 3. Covenants.
3A. Financial Statements and Other Information. The Company shall
deliver to Purchaser (so long as Purchaser holds any Underlying Common Stock)
and to each other holder of at least 200,000 shares of Underlying Common Stock
(as adjusted to account for stock splits, stock dividends, combinations of
shares and other similar transactions occurring after the Closing):
(i) as soon as available but in any event within
seven days after the end of each weekly accounting period for
the 52 weeks after the Closing, unaudited weekly cash reports
of the Company setting forth the number of units sold and the
aggregate sales revenue for each of the Company's products,
setting forth in each case comparisons to the annual budget
and to the preceding weekly period, and all such statements
shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the
absence of footnote disclosures and normal year-end
adjustments;
(ii) as soon as available but in any event within 30
days after the end of each monthly accounting period in each
fiscal year, commencing for September 1994, unaudited
consolidating and consolidated statements of income and cash
flows
<PAGE> 5
of the Company and its Subsidiaries for such monthly
period and for the period from the beginning of the fiscal
year to the end of such month, and consolidating and
consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting
forth in each case comparisons to the annual budget and to the
corresponding period in the preceding fiscal year, and all
such statements shall be prepared in accordance with generally
accepted accounting principles, consistently applied, subject
to the absence of footnote disclosures and to normal year-end
adjustments;
(iii) within 45 days after the end of each of the
first three quarterly accounting periods in each fiscal year,
unaudited consolidating and consolidated statements of income
and cash flows of the Company and its Subsidiaries for such
fiscal quarter, and unaudited consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the
end of such fiscal quarter, setting forth in each case
comparisons to the same quarter of the preceding fiscal year,
all prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and
accompanied by an Officer's Certificate stating that to the
best of such officer's knowledge after diligent inquiry there
is no Event of Noncompliance in existence and that neither the
Company nor any of its Subsidiaries is in default under any of
its other material agreements or, if any Event of
Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take
with respect thereto;
(iv) within 90 days after the end of each fiscal
year, consolidating and consolidated statements of income and
cash flows of the Company and its Subsidiaries for such fiscal
year, and consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal
year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions
of such statements, an opinion of an independent accounting
firm of recognized national standing that is unqualified with
respect to the scope of such firm's examination and the
Company's status as a going concern, (b) a certificate from
such accounting firm, addressed to the Board of Directors,
stating that in the course of its examination nothing came to
its attention that caused it to believe that there was an
Event of Noncompliance in existence or that there was any
other default by the Company or any Subsidiary in the
fulfillment of or compliance with any of the terms, covenants,
provisions or conditions of any other material agreement to
which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance
or other default by the Company or any Subsidiary exists, a
certificate specifying the nature and period of existence
thereof, and (c) a copy of such firm's annual management
letter to the Board of Directors;
(v) promptly upon receipt thereof, any additional
reports, management letters or other detailed information
concerning significant aspects of the Company's operations or
financial affairs prepared by Company's independent
accountants and provided to the Board of Directors (and not
otherwise contained in other materials provided hereunder);
<PAGE> 6
(vi) at least 30 days but not more than 90 days prior
to the beginning of each fiscal year, commencing for the
fiscal year beginning January 1, 1995, an annual budget
prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant
budgets prepared by the Company and any revisions of such
annual or other budgets, and within 30 days after any monthly
period in which there is a material adverse deviation from the
annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes
to take with respect thereto;
(vii) promptly (but in any event within ten business
days) after the discovery or receipt of notice of any Event of
Noncompliance, any default under any material agreement to
which it or any of its Subsidiaries is a party, which default
could have a material adverse effect on the Company or any
Subsidiary, or any other material adverse event or
circumstance affecting the Company or any Subsidiary
(including, without limitation, the filing of any material
litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a
substantial likelihood of such litigation being commenced), a
notice specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken
and propose to take with respect thereto;
(viii) within ten days after transmission thereof,
copies of all financial statements, proxy statements, reports
and any other general written communications which the Company
sends to its stockholders and copies of all registration
statements and all regular, special or periodic reports which
it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange
Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases
and other statements made available generally by the Company
to the public concerning material developments in the
Company's businesses;
(ix) within 75 days after the Closing, the Company
will deliver to each SBIC Holder a written summary describing
in reasonable detail the use of such proceeds by the Company
and its Subsidiaries. The Company will give each SBIC Holder
and the SBA access to the Company's records for the purpose of
confirming the use of such proceeds;
(x) promptly after the end of each fiscal year (but
in any event prior to February 28 of each year) the Company
shall deliver to each SBIC Holder a written assessment of the
economic impact of Purchaser's investment in the Company,
specifying the full-time equivalent jobs created or retained
in connection with the investment, the impact of the
investment on the businesses of the Company in terms of
expanded revenue and taxes, and other economic benefits
resulting from the investment, including but not limited to,
technology development or commercialization, minority business
development, urban or rural business development, expansion of
exports and assistance to manufacturing firms; and
<PAGE> 7
(xi) with reasonable promptness, such other
information and financial data concerning the Company and its
Subsidiaries as any Person entitled to receive information
under this paragraph 3A may reasonably request.
Each of the financial statements referred to in this paragraph 3A shall
be true and correct in all material respects, and shall fairly and accurately
reflect the financial condition and operating results of the Company and its
Subsidiaries as of the dates and for the periods stated therein, subject in the
case of the unaudited financial statements to changes resulting from normal
year-end adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of subparagraphs
3A(i)-(ix) shall cease to be effective so long as the Company (a) is subject to
the periodic reporting requirements of the Securities Exchange Act and continues
to comply with such requirements and (b) promptly provides to each Person
otherwise entitled to receive information pursuant to this paragraph 3A all
reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act; provided, however, that the Company's obligation to
deliver certain Officer's Certificates pursuant to paragraph 3A(iii) and the
requirements of paragraph 3A(iv)(b) shall continue for so long as any Series D
Preferred remains outstanding or the Warrant remains exercisable.
Except as otherwise required by law or judicial order or decree or by
any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this paragraph 3A
or paragraph 3B or 3C shall use its best efforts to maintain the confidentiality
of all nonpublic information obtained by it hereunder; provided that each such
Person may disclose such information in connection with the sale or transfer of
any Underlying Common Stock if such Person's transferee agrees in writing to be
bound by the provisions hereof, and provided further that any such Person that
is acting as a trustee, investment manager, investment advisor or in any other
similar fiduciary capacity shall be permitted to provide such information to any
plan sponsors, investment committee or investment advisory board associated with
such Person.
3B. Inspection of Property. The Company shall permit any
representatives designated by Purchaser (so long as Purchaser holds any
Underlying Common Stock) and any subsequent holder of at least 200,000 shares of
Underlying Common Stock (as adjusted to account for stock splits, stock
dividends, combinations of shares and other similar transactions occurring after
the Closing), upon reasonable notice and during normal business hours and at
such other times as any such holder may reasonably request, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine
the corporate and financial records of the Company and its Subsidiaries and make
copies thereof or extracts therefrom and (iii) meet and discuss (at meetings
arranged by the Company) the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries.
3C. Attendance at Board Meetings. Prior to qualified Public Offering,
the Company shall give Purchaser (so long as Purchaser holds any Underlying
Common Stock) and each holder of at least 500,000 shares of Underlying Common
Stock (as adjusted to account for stock splits, stock dividends, combinations of
shares and other similar transactions occurring after the Closing), notice of
each meeting of the Board of Directors, the board of directors of any Subsidiary
and any committee thereof at such time as notice is given to the directors, and
the Company shall permit (or
<PAGE> 8
cause such Subsidiary to permit) a representative of each such Person to attend
as an observer all meetings of its Board of Directors, such Subsidiary's board
of directors and committees thereof. Each such representative shall be entitled
to receive all written materials and other information (including, without
limitation, copies of meeting minutes) given to directors in connection with
such meetings at the same time such materials and information are given to the
directors. Notwithstanding the foregoing, the Company may exclude such
representative from any such meetings and withhold information from such
representative, to the extent necessary, in the written opinion of the Company's
legal counsel, in order to preserve any attorney-client privileged information
of the Company. If the Company or any of its Subsidiaries proposes to take any
action by written consent in lieu of a meeting of its Board of Directors, or
such Subsidiary's board of directors, or any committee thereof, the Company
shall, or shall cause such Subsidiary to, give written notice thereof to each
such representative prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall, or
shall cause the applicable Subsidiary to, pay the reasonable out-of-pocket
travel expenses of each representative incurred in connection with attending
such board and committee meetings; provided, however, neither the Company nor
its Subsidiaries shall pay the expenses of any representative who is an
Affiliate of the Investor Director if the Investor Director is also in
attendance at such meeting.
3D. Restrictions. So long as any Underlying Common Stock is
outstanding, the Company shall not, without the prior written consent of the
holder or holders of a majority of the Underlying Common Stock:
(i) directly or indirectly declare or pay any
dividends or make any distributions upon any of its Junior
Securities;
(ii) directly or indirectly redeem, purchase or
otherwise acquire, or permit any Subsidiary to redeem,
purchase or otherwise acquire, any of the Company's Junior
Securities (including, without limitation, warrants, options
and other rights to acquire Junior Securities directly or
indirectly) or directly or indirectly redeem, purchase or make
any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans, except for
redemptions or repurchases of Series D Preferred, the Warrant
or Underlying Common Stock permitted under this Agreement and
except for repurchases of up to $600,000 in the aggregate from
the date hereof of Common Stock from former employees of the
Company or its Subsidiaries upon termination of their
employment on terms determined by the Company's Board of
Directors so long as no Event of Noncompliance exists as of or
after giving effect to any such repurchase,
(iii) so long as any Series D Preferred remains
outstanding, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of (a)
any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other
equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit
participation features), which equity securities would be
senior to or para passu with the Series D Preferred with
respect to the payment of dividends, redemption's or
distributions upon liquidation or otherwise, (b) any capital
stock or other equity securities (or any securities directly
or indirectly convertible into or exchangeable for any capital
stock or other equity securities) which are senior to or pari
passu with the Series D Preferred with respect
<PAGE> 9
to the payment of dividends, redemptions or distributions upon
liquidation or otherwise, or (c) permit any Subsidiary to
issue any equity securities or any other securities of the
type described in (a) or (b) above, or any rights to acquire
such securities, except to the Company or a wholly-owned
Subsidiary;
(iv) make, or permit any Subsidiary to make, any
loans or advances to, guarantees for the benefit of, or
Investments in, any Person (other than a wholly-owned
Subsidiary), except for (a) reasonable advances to employees
in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments
having a stated maturity no greater than six months from the
date the Company makes such Investment in (1) obligations of
the United States government or any agency thereof or
obligations guaranteed by the United States government, (2)
certificates of deposit of commercial banks having combined
capital and surplus of at least $250 million (except for
certificates of deposit of Montecito Bank aggregating up to
$300,000) or (3) commercial paper with a rating of at least
"Prime-1" by Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person or, except
as permitted by subparagraph (viii) below, permit any
Subsidiary to merge or consolidate with any Person (other than
a wholly-owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit
any Subsidiary to sell, lease or otherwise dispose of, more
than 50` of the consolidated assets of the Company and its
Subsidiaries (computed on the basis of book value, determined
in accordance with generally accepted accounting principles
consistently applied, or fair market value, determined by the
Company's Board of Directors in its reasonable good faith and
judgment) in any transaction or series of related transactions
(other than sales in the ordinary course of business) or sell
or permanently dispose of any of its or any Subsidiary's
Intellectual Property Rights;
(vii) liquidate, dissolve or effect a
recapitalization or reorganization in any form of transaction
(including, without limitation, any reorganization into
partnership form);
(viii) acquire, or permit any Subsidiary to acquire,
any interest in any business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any
joint venture, involving an aggregate consideration (including
the assumption of liabilities whether direct or indirect)
exceeding in the aggregate from the date hereof the sum of (i)
$1,000,000 plus (ii) an amount equal to 50% of the Company's
retained earnings generated after the Closing hereof less the
portion of such retained earnings used pursuant to
subparagraph 3D(xvii) hereof;
(ix) so long as any Series D Preferred remains
outstanding, effect any Reorganization;
(x) enter into, or permit any Subsidiary to enter
into, the ownership, active management or operation of any
business other than the design, manufacture, sale and
distribution of products (including any accessories sold in
connection therewith) which generate, control and/or
display computerized motion, which
<PAGE> 10
includes but is not limited to robotics, computer graphics,
and automation, and which may include consulting and/or
contract work with government agencies and/or other commercial
institutions in respect of such types of products;
(xi) become subject to, or permit any of its
Subsidiaries to become subject to (including, without
limitation, by way of amendment to or modification of), any
agreement or instrument which by its terms would (under any
circumstances) restrict the Company's right to perform its
obligations under this Agreement, the Registration Agreement,
the Stockholders Agreement, the Certificate of Determination,
the Articles of Incorporation or the Bylaws (including,
without limitation, provisions relating to the conversion or
redemption of the Series D Preferred, the exercise of the
Warrant and the repurchase of Underlying Common Stock pursuant
to this Agreement);
(xii) except as expressly contemplated by this
Agreement, make any amendment to the Articles of
Incorporation, the Certificate of Determination, or the
Bylaws, or file any resolution of the Company's Board of
Directors with the Secretary of State of California,
containing any provision which would adversely affect or
otherwise impair the rights or relative priority of the
holders of the Series D Preferred or the holders of Underlying
Common Stock under this Agreement, the Registration Agreement,
the Stockholders Agreement, the Articles of Incorporation, the
Certificate of Determination or the Bylaws;
(xiii) except as set forth on the Permitted Joint
Venture Schedule attached hereto, establish or acquire (a) any
Subsidiaries other than wholly-owned Subsidiaries or (b) any
Subsidiaries organized outside of the United States and its
territorial possessions;
(xiv) create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to
exist, Indebtedness exceeding in the aggregate $500,000
outstanding at any time on a consolidated basis;
(xv) make any capital expenditures (including,
without limitation, payments with respect to capitalized
leases, as determined in accordance with generally accepted
accounting principles consistently applied) exceeding $750,000
in the aggregate on a consolidated basis during any 12-month
period plus an aggregate of $500,000 to purchase AESOP
demonstration units and $750,000 to develop manufacturing
capacity to produce robotic arms used in the AESOP units;
(xvi) enter into any leases or other rental
agreements (excluding capitalized leases, as determined in
accordance with generally accepted accounting principles
consistently applied) under which the amount of the aggregate
lease payments for all such agreements exceeds the sum of (i)
$800,000 during any 12-month period plus (ii) an amount equal
to 50' of the Company's retained earnings generated during
such a 12-month period less the portion of such retained
earnings used pursuant to subparagraph 3D(viii) hereof;
(xvii) change its fiscal year;
<PAGE> 11
(xviii) change the authorized size of its Board of
Directors from five members, except that the Company may
increase the size of its Board of Directors to seven members
upon the completion of a Qualified Public Offering;
(xix) amend or modify any stock option plan or
employee stock ownership plan as in existence as of the
Closing, adopt any new stock option plan or employee stock
ownership plan or issue any shares of Common Stock to its or
its Subsidiaries' employees other than pursuant to the
Company's existing stock option and employee stock ownership
plans; provided that the Company may amend any existing plan
or adopt any new plan to issue shares of Common Stock (or
options to acquire such shares) to employees of the Company or
its Subsidiaries on terms approved by the Company's Board of
Directors, and may issue shares of Common Stock pursuant to
paragraph 3Q hereof so long as the aggregate number of all
shares of Common Stock (or options to acquire such shares)
issued pursuant to any existing, modified or new stock option
plan or employee stock ownership plan, and issued pursuant to
paragraph 3Q hereof, does not exceed 1,214,200 in the
aggregate (as adjusted to account for stock splits, stock
dividends, combinations of shares and other similar
transactions occurring after the Closing);
(xx) issue or sell any shares of the capital stock,
or rights to acquire shares of the capital stock, of any
Subsidiary to any Person other than the Company or another
Subsidiary;
(xxi) borrow against, pledge, assign, modify cancel
or surrender any key-man life insurance policies required to
be maintained under subparagraph 3E(ix) hereof;
(xxii) take or omit to take any action which would
result in the representations made in paragraph 5S hereof to
cease to be true and correct at all times following the
Closing; and
(xxiii) use the proceeds from the sale of the Series
D Preferred and the Warrant other than to pay for expenses
incurred in the ordinary course of business in connection with
the design, manufacture, sale or distribution of products and
related accessories which generate, control and/or display
computerized motion, by use of robotics, computer graphics or
computer automation.
Notwithstanding the foregoing, the Company may take any action described in
subparagraphs 3D(v), (vi), (vii) and (ix) without the prior written consent of
the holder or holders of a majority of the Underlying Common Stock, if
immediately after giving effect to such action taken by the Company, on account
of each share of Underlying Common Stock the holder thereof receives
consideration in cash or readily marketable securities in an amount not less
than the greater of (A) 2 times the Liquidation Value of each share as of the
date hereof plus all accrued and unpaid dividends thereon or (B) the Liquidation
Value of each share as of the date hereof plus an amount equal to a 40%
cumulative annual return thereon.
3E. Affirmative Covenants. So long as any Underlying Common Stock is
outstanding, the Company shall, and shall cause each Subsidiary to, unless it
has received the prior written consent of the holder or holders of a majority of
the Underlying Common Stock then in existence:
<PAGE> 12
(i) at all times cause to be done all things
necessary to maintain, preserve and renew its corporate
existence and all material licenses, authorizations and
permits necessary to the conduct of its businesses;
(ii) maintain and keep its properties in good repair,
working order and condition, and from time to time make all
necessary or desirable repairs, renewals and replacements, so
that its businesses may be properly and advantageously
conducted at all times;
(iii) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its
properties or upon the income or profits therefrom (in each
case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or
supplies which if unpaid would by law become a lien upon any
of its property or to the extent to which the failure to pay
or discharge such obligations would reasonably be expected to
have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of
the company and its Subsidiaries taken as a whole, unless and
to the extent that the same are being contested in good faith
and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its
books with respect thereto;
(iv) comply with all other material obligations which
it incurs pursuant to any contract or agreement, whether oral
or written, express or implied, as such obligations become
due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally
accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(v) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of
which would reasonably be expected to have a material adverse
effect upon the financial condition, operating results,
assets, operations or business prospects of the Company or any
Subsidiary;
(vi) apply for and continue in force with good and
responsible insurance companies adequate insurance covering
risks of such types and in such amounts as are customary for
companies of similar size engaged in similar lines of
business;
(vii) maintain proper books of record and account
which present fairly in all material respects its financial
condition and results of operations and make provisions on its
financial statements for all such proper reserves as in each
case are required in accordance with generally accepted
accounting principles, consistently applied;
(viii) maintain product liability insurance coverage
of at least $5,000,000; and
(ix) within 30 days following the Closing, the
Company shall obtain and thereafter maintain key-man life
insurance policies on the lives of Mr. Robert W.
<PAGE> 13
Duggan and Dr. Yulun Wang in the face amount of $1,000,000
each, which policies shall name the Company as beneficiary.
3F. Compliance with Agreements. The Company shall perform and observe
(i) all of its obligations to each holder of Underlying Common Stock set forth
in this Agreement, the Articles of Incorporation, the Certificate of
Determination, the Company's Bylaws and the Stockholders Agreement, (ii) all of
its obligations to each holder(s) of the Warrant set forth therein and (iii) all
of its obligations to each holder of Registrable Securities set forth in the
Registration Agreement. Notwithstanding the provisions of paragraph 3R, any
obligation contained in each of the agreements referred to in this paragraph 3F
may terminate at such time as is specifically provided for therein.
3G. Current Public Information. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to Rule 144 adopted by the Securities and
Exchange Commission under the Securities Act (as such rule may be amended from
time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission. Upon request, the Company shall deliver to
any holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
3H. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Series D Preferred
and exercise of the Warrant, such number of shares of Common Stock issuable upon
the conversion of all outstanding shares of Series D Preferred or exercise of
the Warrant. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation (excluding
Investment Regulations) or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Company upon issuance).
3I. Intellectual Property Rights. The Company shalluse its best efforts
to, and shall cause each Subsidiary to use its best efforts to, possess and
maintain all material Proprietary Rights necessary to the conduct of their
respective businesses and own all right, title and interest in and to, or have a
valid license for, all material Intellectual Property Rights used by the Company
and each Subsidiary in the conduct of their respective businesses. The Company
and each of its Subsidiaries shall use its best efforts to avoid any action
which to the best of its knowledge would result in the invalidity, abuse, misuse
or unenforceability of such Intellectual Property Rights or which to the best of
its knowledge would infringe upon any rights of other Persons.
3J. Preemptive Rights.
(i) Prior to a Qualified Public Offering, and except
for issuances of Common Stock (or options to acquire Common
Stock) (a) to employees of the Company or any Subsidiary on
terms which have been approved (or are issued
<PAGE> 14
pursuant to an employee plan that has been approved) by the
Company's Board of Directors, (b) upon the conversion of the
Series A, B. C or D Preferred or the exercise of the Warrant,
(c) in connection with the acquisition of another company or
business as permitted under subparagraph 3D(viii), (d)
pursuant to a public offering registered under the Securities
Act, and (e) pursuant to options and rights to acquire Common
Stock that are described on the Capitalization Schedule
attached hereto, if the Company authorizes the issuance or
sale of any equity securities or any options or rights (or
securities containing options or rights) to acquire any equity
securities (other than as a dividend on the outstanding Common
Stock payable solely in shares of Common Stock), the Company
shall first offer to sell to Purchaser (so long as Purchaser
owns any Underlying Common Stock and each holder of at least
200,000 shares of Underlying Common Stock (as adjusted to
account for stock splits, stock dividends, combinations of
shares and similar events) a portion of such stock or
securities equal to the quotient determined by dividing (1)
the number of shares of Underlying Common Stock held by such
holder by (2) the sum of (x) the number of shares of
Underlying Common Stock then in existence and (y) the number
of shares of Common Stock then outstanding or issuable upon
the outstanding rights, warrants, options or convertible
securities which are fully exercisable at such time at an
exercise or conversion price which does not exceed the fair
market value of the Common Stock issuable thereupon as
determined in good faith by the Company's Board of Directors,
and which are not shares of Underlying Common Stock. Each such
holder of Underlying Common Stock shall be entitled to
purchase such stock or securities at the most favorable price
and on the most favorable terms that such stock or securities
are to be offered to any other Persons. The purchase price for
all stock and securities offered to the holders of the
Underlying Common Stock shall be payable in cash (or such
other terms as are offered to other Persons).
(ii) In order to exercise its purchase rights
hereunder, a holder of Underlying Common Stock must, within 15
days after receipt of written notice from the Company
describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and
such holder's percentage allotment, deliver a written notice
to the Company describing its election hereunder. If all of
the stock and securities offered to the holders of Underlying
Common Stock is not fully subscribed by such holders, the
remaining stock and securities offered to such holders shall
be reoffered by the Company to the holders purchasing their
full allotment upon the terms set forth in this paragraph,
except that such holders must exercise their purchase rights
within five days after receipt of much reoffer.
(iii) Upon the expiration of the offering periods
described above, the Company shall be entitled to sell such
stock or securities which the holders of Underlying Common
Stock have not elected to purchase or which the Company was
not obligated to offer to such holders during the 60 days
following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to such
holders. Any stock or securities offered or sold by the
Company after such 60-day period must be reoffered to the
holders of Underlying Common Stock described above pursuant to
the terms of this paragraph.
3R. Regulatory Compliance Cooperation.
<PAGE> 15
(i) Regulatory Problem. In the event that Purchaser
(or any subsequent holder of Underlying Common Stock)
determines that it has a Regulatory Problem, the Company shall
take all such actions as are reasonably requested by Purchaser
in order to (a) effectuate and facilitate any transfer by
Purchaser of any securities of the Company then held by
Purchaser or its Affiliate to any Person designated by
Purchaser, (b) permit Purchaser (or any Affiliate) to exchange
all or any portion of the Series D Preferred, the Warrant or
Common Stock (collectively, the "Voting Securities" in this
paragraph 3K) then held by such Purchaser (or Affiliate) on a
share-for-share basis for shares of a class of non-voting
preferred stock convertible into non-voting common stock,
non-voting warrants to purchase non-voting common stock, or
non-voting common stock, respectively. Such non-voting
securities of the Company shall be identical in all respects
to such Voting Securities, except that they shall be
non-voting and shall be convertible or exercisable into an
identical number of shares of common stock on such conditions
for conversion or exercise as are requested by such Purchaser
in light of regulatory considerations then prevailing, and (c)
continue and preserve the respective allocation of the voting
interests with respect to the Company provided for in the
Stockholders Agreement and with respect to such Purchaser's or
Affiliate's ownership of the Company's Common Stock. In the
event that such Regulatory Problem ceases to exist, the
holders of non-voting securities may exchange all or any
portion of the non-voting securities for Voting Securities. In
order to effectuate such conversions, the Company and
Purchaser shall take such actions as are reasonable in view of
the nature of the Regulatory Problem, including but not
limited to entering into such additional agreements, adopting
such amendments to the Articles of Incorporation, the
Certificate of Determination and Bylaws and taking such
additional actions in order to effectuate the intent of the
foregoing.
(ii) Regulatory Violation. Upon the occurrence of a
Regulatory Violation or in the event Purchaser or any other
SBIC Holder determines in good faith that a Regulatory
Violation has occurred, Purchaser or any other SBIC Holder
shall, in addition to any other remedy to which such SBIC may
be entitled as a holder of Underlying Common Stock (whether
under this Agreement or otherwise), have the right (to the
extent that such SBIC Holder is required by SBIC Regulations
to have such right) to demand immediate redemption of all of
the Underlying Common Stock owned by such SBIC Holder at a
price per share equal to its purchase price hereunder plus all
accrued and unpaid dividends, by delivering written notice to
the Company, and the Company shall pay such repurchase price
within 30 days after the date of the notice requesting
redemption.
3L. Use of Proceeds. The Company shall not use the proceeds of the sale
of the Series D Preferred and the Warrant hereunder except as permitted under
paragraph 3D(xxiv) hereof. The Company shall provide Purchaser and the SBA
access to the Company's and its Subsidiaries' records as necessary to confirm
such use of proceeds.
3M. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose Purchaser's name or identity as an investor in the
Company in any written press release or other public announcement or in any
document or material filed with any governmental entity, without the prior
written consent of Purchaser, unless such disclosure is required by applicable
law or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to
<PAGE> 16
making such disclosure the Company shall give written notice to Purchaser
describing in reasonable detail the proposed content of such disclosure and
shall permit Purchaser to review and comment upon the form all substance of such
disclosure.
3N. Allocation of Purchase Price. Purchaser and the Company hereby
acknowledge and agree that (a) the fair market value of the Series D Preferred
purchased hereunder is $5,000,002, and the fair market value of the Warrant
purchased hereunder is $100, and (b) the "issue price" and the "redemption
price" (as such terms are used in Section 305(c) of the Internal Revenue Code of
1986, as amended) of the Series D Preferred are each $5,000,002. Purchaser and
the Company shall file their respective federal, state and local income tax
returns in a manner which is consistent with such fair market valuation, and
shall take no position with any taxing authority which is contrary to such
allocation.
30. Retroactive State Filings. Within 30 days following the Closing
Date, the Company shall make all filings required to be made under any state
blue-sky laws in respect of any issuance of its equity securities or instruments
convertible into or exercisable or exchangeable for any equity securities.
3P. Rescission Offer. Within 45 days following the Closing Date, the
Company shall make a written offer (the "Rescission Offer") to all holders of
Common Stock and Series B Preferred, pursuant to which each holder thereof shall
be entitled to rescind its purchase of all but not less than all shares of such
securities and to receive consideration in an amount equal to the consideration
paid to the Company therefor upon surrender to the Company of the certificate(s)
representing such securities. The Rescission Offer shall remain in effect for
fourteen days after the date upon which the Rescission Offer is made (the
"Rescission Offer Period"). The Rescission Offer shall be accompanied by such
disclosure materials an would be necessary to qualify an offering of securities
under Regulation D of the Securities Act. Such disclosure materials shall be
subject to review and approval by Purchaser. Upon acceptance of the Rescission
Offer by any holder of Common Stock or Series B Preferred, the Company shall
promptly notify Purchaser of the identity of each holder who has accepted the
Rescission Offer, the type and number of Shares to be returned to the Company,
and the consideration to be paid by the Company therefor. Within ten days after
the expiration of the Rescission Offer Period the Company shall provide to
Purchaser a Capitalization Schedule which shall reflect the effect of the
Rescission Offer and all other transactions contemplated under this Agreement.
The Rescission Offer shall comply with all federal securities laws and all state
blue sky laws, including without limitation all disclosure, notice and filing
requirements thereunder.
3Q. Executive Compensation.
(i) So long as any Underlying Common Stock is outstanding, the Company
shall not, without the prior written consent of the holder or holders of a
majority of the shares of Underlying Common Stock:
(a) enter into, or permit any Subsidiary to enter into, any
agreement, transaction, commitment or arrangement with any of its or
any Subsidiary's officers, directors, employees, shareholders or
Affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such
Person or individual owns a beneficial interest, except for: (1)
salaries, bonuses, fringe benefits and other employment-related
compensation to the extent disclosed on the Affiliated Transactions
<PAGE> 17
Schedule; (2) salaries, bonuses, fringe benefits and other
employment-related compensation which are not disclosed on the
Affiliated Transactions Schedule (including increases in existing
levels of compensation) but which are approved in good faith by the
Board of Directors as customary and reasonable; and (3) fees to
directors of the Company or any Subsidiary for services actually
rendered to the Company, other than services customarily rendered as a
director, on terms which are no less favorable to the Company than
could be obtained from a third-party service provider; and
(b) pay to all directors and to Messrs. Robert W. Duggan,
Yulun Wang in his capacity as a member of the board of Directors of the
Company, Remo J. Butera and Russell J. Bik and any of their respective
Affiliates (whether or not such person is a director at the time such
payment is made) (collectively, the "Company Directors" and each
individually a "Company Director" for this paragraph 3Q), pursuant to
clauses (1) and (2) of subparagraph 3Q(i)(a) an amount which exceeds in
the aggregate during any fiscal year for all Company Directors either
$150,000 in cash or fair market value of fringe benefits or 30,000
shares of Common Stock of the Company (as adjusted to account for stock
splits, stock dividends, combinations of shares and other similar
transactions occurring after the Closing), or any pro-rata combination
thereof (for example the aggregate payment made to all Company
Directors during any fiscal year may consist of $65,000 in cash
resulting from participation in a bonus pool, $10,000 in fair-market
value fringe benefits and 15,000 shares of Common Stock); provided that
no payments permitted hereunder shall be paid in securities of the
Company except for shares of Common Stock which may be issued pursuant
to clauses (1) and (2) of subparagraph 3Q(i)(a), or in any instrument
convertible into or exercisable or exchangeable for securities of the
Company or in the form of stock appreciation rights, phantom stock or
the like unless such form of payment is approved in advance by either
the Investor Director (as such term is defined in the Stockholders
Agreement) or the holder or holders of a majority of the Underlying
Common Stock. Except as provided under subparagraph 3Q(ii), the
aggregate fair-market value of payments permitted hereunder to all
Company Directors in the aggregate during any fiscal year (including
payments made in the form of Common Stock or other securities or
similar rights as provided hereunder) may not exceed $150,000.
(ii) Beginning for the six-month period beginning on July 1, 1995, and
for each successive six-month period thereafter, not less than 30 days prior to
the beginning of each such period, the Company shall submit to the Investor
Director a six-month plan of operations (the "Plan of Operations") setting forth
a projection of the total number of AESOP units to be sold, and the total gross
revenue and operating income to be earned by the Company during the relevant
six-month period, which plan must be acceptable to the Investor Director in its
sole discretion. If after any six-month period, the Company's actual results of
operations exceed each of the projections set forth in the Plan of Operations
for the relevant period, the Company may pay to the Company Directors
compensation for such six-month period pursuant to the terms of subparagraph
3Q(i)(a) without regard to the limitations contained in subparagraph 3Q(i)(b);
except that the 30,000 share limitation on payment in shares of Common Stock
contained therein shall remain in effect.
(iii) This paragraph 3Q does not prohibit the vesting of employee stock
options that are in existence as of the date hereof and are disclosed on the
Capitalization Schedule, and the vesting of such options is not subject to the
limitations contained in subparagraph 3Q(i).
<PAGE> 18
3R. Termination of Covenants. The covenants of the Company contained in
this Section 3 (except paragraphs 3F, 3G, 3K and 3N) shall terminate upon the
closing of a Qualified Public Offering of the Company's Common Stock.
Section 4. Transfer of Restricted Securities: Certificate Numbering.
4A. General Provisions. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available, and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 4A(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of such Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities to be transferred delivers to the Company an
opinion of Kirkland & Ellis or such other counsel that no subsequent transfer of
such Restricted Securities by any Person (other than an affiliate of the
Company) shall require registration under the Securities Act, the Company shall
promptly upon much contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
paragraph 6E below.
If the Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions substantially similar to those
contained in this paragraph and paragraph 6E below.
4C. Rule 144A. Upon the request of Purchaser, the Company shall
promptly supply to Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities (together with the opinion referred to in Section
4B), remove the legend set forth in paragraph 6E from the certificates for such
Restricted Securities.
4E. Certificate Numbering. The certificate number of the Series D
Preferred shall initially be PD-1, and the certificate number of the Warrant
shall initially be W-1. Thereafter, prior to a redemption of the Series D
Preferred at the Company's option pursuant to Section 4I of the Certificate of
Determination, in connection with any transfer of less than all of the shares of
the Series D Preferred represented by any particular certificate, the
certificate representing such shares of Series D Preferred so transferred and
the Warrant shall each be reissued in two or more parts so that at all times,
for each certificate representing shares of Series D Preferred, there will exist
a Warrant designated the same number and representing the right to purchase the
same number of shares of Underlying Common Stock as are obtainable upon
conversion of the Series D Preferred
<PAGE> 19
represented by such certificate. Likewise, prior to a redemption of the Series D
Preferred at the Company's option pursuant to Section 4I of the Certificate of
Determination, in connection with a transfer of any portion of the Warrant, the
Warrant and the correspondingly numbered certificate representing Series D
Preferred which is convertible into the corresponding number of shares of
Underlying Common Stock shall each be reissued in two or more parts so that at
all times, for each Warrant representing the right to purchase shares of
Underlying Common Stock, there will exist a certificate representing shares of
Series D Preferred which are convertible into the same number of shares of
Underlying Common Stock. If at any time all or any portion of the shares of
Series D Preferred which are represented by a particular certificate are
redeemed other than in a redemption at the Company's option pursuant to Section
4I of the Certificate of Determination or are converted into Underlying Common
Stock, then the right to purchase that number of shares of Underlying Common
Stock into which such redeemed or converted shares of Series D Preferred were
convertible under the correspondingly numbered Warrant shall cease and be of no
further force or effect, and the Company shall issue a new certificate
representing the number of shares of Series D Preferred remaining after giving
effect to such redemption or conversion and a new Warrant exercisable for the
same number of shares of Underlying Common Stock into which such shares of
Series D Preferred are convertible. Each holder of shares of Series D Preferred
and any portion of the Warrant shall cooperate with the Company in effecting the
reissuances contemplated hereunder, and shall tender their certificates or their
Warrant to the Company for cancellation and reissuance within five business days
after receipt of a written request from the Company therefor, which request
shall state the circumstances which have given rise to such cancellation and
reissuance hereunder and the new number of shares of Series D Preferred to be
represented by each certificate or the new number of shares of Underlying Common
Stock to be obtainable upon exercise of each new Warrant, as the case may be.
Upon redemption of the Series D Preferred by the Company pursuant to Section 4I
of the Certificate of Determination, the numbering of the Warrant shall be
governed by Section 7 of the Warrant without regard to this Section 4E.
For example, if Purchaser owns 1,052,632 shares of Series D
Preferred represented by certificate PD-1 and a Warrant
designated W-1 to purchase up to 1,052,632 shares of
Underlying Common Stock, and Purchaser sells 100,000 shares of
Series D Preferred to "Transferee" but retains the entire
Warrant, the Series D Preferred will be reissued as
certificates PD-2 and PD-3, representing 952,632 and 100,000
shares of Series D Preferred, respectively. The Warrant will
be reissued in two parts, designated W-2 and W-3, representing
the right to purchase 952,632 and 100,000 shares of Underlying
Common Stock, respectively. If, thereafter, Transferee elects
to redeem 75,000 shares of Series D Preferred, his existing
certificate PD-3 and Purchaser's Warrant designated W-3 shall
be cancelled, and Transferee will be issued a new certificate
PD-4 representing his remaining 25,000 shares of Series D
Preferred, and Purchaser will be issued a new Warrant
designated W-4 representing his right to purchase 25,000
shares of Underlying Common Stock.
<PAGE> 20
Section 5. Representations and Warranties of the Company. As a material
inducement to Purchaser to enter into this Agreement and purchase the Series D
Preferred and Warrant hereunder, the Company hereby represents and warrants
that:
5A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California and is qualified to do business in every jurisdiction in which its
ownership of property or contact of business requires it to qualify. The Company
possesses all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own and operate its properties, to carry
on its businesses as now conducted and to carry out the transactions
contemplated by this Agreement, and will use its best efforts to obtain all
material licenses, permits and authorizations necessary to own and operate its
properties and carry on its businesses as will be conducted in the future. The
copies of the Company's and each Subsidiaries' charter documents and Bylaws
which have been furnished to Purchaser's special counsel reflect all amendments
made thereto at any time prior to the Closing and will be correct and complete
as of the Closing.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000,000 shares
of preferred stock, of which (1) 815,000 shares shall be designated Series A
Preferred, of which 815,000 shares of such Series A Preferred shall be issued
and outstanding, (2) 5,000,000 shares shall be Series B Preferred of which
1,130,667 shares of such Series B Preferred shall be issued and outstanding, (3)
3,000,000 shares shall be Series C Preferred of which 760,256 shares of such
Series C Preferred shall be issued and outstanding and (4) 1,052,632 shares
shall be Series D Preferred of which 1,052,632 shares of such Series D Preferred
shall be issued and outstanding, (b) 25,000,000 shares of Common Stock, of which
3,290,040 shares shall be issued and outstanding and 3,758,555 shares shall be
reserved for issuance upon conversion of the Preferred Stock and exercise of the
Warrant, and (c) options to acquire 906,750 shares of Common Stock issued
pursuant to the Company's Tandem Stock Option Plan dated March l, 1993 attached
hereto as Exhibit H. As of the Closing, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock or containing any profit participation features,
nor shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans, except for the Preferred Stock and the Warrant and except as set
forth on the Capitalization Schedule attached hereto. The Capitalization
Schedule accurately sets forth the following information with respect to all
outstanding stock, and options and rights to acquire the Company's capital
stock: the holder, the number of shares owned or covered, any applicable
exercise price and any applicable expiration date (or, in lieu of the expiration
date, any applicable grant date and the exercise term). As of the Closing,
neither the Company nor any Subsidiary shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except as set forth on the Capitalization Schedule and except
pursuant to the Certificate of Determination and this Agreement. As of the
Closing, all of the outstanding shares of the Company's capital stock shall be
validly issued, fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of the Series D
Preferred or the Warrant hereunder or the issuance of the Common Stock upon
conversion of the Series D Preferred or the exercise of the
<PAGE> 21
Warrant. The Company has not violated any applicable federal or state securities
laws in connection with the offer, sale or issuance of any of its capital stock,
and the offer, sale and issuance of the Series D Preferred and the Warrant
hereunder does not require registration under the Securities Act or any
applicable state securities laws. Neither the authorization or issuance of the
Series D Preferred or the Warrants, nor the issuance of Common Stock upon
conversion of the Series D Preferred or exercise of the Warrant shall result in
any adjustment to the exercise or conversion price of, or the number of shares
that may be purchased under, any other option, warrant, convertible security or
other right to acquire shares of the Company's Common Stock. Except as set forth
on the Capitalization Schedule and except for the Stockholders Agreement, there
are no agreements between the Company's stockholders with respect to the voting
or transfer of the Company's capital stock.
5C. Subsidiaries: Investments. The Subsidiary Schedule attached hereto
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation or organization, as the case may be, and the Persons owning the
outstanding capital stock or partnership interests, as the case may be, of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation (or in the case
of a partnership, the laws of the jurisdiction of its organization) possesses
all requisite corporate or partnership power and authority and all material
licenses, permits and authorizations necessary to own its properties and to
carry on its businesses as now being conducted and, as presently proposed to be
conducted, and is qualified to do business in every jurisdiction in which its
ownership of property or the conduct of business requires it to qualify. Except
as set forth on the Subsidiary Schedule, all of the outstanding shares of
capital stock or outstanding partnership interests of each Subsidiary are
validly issued and, in the case of capital stock, fully paid and nonassessable,
and all such shares or partnership interests are owned as set forth on the
Subsidiary Schedule. Except as set forth on the Subsidiary Schedule, neither the
Company nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person. The copies of each
Subsidiary's charter and Bylaws or partnership agreement delivered to Purchaser
at the Closing will reflect all amendments made thereto at any time prior to the
Closing and will be correct and complete as of the Closing.
5D. Authorization: No Breach. The execution, delivery and performance
of this Agreement, the Registration Agreement, the Stockholders Agreement, the
Non-Competition Agreements, and all other agreements contemplated hereby to
which the Company is a party, and the Certificate of Determination and the
amendment of the Company's Bylaws have been duly authorized by the Company. This
Agreement, the Registration Agreement, the Stockholders Agreement, and all other
agreements contemplated hereby (except the Non-Competition Agreements) each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms (subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors generally and to general principles of equity). Except as
set forth on the Restrictions Schedule attached hereto, the execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Stockholders Agreement, the NonCompetition Agreements and all other agreements
contemplated hereby to which the Company is a party, the offering, male and
issuance of the Series D Preferred and the Warrant hereunder, the issuance of
the Common Stock upon conversion of the Series D Preferred or the exercise of
the Warrant, the Certificate of Determination and the amendment of the Bylaws
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's or any Subsidiary's capital stock or assets
pursuant to,
<PAGE> 22
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to the Articles of
Incorporation, the Certificate of Determination or the Bylaws or the charter or
bylaws of any Subsidiary, or any law, statute, rule, or regulation, material
agreement or instrument, order, judgment or decree to which the Company or any
Subsidiary or any of their respective properties is subject. Except as set forth
on the Restrictions Schedule, none of the Subsidiaries is subject to any
restrictions upon making loans or advances or paying dividends to, transferring
property to, or repaying any indebtedness owed to, the Company or another
Subsidiary.
5E. Financial Statements. The Financial Statements Schedule attached
hereto contains the following financial statements:
(i) the audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1993 and March
31, 1993, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the periods
then ended, and the unaudited consolidated balance sheet as of
December 31, 1992; and
(ii) the Latest Balance Sheet and the related
statement of income for the six-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete and presents fairly in all material
respects the financial condition and results of operations of the Company and is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
attached Liabilities Schedule, the Company and its Subsidiaries do not have any
material liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or any Subsidiary, whether due or
to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities reflected on the Latest Balance Sheet, (ii) liabilities
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
liabilities expressly disclosed in the other Schedules to this Agreement.
5G. No Material Adverse Change. Since the date of the Latest Balance
Sheet, there has been no material adverse change and no event which could
reasonably be expected to result in a material adverse change, in the financial
condition, operating results, assets, operations, employee relations, business
prospects or customer or supplier relations of the Company and its Subsidiaries
taken as a whole.
5H. Absence of Certain Developments.
<PAGE> 23
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached Developments Schedule, since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject
to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its
capital stock or other equity securities or purchased or
redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other
equity securities);
(e) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current
property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or canceled
any debts or claims;
(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names,
corporate names, copyrights or copyright registrations, or any
trade secrets or other intangible assets, or, except in the
ordinary course of business, disclosed any proprietary
confidential information to any Person;
(h) suffered any extraordinary losses or waived any
rights of material value, whether or not in the ordinary
course of business or consistent with past practice;
(i) made capital expenditures or commitments therefor
that aggregate in excess of $50,000;
(j) entered into any other transaction other than in
the ordinary course of business or entered into any other
material transactions whether or not in the ordinary course of
business;
(k) made any charitable contributions or pledges in
excess of $1,000 in the aggregate; or
(1) suffered any damage, destruction or casualty loss
exceeding in the aggregate $5,000, whether or not covered by
insurance.
<PAGE> 24
(ii) Neither the Company nor any Subsidiary has at any time
made any unlawful payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5I. Assets. Except as set forth on the Assets Schedule attached hereto,
the Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in or contractual right to use, the properties and assets
used by them, located on their premises or shown on the Latest Balance Sheet or
acquired thereafter, free and clear of all Liens, except for properties and
assets which have been disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property taxes
not yet due and payable. Except as described on the Assets Schedule, the
Company's and each Subsidiary's equipment and other tangible assets, and to the
best of the Company's knowledge, buildings, are in good operating condition in
all material respects and are fit for use in the ordinary course of business.
The Company and each Subsidiary owns, or has a valid leasehold interest in, all
assets necessary for the conduct of their respective businesses as presently
conducted and will use its best efforts to acquire good and marketable title to,
or a valid leasehold interest in, or a contractual right to use all assets and
properties necessary to carry on the businesses of the Company as will be
conducted in the future.
5J. Tax Matters. Except as set forth on the Taxes Schedule attached
hereto, the Company and its Subsidiaries have filed all Tax Returns which they
are required to file under applicable laws and regulations; all such Tax Returns
are complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations; the Company and its
Subsidiaries have paid all Taxes shown as due and owing on such Tax Returns and
all other material Taxes due and owing by them (whether or not such Taxes are
required to be shown on a Tax Return) except for Taxes which are presently being
contested in good faith by appropriate proceedings (for which appropriate
reserves have been established in the Company's accounting records) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to any Taxes or
agreed to any extension of time with respect to a any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company and its Subsidiaries if their current
tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); since the date of the Latest Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes other than in the ordinary course of business; the Federal income tax
returns of the Company and its Subsidiaries have been audited and closed for all
tax years through 1993; no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company or any Subsidiary; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority and
no written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and neither the Company nor any Subsidiary has made an election under
ss. 341(f) of the Internal Revenue Code of 1986, as amended.
5K. Contracts and Commitments.
<PAGE> 25
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached Contracts Schedule, neither the Company nor any
Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for
deferred or other compensation to employees or any other
employee benefit plan or material arrangement, or any
collective bargaining agreement or any other contract with any
labor union, or severance agreements, programs, policies or
arrangements;
(b) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time,
consulting or other basis providing annual compensation in
excess of $120,000 or contract relating to loans to officers,
directors or Affiliates;
(c) contract under which the Company or any
Subsidiary has advanced or loaned any other Person amounts in
the aggregate exceeding $10,000 (excluding advances of
work-related expenses to employees of the Company or its
Subsidiaries consistent with the Company's policies);
(d) agreement or indenture relating to borrowed money
or other Indebtedness or the mortgaging, pledging or otherwise
placing a Lien on any material asset or material group of
assets of the Company and its Subsidiaries;
(e) guarantee of any obligation in excess of $10,000
(other than by the Company of a Wholly-Owned Subsidiary's
debts or a guarantee by a Subsidiary of the Company's debts or
another Subsidiary's debts);
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property,
real or personal, owned by any other party, except for any
lease of real or personal property under which the aggregate
annual rental payments do not exceed $10,000;
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or
operate any property, real or personal, owned or controlled by
the Company or any Subsidiary;
(h) contract or group of related contracts with the
same party or group of affiliated parties the performance of
which involves a consideration in excess of $2,500 in any
month or an aggregate of $25,000;
(i) assignment, license, indemnification or agreement
with respect to any Intellectual Property Rights;
(j) warranty agreement with respect to its services
rendered or its products sold or leased (other than standard
warranties granted to customers in accordance with the
Company's or its Subsidiaries' standard service or sale
contracts, the forms of which warranties have been provided to
Purchasers);
<PAGE> 26
(k) agreement under which it has granted any Person
any registration rights (including, without limitation, demand
and piggyback registration rights);
(1) material sales distribution agreement or
franchise agreement;
(m) contract, agreement or other arrangement with any
officer, director, employee or Affiliate, or any Affiliate of
any officer, director or employee (other than any contract,
agreement or arrangement which is on arms' length terms and
involves a consideration that does not exceed $10,000
annually);
(n) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world
(or, to the Company's knowledge, prohibiting any key employee
of the Company or its Subsidiaries from performing his or her
duties to the Company or to such Subsidiary); or
(o) any other agreement which is material to its
operations or business prospects or involves a consideration
in excess of $10,000 annually.
(ii) All of the contracts, agreements and instruments set
forth on the Contracts Schedule are to the best of the Company's knowledge
valid, binding and enforceable in accordance with their respective terms
(subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally and
to general principles of equity). The Company and each Subsidiary have performed
all material obligations required to be performed by them under the contracts,
agreements and instruments listed on the Contracts Schedule and are not in
default under or in breach of nor in receipt of any claim of default or breach
under any material contract, agreement or instrument to which the Company or any
Subsidiary is subject; no event has occurred which with the passage of time or
the giving of notice or both would result in a default, breach or event of
noncompliance by or with respect to the Company or any Subsidiary, or to the
Company' knowledge, by or with respect to any other party under any material
contract, agreement or instrument to which the Company or any Subsidiary is
subject; and neither the Company nor any Subsidiary has knowledge of any breach
by the other parties to any material contract, agreement, instrument or
commitment to which it is a party; and neither the Company or any subsidiary is
a party to any materially adverse contract or commitment.
(iii) Purchaser' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
5L. Intellectual Property Rights.
(i) The Intellectual Property Schedule attached hereto
contains a complete and accurate list of all (a) patented or registered
Intellectual Property Rights owned or used by the Company or any Subsidiary, (b)
pending applications for registrations of other Intellectual Property Rights
filed by the Company or any Subsidiary, and (c) unregistered trade names,
corporate names, trademarks, service marks, copyrights, mask works and computer
software owned or used by the Company or any Subsidiary which are material to
the financial condition, operating results, assets or operations of the Company
and its Subsidiaries taken as a whole. The Intellectual Property Schedule also
contains a complete and accurate list of all material licenses and other rights
granted by the
<PAGE> 27
Company or any Subsidiary to any third party with respect to any material
Intellectual Property Rights and all material licenses and other rights granted
by any third party to the Company or any Subsidiary with respect to any material
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. The Company or a Subsidiary owns, or has the right to use
pursuant to a valid license, all Intellectual Property Rights necessary for the
operation of the businesses of the Company and its Subsidiaries as presently
conducted, free and clear of all Liens.
(ii) Except as set forth on the Intellectual Property
Schedule, (a) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
Intellectual Property Rights, and, to the best of the Company's knowledge, there
are no valid grounds for the same, (b) neither the Company nor any Subsidiary
has received any notices of, and is not aware of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any Subsidiary
license any rights from a third party), and (c) to the best of the Company's
knowledge, the Intellectual Property Rights owned by or licensed to the Company
or any Subsidiary have not been infringed, misappropriated or conflicted by
other Persons. The transactions contemplated by this Agreement have no material
adverse effect on the Company's or any Subsidiary's right, title and interest in
and to the Intellectual Property Rights listed on the Intellectual Property
Schedule.
(iii) The Company and its Subsidiaries have taken all
necessary actions to maintain and protect the Intellectual Property Rights which
they own and use. To the best of the Company's knowledge, the owners of any
Intellectual Property Rights licensed to the Company or any Subsidiary have
taken all necessary actions to maintain and protect the Intellectual Property
Rights which are subject to such licenses. Except as indicated on the
Intellectual Property Rights Schedule, (i) the Company and its Subsidiaries own
all right, title, and interest in and to all of the Intellectual Property Rights
listed on such schedule and all other Intellectual Property Rights material to
the operation of the businesses of the Company and its Subsidiaries as presently
conducted, (ii) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
rights, and to the best of the Company's knowledge, there are no grounds for the
same, (iii) neither the Company nor any Subsidiary has received a notice of
conflict with the asserted rights of others within the last five years, and (iv)
the conduct of the Company's and each Subsidiary's business as presently
conducted has not infringed or misappropriated and does not infringe or
misappropriate any Intellectual Property Rights of other Persons, nor would any
future conduct as presently contemplated infringe upon any Intellectual Property
Rights of the other Persons and, to the best of the Company's knowledge, the
Intellectual Property Rights owned by the Company or any Subsidiary have not
been infringed or misappropriated by other Persons.
5M. Litigation etc. Except as set forth on the Liquidation Schedule
attached hereto, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
material actions, suits, proceedings, orders, investigations or claims
threatened against or affecting the Company or any Subsidiary (or to the best of
the Company's knowledge, pending or threatened against any of the officers or
directors of the Company and its Subsidiaries with respect to their businesses
or proposed business activities) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, any actions, suits, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
neither the Company nor any Subsidiary is subject to
<PAGE> 28
any arbitration proceedings under collective bargaining agreements or otherwise
or, to the best of the Company's knowledge, any governmental investigations or
inquiries (including, without limitation, inquiries as to the qualification to
hold or receive any license or permit); and, to the best of the Company's
knowledge, there is no valid basis for any of the foregoing. Neither the Company
nor any Subsidiary is subject to any judgment, order or decree of any court or
other governmental agency; and neither the Company nor any Subsidiary has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
5N. Brokerage. Except as set forth on the Brokerage Schedule attached
hereto, there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
50. Governmental Consent. etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached Consents Schedule and except as
expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The Insurance Schedule attached hereto contains a
description of each material insurance policy currently maintained by the
Company and its Subsidiaries with respect to its products, properties, assets
and businesses, and officers and directors, and each such policy is in full
force and effect as of the Closing. Neither the Company nor any Subsidiary is in
default with respect to its obligations under any material insurance policy
maintained by it. The insurance coverage of the Company and its Subsidiaries is
customary for corporations of similar size engaged in similar lines of business.
5Q. Employees. The Company is not aware that any individual executive
or key employee or group of employees of the Company or any Subsidiary has any
plans to terminate employment with the Company or any Subsidiary. The Company
and each Subsidiary have complied in all material respects with all laws
relating to the employment of labor including, without limitation, provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes, and the Company is not aware
that it or any Subsidiary has any material labor relations problems (including,
without limitation, any union organization activities, threatened or actual
strikes or work stoppages or material grievances). Neither the Company, its
Subsidiaries nor, to the best of the Company's knowledge after due inquiry, any
of their employees is subject to any non-compete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of the
Company and its Subsidiaries, except for agreements between the Company and its
present and former employees.
5R. ERISA. Except as set forth on the Benefit Plans Schedule attached
hereto:
<PAGE> 29
(i) Multiemployer Plans. The Company does not have any obligation
to contribute to (or any other liability, including current or potential
withdrawal liability, with respect to) any "multiemployer plan" (as defined in
Section 3(37) of ERISA).
(ii) Retiree Welfare Plans. The Company does not maintain or have
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(iv) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. The Company does not maintain, contribute to or
have any liability under (or with respect to) any material plan or arrangement
providing benefits to current or former employees, including any material bonus
plan, plan for deferred compensation, employee health or other material welfare
benefit plan or other arrangement, whether or not terminated.
5S. Compliance with Laws. Except as net forth on the Compliance
Schedule attached hereto, neither the Company nor any Subsidiary has violated
any law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets or operations of the Company and
its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice of any such violation. Except as set forth on the Compliance
Schedule, neither the Company nor any Subsidiary is subject to, or has reason to
believe it may become subject to, any material liability (contingent or
otherwise) or material corrective or remedial obligation arising under any
Environmental Laws. Without limiting the generality of the foregoing, (i) the
Company and each Subsidiary have obtained all material permits, licenses and
authorizations required under, and have complied in all material respects with,
all Environmental Laws, (ii) no notice has been received by the Company or any
Subsidiary regarding any material violation of, or any claim, liability or
material corrective or remedial obligation under, any Environmental Laws, and
(iii) no facts or circumstances exist with respect to the past or present
operations or facilities of the Company or any Subsidiary which would give rise
to a material liability or material corrective or remedial obligation under any
Environmental Laws.
Without limiting the generality of the foregoing, except as set forth on the
Compliance Schedule:
(i) The Company has not received notice of, and is not subject
to, any adverse inspection, finding of deficiency, finding of non-compliance,
compelled or voluntary recall, investigation, penalty, fine, sanction,
assessment, request for corrective or remedial action, audit, or other
compliance or enforcement action, relating to its products or to the facilities
in which its products are manufactured or handled, by the FDA or by any other
federal, state, local or foreign
<PAGE> 30
authority having or asserting responsibility for the regulation of medical
device products ("other authorities");
(ii) The Company has obtained all necessary approvals,
registrations and authorizations from, has made all necessary and appropriate
applications and other submissions to, and have prepared and maintained all
records, studies and other documentation needed to satisfy and demonstrate
compliance with the requirements of, the FDA and other authorities for its
current and past business activities relating to products, including, but not
limited to, any necessary Pre-Market Notifications (510(k)s"), PreMarket
Approvals (PMAs"), investigation device exemptions ("IDEs"), line extension
letters relating individual products to existing 510 (k)s, requirements for
custom medical devices, studies of safety and efficacy, design and engineering
specifications and modifications, device history records, certificates of export
and Medical Device Reports ("MDRs");
(iii) The Company has not made any false statement in, or material
omission from, the applications, approvals, reports, and other submissions to
the FDA and other authorities or in or from any other records and documentation
prepared or maintained to comply with the requirements of the FDA or other
authorities relating to its products, including, but not limited to, any 510
(k)s, PMAs, IDEs, line extension letters, documentation of safety and efficacy,
studies or documentation of equivalency, documentation of eligibility for
treatment as a pre-1976 device, documentation of eligibility for treatment as a
custom medical device, certificates of export, and MDRs;
(iv) To the knowledge of the Company, no third party, contractor,
investigator or researcher retained by the Company or otherwise acting on behalf
of the Company has made any material false statement in, or material omission
from, any report, study or other documentation prepared in conjunction with the
applications, approvals, reports or records submitted to or prepared for the FDA
or other authorities relating to the Company's products, nor has any such third
party, contractor, investigator or researcher failed to comply with any testing
requirements or study protocols in connection with work performed on behalf of
the Company or work otherwise relied upon by the Company in its submissions and
documentation for the FDA and other authorities;
(v) Neither the Company nor, to the knowledge of the Company, any
third party or agent for the Company have made or offered any payment, gratuity,
or other thing of value that is prohibited by any law or regulation to personnel
of the FDA or other authorities in connection with the approval or regulatory
status of the Company's products or the facilities in which the Company's
products are manufactured or handled;
(vi) At all times relevant to the current regulatory status of the
Company's products, the Company is in compliance with all applicable regulations
and requirements of the FDA and other authorities relating to the Company's
products, including, but not limited to, any applicable Good Manufacturing
Practices," requirements for product approval, requirements for demonstrating
and maintaining the safety and efficacy of the Company's products, export
requirements, certificates of export, requirements for investigating customer
complaints and inquiries, labeling requirements and protocols, shipping
requirements, record keeping and reporting requirements, monitoring
requirements, packaging or repackaging requirements, laboratory controls,
sterility requirements, inventory controls, and storage and warehousing
procedures, except to the extent that any non-compliance (i) will not adversely
affect the Company's business, financial condition, customer and supplier
relationships or business prospects, (ii) will not result in any interruption or
cessation of any of the Company's business activities, and (iii) is not
material;
<PAGE> 31
(vii) The Company has not received any notification, written or
verbal, which remains unresolved as of the date of this Agreement, from the FDA,
FDA personnel or other authorities indicating that any of its products are
unsafe or ineffective for its intended use.
5T. Small Business Matters. The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations, ss.121.401),
is a "small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title 13, Code
of Federal Regulations, ss.121.802. The information regarding the Company and
its affiliates set forth in the Small Business Administration Form 480, Form 652
and Form 1031 delivered at the Closing is accurate and complete. Neither the
Company nor any Subsidiary presently engages in, and neither the Company nor any
Subsidiary has any present intention of engaging in, any activities, or using
directly or indirectly, the proceeds from the sale of the Series D Preferred and
the Warrant hereunder for any purpose, for which an SBIC is prohibited from
providing funds by the Small Business Investment Act of 1958 and the regulations
thereunder (including 13 CFR ss.107.901).
5U. Affiliated Transactions. Except as set forth on the Affiliated
Transactions Schedule attached hereto, no officer, director, shareholder,
partner or Affiliate of the Company or any Subsidiary or any individual related
by blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any significant beneficial interest, is a party
to any material agreement, contract, commitment or transaction with the Company
or any Subsidiary or has any material interest in any material property used by
the Company or any Subsidiary. The Affiliated Transactions Schedule sets forth
the current salaries, bonuses and fringe benefits (based on fiscal 1993 levels
or anticipated fiscal 1994 levels if higher) of each of the foregoing persons
who is an employee of the Company.
5V. Customers and Suppliers.
(i) The attached Customer Schedule lists all customers of the
Company (on a consolidated basis) for the 12-month period ended the date of the
Latest Balance Sheet and sets forth opposite the name of each such customer, the
number of AESOP units purchased, the dates of such purchases and the total males
price of each such sale. The Customer Schedule also lists the source of any
other revenue earned or received by the Company during the 12-month period ended
the date of the Latest Balance Sheet.
(ii) Since the date of the Latest Balance Sheet, no material
supplier of the Company or any subsidiary has indicated that it shall stop, or
materially decrease the rate of, supplying materials, products or services to
the Company or any Subsidiary, and no customer listed on the Customer Schedule
has indicated that it shall stop, or materially decrease the rate of, buying
materials, products or services from the Company or any Subsidiary.
5W. Real Property Holding Status. Since its date of incorporation the
Company has not been, and as of the date of the Closing shall not be, a "United
States real property holding corporation", as defined in Section 897(c)(2) of
the IRC, and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder. The Company has no current plans or intentions which would cause the
Company to become a United States real property holding company," and the
Company has filed with the IRS all statements, if any, with its United States
income tax returns which are required under Section 1.897-2(h) of the Treasury
Regulations.
<PAGE> 32
5X. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, or other attachments hereto, contain any untrue statement of a
material fact or omit a material fact necessary to make each statement contained
herein or therein not misleading; provided that with respect to the financial
projections furnished to Purchaser by the Company, the Company represents and
warrants only that such projections were based upon assumptions reasonably
believed by the Company to be reasonable and fair as of the date such
projections were prepared in the context of the Company' B history and then
current and reasonably foreseeable business conditions. There is no fact
specific to the Company's business which the Company has not disclosed to
Purchaser in writing and of which any of its officers, directors or executive
employees is aware, and which has had or would reasonably be anticipated to have
a material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
5Y. Closing Date. The representations and warranties of the Company
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto, or in any certificate
or other writing delivered by, or on behalf of, the Company to Purchaser at the
Cloning shall be true and correct in all material respects on the date of the
Closing as though then made, except as affected by the transactions expressly
contemplated by this Agreement.
Section 6. Miscellaneous.
6A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"AESOP" means the Company's Automated Endoscopic System for Optimal
Positioning as described in the Business Plan.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" means this Purchase Agreement dated August 24, 1994
between the Company and Purchaser.
"Articles of Incorporation" means the Articles of Incorporation of
the Company.
"Assets" means the properties and assets used by the Company or any
Subsidiary, located on their premises or shown on the Latest Balance Sheet or
acquired thereafter.
"Board of Directors" means the Board of Directors of the Company.
"Business Plan" means the Company's Business Plan previously
delivered by the Company to Purchaser and attached as Exhibit G hereto.
"Bylaws" means the bylaws of the Company.
<PAGE> 33
"Certificate of Determination" means the Certificate of
Determination establishing the terms and relative rights and preferences of the
Series D Preferred filed by the Company with the Secretary of State of
California in the form set forth as Exhibit to this Agreement.
"Closing" means the closing of the purchase and sale of Series D
Preferred and the Warrant under this Agreement.
"Company" means Computer Motion, Inc., a California corporation;
provided, however, that for purposes of paragraph 5R of this Agreement, the term
Company includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
"Common Stock" means the Company's Common Stock, no par value per
share.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Environmental Laws" means any federal, state, local or foreign
law, rule or regulation (including the common law) relating to or regulating
health, safety, pollution or the protection of the environment.
"Event of Noncompliance" has the meaning set forth in the
Certificate of Determination.
"FDA" means the United States Food and Drug Administration, or any
successor agency thereto.
"Indebtedness" means all indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendable at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, (iv) computer software, data, data bases
and documentation, (v) trade secrets and other material confidential information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information), (vi) other intellectual property rights and
(vii) copies and tangible embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including any partnership,
limited liability company or joint venture interests or otherwise) of any other
Person and (ii) any capital contribution by such Person to any other Person.
<PAGE> 34
"Investment Regulations" means, as applicable, Title III of the
Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, Regulation Y (Title 12, Code of Federal Regulations,
Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as
amended, or other similar laws or regulations governing a regulated Person's
investment authority.
"Investor Director" has the meaning set forth in the Stockholders
Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Junior Securities" means (i) any of the Company's equity
securities other than the Series D Preferred and (ii) any option, right or
warrant to acquire any of the securities described in clause (i) above.
"Latest Balance Sheet" means the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of June 30, 1994.
"Lien" means any material mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company, any
Subsidiary or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any Subsidiaries under a lease which is not in the nature of a
conditional sale or title retention agreement, or any subordination arrangement
in favor of another Person (other than any subordination arising in the ordinary
course of business).
"Liquidation Value" has the meaning set forth in the Certificate of
Determination.
"Non-Competition Agreements" means the Non-Competition Agreements
between the Company and each of Mr. Robert W. Duggan and Dr. Yulun Wang dated
the date hereof in the form set forth in Exhibit F to this Agreement.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer on behalf of the Company, stating that
(i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify, on behalf of
the Company, the accuracy of the information set forth in such certificate and
(ii) to the best of such officer's knowledge, such certificate does not misstate
any material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Stock" means the Series A Preferred, the Series B
Preferred, the Series C Preferred and the Series D Preferred.
<PAGE> 35
"Qualified Public Offering" means any offering by the Corporation
of its equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force in which (i) the
aggregate price paid by the public for the shares (whether sold by the Company
or by other selling shareholders) shall be at least $15,000,000 and (ii) the
price per share paid by the public for such shares shall be at least 150% of the
Conversion Price in effect immediately prior to the closing of the sale of such
shares pursuant to such Qualified Public Offering; provided that a Qualified
Public Offering shall not include an offering made in connection with a business
acquisition or combination or an employee benefit plan.
"Registrable Securities" has the meaning set forth in the
Registration Agreement.
"Registration Agreement" means the Registration Agreement between
the Company and Purchaser dated the date hereof in the form set forth in Exhibit
C to this Agreement.
"Regulatory Problem" means any set of facts or circumstances
wherein it has been asserted by the U.S. Small Business Administration, the
Board of Governors of the Federal Reserve System or any similar regulatory
agency exercising authority over Purchaser by reason of Purchaser's status (or
Purchaser reasonably believes that there is a substantial risk of such
assertion) that Purchaser and its Affiliates are not entitled to hold, or
exercise any significant right with respect to, the Series D Preferred, the
Warrant or any Underlying Common Stock.
"Requlatory Violation" means, with respect to any SBIC Holder
providing Financing hereunder, (a) a diversion of the proceeds of such Financing
from the intended use of such proceeds reported on SBA Form 1031 to be delivered
to such SBIC Holder at the Closing, if such diversion is effected without
obtaining such SBIC's Holder's prior written consent (which may be withheld in
sole discretion), or (b) the ineligibility for small business investment company
financing (within the meaning of 13 CFR ss.107.706 (b) and 107.901) of the
Portfolio Concern of which the Company is a part if such ineligibility is the
result of a change in such concern's business activity during the one year after
the date of such SBIC Holder's initial Financing hereunder. As used in this
definition, the terms "Financing" and "Portfolio Concern" have the meanings
which 13 CFR ss.107.3 gives to such terms.
"Reorganization" means any merger or consolidation of the Company
with any Person where both (a) either (i) the Company is not the surviving
corporation, (ii) the terms of the Series D Preferred are altered in any
respect, or (iii) the Series D Preferred is exchanged for cash, securities or
other property, and (b) such merger or consolidation does not constitute a
Fundamental Change.
"Restricted Securities" means (i) the Series D Preferred issued
hereunder, (ii) the Warrant issued hereunder, (iii) the Common Stock issued upon
conversion of Series D Preferred or upon exercise of the Warrant and (iv) any
securities issued directly or indirectly with respect to the securities referred
to in clauses (i), (ii) or (iii) above by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144(k) (or any similar provision then in force) under
the Securities Act, or (c) been otherwise
<PAGE> 36
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 6E have been delivered by the Company in accordance with
paragraph 4B. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 6E.
"SBA" means the United States Small Business Administration, which
includes any governmental body or agency succeeding to the functions thereof.
"SBIC" means a small business investment company licensed under the
Small Business Investment Act of 1958, as amended.
"SBIC Holder" means any SBIC that holds any security issued
pursuant hereto.
"SEC" means the United States Securities and Exchange Commission
which includes any governmental body or agency succeeding to the functions
thereof.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Series A Preferred" means the Company's Series A Preferred Stock,
no par value per share.
"Series B Preferred" means the Company's Series B Preferred Stock,
no par value per share.
"Series C Preferred" means the Company's Series C Preferred Stock,
no par value per share.
"Series D Preferred" means the Company's Series D 8% Redeemable
Convertible Series D Preferred, no par value per share, having the rights and
preferences set forth in the Certificate of Determination.
"Stockholders Agreement" means the stockholders agreement among the
Company, Purchaser and certain of the Company's executives, dated as of the date
hereof, in the form set forth in Exhibit D to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof,
person or Persons shall be deemed to have a majority
<PAGE> 37
ownership interest in a partnership, limited liability company, association or
other business entity if such Person or Persons shall be allocated a majority of
partnership, limited liability company, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such partnership, limited liability company, association or other business
entity.
"Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or addon
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Series D Preferred or upon exercise of the
Warrant, and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person that holds Series D Preferred or the Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon conversion of such Series
D Preferred or exercise of such portion of the Warrant, provided that the Common
Stock issuable upon exercise of the Warrant shall be deemed to constitute
Underlying Common Stock for the purpose of any calculations under this Agreement
only at such time as the Warrant has become exercisable. As to any particular
shares of Underlying Common Stock, such shares shall cease to be Underlying
Common Stock when they have been (a) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (b) distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 under the Securities Act (or any similar provision then in
force).
"Warrant" means the warrant in the form of Exhibit B to this
Agreement and any warrant or warrants issued in exchange, substitution or
replacement thereof.
6B. Expenses. The Company shall pay, and hold Purchaser and all other
holders of Underlying Common Stock harmless against liability for the payment
of, (i) up to $35,000 for Purchaser's reasonable out-of-pocket expenses,
including without limitation, fees and expenses of Kirkland & Ellis as special
counsel of Purchaser arising in connection with the preparation, negotiation and
execution of this Agreement and the other agreements or instruments contemplated
hereby and thereby, and the consummation of the transactions contemplated by
this Agreement, (ii) the reasonable fees and expenses incurred by each such
Person with respect to any amendments or waivers (whether or not the same become
effective) under or in respect of this Agreement, the agreements contemplated
hereby, the Certificate of Determination and the Articles of Incorporation
(including, without limitation, in connection with any proposed merger, sale or
recapitalization of the Company), (iii) stamp and other issuance, transfer or
similar taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of Series
D Preferred or any shares of Common Stock issuable upon conversion of Series D
Preferred or exercise of the Warrant, (iv) the reasonable fees and expenses
incurred by each such Person in any filing with any governmental agency with
respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such
<PAGE> 38
Person (but only to the extent that such fees and expenses are imposed on such
Person due to the nature of the Company's business or otherwise arise due to or
result from an act or series of actions taken by or on behalf of the Company,
and specifically excluding any fees and expenses incurred in connection with
satisfying such Person's reporting obligations under the Securities Exchange
Act).
6C. Aggregation of Affiliated Holders. All holdings of Underlying
Common Stock by Persons who are Affiliates of each other shall be aggregated for
purposes of meeting any threshold tests under this Agreement and the
Registration Agreement.
6D. Remedies. Each holder of Underlying Common Stock shall have all
rights and remedies set forth in this Agreement, the agreements and instruments
contemplated hereby, the Articles of Incorporation, the Certificate of
Determination, and the Bylaws, and all rights and remedies which such holders
have been granted at any time under any other agreement or instrument and all of
the rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
6E. Purchaser's Investment Representations. Purchaser hereby represents
that it is acquiring the Restricted Securities purchased hereunder or acquired
pursuant hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws, that it is an "accredited
investor" in accordance with Regulation D of the Securities Act, that it has had
an opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Series D Preferred and the Warrant hereunder
and has had access to such other information concerning the Company as it has
requested; provided that no action taken (or failed to be taken) in connection
with this Agreement, including any investigation by or on behalf of Purchaser
(or any failure to undertake such investigation), shall be deemed to constitute
a waiver of compliance by the Company with any representation, warranty,
covenant or agreement contained herein; provided further, that nothing contained
herein shall prevent any Purchaser or subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 4 hereof. Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were
originally issued on August 24, 1994, and have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred or sold except pursuant to an effective
registration under the Securities Act of 1933, as amended, and
applicable state securities laws or an available exemption
from such registration. The transfer of the securities
represented by this certificate is subject to the conditions
and restrictions specified in the Purchase Agreement, dated as
of August 24, 1994 between the issuer (the "Company") and
certain investors, and the Company reserves the right to
refuse the transfer of such securities until such conditions
have been fulfilled with respect to such transfer. A copy of
such
<PAGE> 39
conditions shall be furnished by the Company to the
holder hereof upon written request and without charge."
6F. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the Underlying Common Stock. No course of dealing
between the Company and the holder of any Underlying Common Stock or any delay
in exercising any rights under this Agreement, the Registration Agreement, the
Stockholders Agreement, the Non-Competition Agreements, any other agreement
contemplated hereby, the Certificate of Determination, the Articles of
Incorporation or the Bylaws shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Series D Preferred or other
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding.
6G. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby regardless of any
investigation made by, or on behalf of Purchaser.
6H. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made,
except as otherwise expressly stated in this Agreement, the provisions of this
Agreement which are for Purchaser's benefit as a purchaser or holder of Series D
Preferred, the Warrant or other Underlying Common Stock are also for the benefit
of, and enforceable by, any subsequent holder of such Series D Preferred, the
Warrant (or any portion thereof) or such Underlying Common Stock.
6I. Enforceability of Non-Competition Agreements. The Company hereby
acknowledges and affirms that the entry of Messrs. Duggan and Wang into the
Non-Competition Agreements, and the valid, binding and enforceable nature
thereof, constitute a material inducement to the Purchaser's entry into this
Agreement and other agreements contemplated hereby, and the Purchaser's
consummation of the transactions contemplated hereby and thereby. Accordingly,
in the event that either Non-Competition Agreement or any portion thereof is
determined to be invalid, unenforceable or void for any reason (including,
without limitation, as a result of the scope or duration thereof, any law, order
or decree or any public policy), or in the event that the Company fails to
vigorously and successfully enforce all of its rights and remedies thereunder,
then the Company shall indemnify and hold harmless all holders of Underlying
Common Stock from and against any loss, liability, fees, costs and expenses
(including without limitation, reasonable attorneys' fees, costs and expenses)
arising as a result of such invalidity, unenforceability, voiding or
non-enforcement, including without limitation, such losses, liabilities, fees,
costs and expenses as may be incurred as a result of a diminution in value of
the Underlying Common Stock as a result thereof or of any activities engaged in
by Messrs. Duggan or Wang which are prohibited thereunder, and/or as a result of
such holders' attempted enforcement (whether or not successful) of the
Non-Competition Agreements as a third-party beneficiary thereof. Such
indemnification shall cease and be of no further force and effect upon the
earlier to occur of (i) such time as the Series D Preferred has been redeemed
pursuant to Section 9B(ii) of the Certificate of Determination and the
Liquidation Value thereof and all
<PAGE> 40
dividends accrued thereon have been fully paid as contemplated therein,
and (ii) the completion of a Qualified Public Offering.
6J. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6K. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
6L. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
6M. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any other jurisdiction other than the State of California. Any
dispute relating hereto shall be heard in the state or federal courts of Santa
Barbara County, California, and the parties agree to jurisdiction and venue
therein.
6N. Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
60. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, when telecopied (with hard copy to follow) one business day after it
is sent to the recipient by reputable overnight courier service (charges
prepaid) or 3 business days after it is mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to Purchaser and to the Company
at the address or telecopy number indicated below:
To the Company:
---------------
Computer Motion, Inc.
130-B Cremona Drive
Goleta, CA 93117
Attn: Mr. Robert W. Duggan
Chairman
Telecopy: (805) 685-3729
With copy to:
<PAGE> 41
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attn: Lawrence B. Cohn, Esq.
Telecopy: (714) 725-4100
To Purchaser:
-------------
Chase Manhattan Capital Corporation
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Attn: Mr. William K. Luby
Vice President
Telecopy: (212) 552-1159
With copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Emile Karafiol, Esq.
Telecopy: (512) 861-2200
or to such other address or telecopy number or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement on the date first written above.
COMPUTER MOTION, INC.
By:
----------------------------------
Its:
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CHASE MANHATTAN CAPITAL
CORPORATION
By:
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Its:
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<PAGE> 1
EXHIBIT 10.8
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of August 24, 1994, between Computer Motion,
Inc., a California corporation (the "Company"), and Chase Manhattan Capital
Corporation, a New York corporation (the "Investor").
The parties to this Agreement are parties to a Purchase Agreement of
even date herewith (the "Purchase Agreement"). In order to induce the Investors
to enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Purchase Agreement.
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time after the fourth
anniversary of the Closing under the Purchase Agreement, if the Company has not
completed an initial public offering of its Common Stock under the Securities
Act (and "IPO"), either the Investor and/or the holders of at least 50% of the
Registrable Securities may request registration of all or part of their
Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registration"). At any time after completion of an IPO, the holders
of at least 20% of the Registrable Securities may request registration under the
Securities Act of all or part of their Registrable Securities in a Long-Form
Registration, and the holders of any Registrable Securities may request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") if available. In addition, the holder of a majority
of Medtronic Registrable Securities shall be entitled to initiate a Long-Form
Registration as set forth in paragraph 1(b) below. All registrations requested
pursuant to this paragraph 1(a) are referred to herein as "Demand
Registrations". Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company will give written notice of such
requested registration to all other holders of Registrable Securities and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. The number of Demand Registrations
which may be requested shall be subject to the limitations set forth in
paragraphs 1(b) and 1(c)below.
(b) Long-Form Registrations. The holders of Registrable Securities
will be entitled to request one Long-Form Registration which is an IPO and two
Long-Form Registrations after the completion of an IPO in which the Company will
pay all Registration Expenses. In addition, the holders of a majority of
Medtronic Registrable Securities shall be entitled to request one Long-Form
Registration (other than an IPO), provided that the amount of Medtronic
Registrable Securities to be sold therein shall not be less than $2,000,000. A
registration will not count as one of the permitted Long-Form Registrations
until it has become effective, and no registration will count as one of the
permitted Long-Form Registrations unless the holders of Registrable Securities
are able to register and sell all of the Registrable Securities requested to be
included in such registration; provided that in any event the Company will pay
all Registration Expenses in connection with any
<PAGE> 2
registration initiated as a Long-Form Registration whether or not it has become
effective and whether or not all such Registrable Securities are able to be
sold; provided however, if the registration is withdrawn at the request of the
holders of Registrable Securities (other than as a result of the managing
underwriter advising such holders that the price at which such shares are likely
to be sold is less than 85% of the lowest price originally estimated by such
managing underwriter) it will count as one of the Long-Form Registrations. At
the request of the holders of a majority of the Registrable Securities
originally requesting a Long-Form Registration, such Long-Form Registration
shall be an underwritten registration.
(a) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph l(b), the holders of Registrable
Securities will be entitled to request two Short-Form Registrations in which the
Company will pay all Registration Expenses ("Company-paid Short-Form
Registrations") and an unlimited number of Short-Form Registrations in which the
holders of Registrable Securities will pay their share of Registration Expenses
as set forth in paragraph 5 hereof. Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Securities Exchange Act, the Company will use its best efforts to make
Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities. A registration will not count as one of the permitted Company-paid
Short-Form Registrations until it has become effective, and no registration will
count as one of the Company-paid Short-Form Registrations unless the holders of
Registrable Securities are able to register and sell all of the Registrable
Securities requested to be included in such registration; provided that the
Company will pay all Registration Expenses in connection with any registration
initiated as a Company-paid Short-Form Registration, whether or not it has
become effective and whether or not all such Registrable Securities are able to
be sold; provided however, if the registration is withdrawn at the request of
the holders of Registrable Securities (other than as a result of the managing
underwriter advising such holders that the price at which such shares are likely
to be sold is less than 85% of the lowest price originally estimated by such
managing underwriter) it will count as one of the Company-paid Short-Form
Registrations.
(b) Priority on Demand Registration. The Company will not include
any Demand Registration any securities which are not Registrable Securities if
the managing underwriter determines that inclusion of such other securities
impairs the offering of the Registrable Securities, without the prior written
consent of the holders of a majority of the Registrable Securities included in
such registration. If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing that in their opinion the
number of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold in an orderly manner
in such offering within a price range acceptable to the holders of a majority of
the Registrable Securities requesting registration, the Company will include in
such registration prior to the inclusion of any securities which are not
Registrable Securities the number of Registrable Securities requested to be
included which in the opinion of such underwriters can be sold in an orderly
manner within the price range of such offering, which shares shall be selected
from among those requested to be included as follows: first, all Series D
Registrable Securities and Medtronic Registrable Securities, pro rata among the
respective holders thereof on the basis of the amount of Series D Registrable
Securities and Medtronic Registrable Securities owned by each such holder, with
any remaining Registrable Securities selected from other Registrable Securities
requested to be included, pro rata among the respective holders thereof on the
basis of the amount of such Registrable Securities owned by each such holder.
Any Persons other than holders of Registrable
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<PAGE> 3
Securities who participate in Demand Registrations which are not at the
Company's expense must pay their share of the Registration Expenses as provided
in paragraph 5 hereof.
(c) Restrictions on Long-Form Registrations. The Company will not be
obligated to effect any Long-Form Registration within six months after the
effective date of a previous Long-Form Registration. The Company may postpone
for up to six months the filing or the effectiveness of a registration statement
for a Demand Registration if the Company and the holders of a majority of the
Registrable Securities agree that such Demand Registration would reasonably be
expected to have an adverse effect on any proposal or plan by the Company or any
of its Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or
similar transaction; provided that in such event, the holders of Registrable
Securities initially requesting such Demand Registration will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration.
(d) Selection of Underwriters. The holders of a majority of the
Registrable Securities included in any Demand Registration will have the right
to select the investment banker(s) and manager(s) to administer the offering,
which investment banker(s) and manager(s) shall be reasonably acceptable to the
Company.
(e) Other Registration Rights. Except as provided in this Agreement,
the Company will not grant, and hereby represents and warrants that it has not
granted, to any Persons the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, without the prior written consent of the
holders of a majority of the Registrable Securities. Notwithstanding the
foregoing, the Company may grant piggyback registration rights in respect of the
Management Registrable Securities so long as such rights are (i) subordinate in
priority relative to the Registrable Securities in connection with all Demand
Registrations and (ii) pari passu or subordinate in priority relative to the
Registrable Securities in connection with all other registrations, and may grant
registration rights in respect of any other securities of the Company so long as
such rights are subordinate in priority relative to the Registrable Securities
in connection with all Demand Registrations and in connection with all other
registrations.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice (in any event within ten business days after its
receipt of notice of any exercise of demand registration rights other than under
this Agreement) to all holders of Registrable Securities of its intention to
effect such a registration and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
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<PAGE> 4
(c) Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the Company, the Company will include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the Series
D Registrable Securities, the Medtronic Registrable Securities and the
Management Registrable Securities requested to be included in such registration,
pro rata among the holders of such Series D Registrable Securities, Medtronic
Registrable Securities and Management Registrable Securities on the basis of the
number of shares owned by each such holder, (iii) third, the other Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of such
Registrable Securities owed by each such holder and (iv) fourth, other
securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Series D Registrable Securities, the Medtronic Registrable
Securities and Management Registrable Securities requested to be included in
such registration, pro rata among the holders of such securities on the basis of
the number of securities owned by each such holder, and (ii) second, the other
Registrable Securities requested to be included in such registration, pro rata
among the holders of such other Registrable Securities on the basis of the
number of such other Registrable Securities owned by each such holder, and (iii)
third, other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection of a nationally recognized investment
banker(s) and manager(s) for the offering must be made with the prior advice of
the holders of a majority of the Registrable Securities included in such
Piggyback Registration.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or Form S-4 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least 180 days has elapsed from the effective
date of such previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of an IPO (or up to 180 days if requested
by the managing underwriter, and except for sales of securities as part of such
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<PAGE> 5
underwritten registered offering), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
Form S-4 or any successor form), unless the underwriters managing the registered
public offering otherwise agree, and (ii) to cause each holder of its Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph,
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<PAGE> 6
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, 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 contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of the
Registrable Securities being sold reasonably request (provided that such letter
is otherwise being provided to the underwriter in such offering and
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<PAGE> 7
that such Registrable Securities constitute at least 20% of the securities
covered by such registration statement);
If any such registration or comparable statement refers to any holder
by name or otherwise as the holder of any securities of the Company and in its
sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such holder and presented to the Company in writing, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force, the
deletion of the reference to such holder; provided that with respect to this
clause (ii) such holder shall furnish to the Company an opinion of counsel to
such effect, which opinion and counsel shall be reasonably satisfactory to the
Company.
5. Registration Expenses.
(a) All reasonable expenses incident to the Company's performance of
or compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement, except
that the Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration for which the Company is required to pay Registration Expenses
pursuant to Sections 5(a), l(b) or l(c) hereof, and in which at least 50,000
shares of Common Stock are requested to be included (as appropriately adjusted
for stock splits, stock dividends, combinations and similar events), the Company
will reimburse the holders of Registrable Securities covered by such
registration for the reasonable fees and disbursements of one counsel chosen by
the holders of a majority of the Registrable Securities initially requesting
such registration.
(c) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
will pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
will be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder
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<PAGE> 8
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
will be individual to each holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
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<PAGE> 9
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such holder and
such holder's intended method of distribution.
8. Definitions.
"Certificate of Determination" means the certificate of determination
establishing the terms and relative rights and preferences of the Series D
Preferred filed by the Company with the Secretary of State of California.
"Common Stock" means the Company's common stock, no par value per
share.
"Management Registrable Securities" means any shares of Common Stock
held as of the date hereof, or acquired hereafter through the exercise of stock
options, by Robert W. Duggan or Yulun Wang.
"Registrable Securities" means (i) any Common Stock issued or issuable
(A) upon conversion of the Series D Preferred or upon exercise of the Warrants;
provided that no Common Stock issuable upon exercise of the Warrant shall be
deemed to be Registrable Securities until that Warrant has become exercisable
under the terms thereof (the "Series D Registrable Securities"), (B) upon
exercise of warrants (and any warrant or warrants issued in exchange,
substitution or replacement thereof) issued pursuant to certain Bridge Financing
Agreements by and among the Company and the Lenders listed therein to purchase
up to 2,052,635 shares of Common Stock (as such number of shares may be adjusted
pursuant to the anti-dilution provisions of such warrants), (C) upon conversion
of the Series E Preferred Stock, (D) upon exercise of warrants (and any warrant
or warrants issued in exchange, substitution or replacement thereof) to purchase
up to 631,500 shares of Common Stock (as such number of shares may be adjusted
pursuant to the anti-dilution provisions of such warrants), issued in connection
with the sale of Series E Preferred Stock, and (E) to Medtronic upon conversion
of the Medtronic Loan pursuant to that certain Loan Agreement between the
Company and Medtronic, Inc. and any additional shares purchased by Medtronic as
an Additional Minority Investment pursuant to the Principal Terms attached as
Exhibit C to such Loan Agreement (collectively, the "Medtronic Registrable
Securities"), (ii) any Common Stock issued or issuable with respect to the
Registrable Securities referred to in clause (i) by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization, and (iii) any other shares of
Common Stock held by persons holding securities described in clauses (i) or (ii)
above. As to any particular Registrable Securities, such securities will cease
to be Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market-maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). In addition,
Registrable Securities shall cease to be Registrable Securities at such time as
(a) such securities represent less than 15% of the Registrable Securities
existing as of the date hereof, and (b) such securities are freely saleable
without restriction or limitation pursuant to rule 144(k) under the Securities
Act (or under any similar rule then in force). Except as provided in (i)
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<PAGE> 10
above with respect to the Warrant, for purposes of this Agreement, a person will
be deemed to be a holder of Registrable Securities whenever such person has the
right to acquire directly or indirectly such Registrable Securities (whether
pursuant to the terms of any Securities or instruments convertible into or
exercisable or exchangeable for Registrable Securities, or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected.
"Series D Preferred" means the Company's Series D Convertible Preferred
Stock, no par value per share.
"Warrant" means the Stock Purchase Warrant issued pursuant to the
Purchase Agreement and any warrant or warrants issued in exchange, substitution
or replacement thereof.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will
not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of (i) the Company, (ii) the holders of a majority of the
Registrable Securities and (iii) the holders of a majority of the Medtronic
Registrable Securities; provided, that the consent of the holders of the
Medtronic Registrable Securities shall not be required for any amendment or
waiver which will not have an adverse effect on the holders of Medtronic
Registrable Securities relative to any other holder of Registrable Securities
and will not provide a benefit to any other holder of Registrable Securities
that the holders of Medtronic Registrable Securities do not receive.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective
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<PAGE> 11
successors and assigns of the parties hereto whether so expressed or not. In
addition, whether or not any express assignment has been made, the provisions of
this Agreement which are for the benefit of purchasers or holders of Registrable
Securities are also for the benefit of, and enforceable by, any subsequent
holder of Registrable Securities. Notwithstanding the foregoing, the rights,
benefits and obligations of this Agreement shall not be assignable to, or
enforceable by or against any subsequent holder of Registrable Securities unless
such holder has acquired at least 50,000 Shares of Registrable Securities (as
appropriately adjusted for stock splits, stock dividends, combinations and
similar events).
(f) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California. Any dispute
relating hereto shall be heard in the state or federal courts of Santa Barbara
County, California, and the parties agree to jurisdiction and venue therein.
(j) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable express courier service
(charges prepaid), telecopied (with hard copy to follow) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications will be sent to the
Investor and to the Company at the address or telecopy number indicated below:
Notices to the Investor:
Chase Manhattan Capital Corporation
One Chase Manhattan Plaza, 8th Floor
New York, N.Y. 10081
Attn: Mr. William K. Luby
Vice President
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<PAGE> 12
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60606
Attn: Emile Karafiol, Esq.
To the Company:
Computer Motion, Inc.
130-B Cremona Drive
Goleta, CA 93117
Attn: Mr. Robert W. Duggan
Chairman
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attn: Lawrence B. Cohn, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(k) Construction. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this agreement shall
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.
IN WITNESS WHEREOF, the parties have executed this Registration
Agreement as of the date first written above.
COMPUTER MOTION, INC.
By:________________________________
Its:________________________________
CHASE MANHATTAN CAPITAL CORPORATION
By:________________________________
Its:________________________________
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<PAGE> 1
EXHIBIT 10.9
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of August 24, 1994 among Chase Manhattan
Capital Corporation, a New York corporation (the "Investor"), Computer Motion,
Inc., a California corporation (the "Company") and each of the executives listed
on the Schedule of Executives attached hereto (the "Executives"). The Investor
and the Executives are collectively referred to as the "Stockholders" and
individually as a "Stockholder." Except as otherwise indicated, capitalized
terms used herein are defined in paragraph 8 hereof.
The Investor will purchase shares of the Company's Series D Convertible
Preferred Stock, no par value per share (the "Series D Preferred") and a
"Warrant" entitling the Investor to purchase shares of the Company's Common
Stock, no par value per share (the "Common Stock") pursuant to a Purchase
Agreement between the Investor and the Company dated as of the date hereof (the
"Purchase Agreement").
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) establishing the composition of the
Company's Board of Directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Stockholders' Common Stock may be transferred. The execution and
delivery of this Agreement is a condition to the Investors' purchase of the
Series D Preferred and Warrant pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the Purchase
Agreement) and until the provisions of this paragraph 1 cease to be effective,
each Stockholder shall vote all of his Stockholder Shares and any other voting
securities of the Company over which such Stockholder has voting control and
shall take all other necessary or desirable actions within his control (whether
in his capacity as a stockholder, director, member of a Board committee or
officer of the Company or otherwise (to the extent not inconsistent with
fiduciary duties to stockholders under applicable law), and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all necessary and desirable actions within its control
(including, without limitation, calling special Board and stockholder meetings),
so that:
(i) the authorized number of directors on the Board shall be
established and maintained at five directors; provided, that upon the completion
of a Qualified Public Offering the authorized number of directors on the Board
may be increased to seven directors;
(ii) one representative designated by the holders of a majority
of the shares of Underlying Common Stock (the "Investor Director") shall be
elected to the Board;
(iii) the board of directors of each of the Company's
subsidiaries (a "Sub Board") shall include the Investor Director as a member
thereof;
<PAGE> 2
(iv) any committees of the Board or a Sub Board shall include
the Investor Director as a member thereof;
(v) the removal from the Board or a Sub Board (with or without
cause) of any representative designated hereunder by the holders of a majority
of the shares of Underlying Common Stock pursuant to (ii) above shall be at such
holders' written request, but only upon such written request and under no other
circumstances;
(vi) in the event that the representative designated hereunder
by the holders of a majority of the shares of Underlying Common Stock for any
reason ceases to serve as a member of the Board or a Sub Board during his term
of office, the resulting vacancy on the Board or the Sub Board shall be filled
by a representative designated by such holders, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by the Investor Director in connection with attending the meetings of
the Board, any Sub Board and any committee thereof. Commencing within 30 days of
the date hereof, and so long as any Investor Director serves on the Board and
for three years thereafter, the Company shall maintain directors and officers
indemnity insurance coverage satisfactory to holders of a majority of the shares
of Underlying Common Stock.
(c) The provisions of this paragraph 1 (other than subparagraph
l(b))shall terminate automatically and be of no further force and effect upon
the first to occur of (i) the tenth anniversary of the date hereof, (ii) at such
time as no Underlying Common Stock remains outstanding, or (iii) at such time as
the ordinary voting power of the Underlying Common Stock represents less than
2.5% of the aggregate ordinary voting power of all classes of the Company's
voting securities.
(d) If the holders of Underlying Common Stock fail to designate a
representative to fill a directorship pursuant to the terms of this paragraph 1,
the election of a person to such directorship shall be accomplished in
accordance with the Company's bylaws and applicable law.
2. Irrevocable Proxy; Conflicting Agreements.
(a) In order to secure each Executive's obligation to vote his
Stockholder Shares and other voting securities of the Company in accordance with
the provisions of paragraph 1 hereof, each Executive hereby appoints the
Investor as his true and lawful proxy and attorney-in-fact, with full power of
substitution, to vote all of his Stockholder Shares, and other voting securities
of the Company over which such Executive has voting control, for the election
and/or removal of directors and all such other matters as expressly provided for
in paragraph 1. The Investor may exercise the irrevocable proxy granted to it
hereunder at any time any Executive fails to comply with the provisions of this
Agreement. The proxies and powers granted by each Executive pursuant to this
paragraph 2 are coupled with an interest and are given to secure the performance
of the Executive's obligations to the Investors under this Agreement. Such
proxies and powers will be irrevocable for the term set forth in paragraph l(c)
of this Agreement and will survive the death, incompetency and disability of
such Executive and be binding upon the holders of his Stockholder Shares.
(b) Each Executive represents that he has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement, and no holder of Stockholder
Shares shall grant any proxy or become party to any
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<PAGE> 3
voting trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement.
3. Retention of Stockholder Shares. Until the third anniversary of the
date of this Agreement, neither Yulun Wang nor Robert W. Duggan (each a
"Founder") shall sell, transfer, assign, pledge or otherwise dispose of (a
"Transfer") an aggregate amount of Stockholder Shares which is greater than 20%
of the number of Stockholder Shares held by such Founder on the date hereof;
provided, however, that on and after the completion of a Qualified Public
Offering, such 20% amount shall be increased to an aggregate amount from the
date hereof equal to 50% of the number of Stockholder Shares held by such
Founder on the date hereof. Until the earlier to occur of the third anniversary
of this Agreement or a Qualified Public Offering, neither Founder shall transfer
any Stockholder Shares at a price per share (calculated on an as-if-converted,
exercised or exchanged basis in the case of Stockholder Shares which are
convertible, exercisable or exchangeable for Common Stock, including without
limitation, the Series A Preferred, Series B Preferred or the Series C
Preferred) which is less than 150% of the Series D Preferred Conversion Price
then in effect (or, if all Series D Preferred has been redeemed pursuant to
paragraph 4I of the Certificate of Determination, then at a price which is less
than 150% of the Warrant Exercise Price then in effect); provided however, that
Robert W. Duggan and Yulun Wang may each Transfer an aggregate of 100,000
Stockholder Shares that may otherwise be transferred pursuant to this paragraph
3 at a price per share which is less than 150% of the Conversion Price or
Exercise Price then in effect, and which Transfer shall not be subject to the
restrictions contained in subparagraphs 4(b) and 4(c) hereof (but which Transfer
shall count towards the 20% / 50% limitations contained in the first sentence of
this paragraph 3). Nothing contained in this paragraph 3 shall prohibit either
Founder from transferring Stockholder Shares as permitted under subparagraph
4(d) hereof (but which Transfer shall count towards the 20% / 50% limitations
contained in the first sentence of this paragraph 3).
4. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. Neither Founder shall Transfer
any interest in any Stockholder Shares except pursuant to the provisions of this
paragraph 4. Each Founder agrees not to consummate any Transfer until 30 days
after the later of the delivery to the Company and the holders of Underlying
Common Stock of such Founder's Offer Notice or Sale Notice, unless the parties
to the Transfer have been finally determined pursuant to this paragraph 4 prior
to the expiration of such 30-day period (the "Election Period").
(b) First Offer Right. At least 30 days prior to making any Transfer
of any Stockholder Shares, the transferring Founder (the "Transferring Founder")
shall deliver a written notice (the "Offer Notice") to the Company and the
holders of Underlying Common Stock. The Offer Notice shall disclose in
reasonable detail the proposed number of Stockholder Shares to be transferred
and the proposed terms and conditions of the Transfer. First, the Company may
elect to purchase all or any portion of the Stockholder Shares specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Founder and the holders of
Underlying Common Stock as soon as practical but in any event within fifteen
days after the delivery of the Offer Notice.
To the extent that the Company has not elected to purchase all of the
Stockholder Shares within the Election Period, the holders of Underlying Common
Stock may elect to purchase all or any portion of such Stockholder Shares which
the Company has not elected to purchase at the
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<PAGE> 4
price and on the terms specified in the Offer Notice by delivering written
notice of such election to the Transferring Founder as soon as practical, but in
any event within thirty days after delivery of the Offer Notice. If the holders
of Underlying Common Stock have in the aggregate elected to purchase more than
the number of Stockholder Shares available after giving effect to any
Stockholder Shares which the Company has elected to purchase, the shares shall
be allocated among the holders of Underlying Common Stock electing to purchase
shares according to each such holder's Pro Rata Share.
If the Company or any holders of Underlying Common Stock have elected
to purchase Stockholder Shares from the Transferring Founder, the transfer of
such shares shall be consummated as soon as practical after the delivery of the
election notices, but in any event within fifteen days after the expiration of
the Election Period. To the extent that the Company and the holders of
Underlying Common Stock have not elected to purchase all of the Stockholder
Shares being offered, the Transferring Founder may, within 60 days after the
expiration of the Election Period and subject to the provisions of subparagraph
(c) below, transfer such Stockholder Shares to one or more third parties at a
price not less than 95% of the price per share specified in the Offer Notice and
on other terms no more favorable to the transferees than offered to the Company
and the holders of Underlying Common Stock in the Offer Notice. The purchase
price specified in any Offer Notice shall be payable solely in cash at the
closing of the transaction or in installments over time, and no Stockholder
Shares may be pledged. The "Pro Rata Share" of each holder of Underlying Common
Stock shall be based upon such holder's proportionate ownership of Underlying
Common Stock. The rights and restrictions contained in this subparagraph 4(b)
shall terminate upon the completion of a Qualified Public Offering.
(c) Participation Rights. At least 30 days prior to any Transfer of
Stockholder Shares, the Transferring Founder shall deliver a written notice (the
"Sale Notice") to the Company and the holders of Underlying Common Stock,
specifying in reasonable detail the identity of the prospective transferee(s)
and the terms and conditions of the Transfer. The holders of Underlying Common
Stock may elect to participate in the contemplated Transfer by delivering
written notice to the Transferring Founder within 30 days after delivery of the
Sale Notice. If any holders of Underlying Common Stock have elected to
participate in such Transfer, the Transferring Founder and such holders of
Underlying Common Stock shall be entitled to sell in the contemplated Transfer,
at the same price and on the same terms, a number of Stockholder Shares equal to
the product of (i) the quotient determined by dividing the number of Stockholder
Shares owned by such person by the aggregate number of Stockholder Shares owned
by the Transferring Founder and the holders of Underlying Common Stock
participating in such sale and (ii) the number of Stockholder Shares to be sold
in the contemplated Transfer. For purposes of the foregoing, the rights
contained herein shall apply to any Transfer of Stockholder Shares which are not
Common Stock on an as-if-converted, exercised or exchanged (as appropriate)
basis.
For example, if the Sale Notice contemplated a sale of 100
Stockholder Shares by the Transferring Founder, and if the
Transferring Founder at such time owns 1,200 Stockholder
Shares and if one holder of Underlying Common Stock elects to
participate and owns 800 Stockholder Shares, the Transferring
Founder would be entitled to sell 60 shares (1,200 /
2,000 x 100 shares) and the holders of Underlying Common Stock
would be entitled to sell 40 shares (800 / 2,000 x 100
shares).
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<PAGE> 5
Each Founder shall use best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the holders of Underlying
Common Stock in any contemplated Transfer and to the inclusion of a transfer of
Series D Preferred and a portion of the Warrant (if still outstanding) in the
contemplated Transfer as contemplated below, and each Founder shall not transfer
any of its Stockholder Shares to the prospective transferee(s) if the
prospective transferee(s) declines to allow the participation of the holders of
Underlying Common Stock or the inclusion of the Series D Preferred or a portion
of the Warrant.
If any Series D Preferred is included in any Transfer of Stockholder
Shares under this subparagraph 4(c), then that portion of the Warrant which
becomes exercisable upon redemption of such Series D Preferred pursuant to
paragraph 4I of the Certificate of Determination shall also be included in such
Transfer, and the aggregate purchase price therefor shall be equal to the full
purchase price determined hereunder for the Stockholder Shares covered by the
Series D Preferred to be transferred. If, however, the Series D Preferred has
been redeemed pursuant to paragraph 4I of the Certificate of Determination, and
if any portion of the Warrant is included in any Transfer of Stockholder Shares
under this subparagraph 4(c), the purchase price for the Warrant shall be equal
to the full purchase price determined hereunder for the Stockholder Shares
covered by the portion of the Warrant to be transferred, reduced by the
aggregate Exercise Price for such shares. The rights and restrictions contained
in this subparagraph 4(c) shall terminate upon the later to occur of (i) 3 years
from the date hereof, or (ii) the completion of a Qualified Public Offering.
(d) Permitted Transfers. The restrictions contained in this
paragraph 4 shall not apply with respect to any Transfer of Stockholder Shares
by any Founder pursuant to applicable laws of descent and distribution or among
such Founder's Family Group, or by Robert W. Duggan to Remo Butera in an amount
not to exceed 20% of the Stockholder Shares owned by Robert W. Duggan as of the
date hereof (collectively referred to herein as "Permitted Transferees");
provided that the restrictions contained in this paragraph 4 shall continue to
be applicable to the Stockholder Shares after any such Transfer and provided
further that the transferees of such Stockholder Shares shall have agreed in
writing to be bound by the provisions of this Agreement affecting the
Stockholder Shares so transferred. "Family Group" means a Founder's spouse,
parents and descendants (whether natural or adopted) and any trust solely for
the benefit of such Founder and/or such Founder's spouse and/or parents and/or
descendants. Notwithstanding the foregoing, nothing contained in this Section 4
shall limit the right of Chase to freely transfer Stockholder Shares to any
affiliate.
5. Holdback Agreement. Each Executive agrees not to effect any public
sale or distribution of the Company's equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 30-day period (or up to 90 days if requested by the
managing underwriter) beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (as such terms are
defined in the Registration Agreement dated as of the date hereof between the
Investor and the Company) unless the underwriters managing the registration
otherwise agree. The restrictions on the transfer of Stockholder Shares set
forth in this paragraph 5 shall continue with respect to each Stockholder Share
until the date on which such Stockholder Share has been transferred in a Public
Sale.
6. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
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<PAGE> 6
"The securities represented by this certificate are subject to
a Stockholders Agreement dated as of August 24, 1994, among
the issuer of such securities (the "Company") and certain of
the Company's stockholders. A copy of such Stockholders
Agreement will be furnished without charge by the Company to
the holder hereof upon written request."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares in accordance with paragraph 8 hereof.
7. Transfer. Prior to transferring any Stockholder Shares to any person
or entity, the transferring Stockholder shall cause the prospective transferee
to execute and deliver to the Company and the other Stockholders a counterpart
of this Agreement.
8. Definitions.
"Certificate of Determination" means the Certificate of
Determination setting forth the terms of the Series D Preferred filed by the
Corporation with the Secretary of State of California.
"Conversion Price" means the Conversion Price for the Series D
Preferred as in effect from the time to time pursuant to the Certificate of
Determination.
"Exercise Price" means the Exercise Price for the Warrant as in
effect from time to time pursuant to the terms thereof.
"Permitted Transferee" shall have the meaning set forth in paragraph
4(d) hereof.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Series A Preferred" means the Company's Series A Preferred Stock,
no par value per share.
"Series B Preferred" means the Company's Series B Preferred Stock,
no par value per share.
"Series C Preferred" means the Company's Series C Preferred Stock,
no par value per share.
"Stockholder Shares" means (i) any Common Stock purchased or
otherwise acquired by any Stockholder, (ii) any Common Stock issuable to
Stockholders upon conversion, exercise or exchange of any securities or
instruments convertible into or exercisable or exchangeable for Common Stock,
(iii) any equity securities issued or issuable to Stockholders directly or
indirectly with respect to the Common Stock referred to in clauses (i) or (ii)
above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iv) any other shares of any class or series of capital
stock of the Company
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<PAGE> 7
held by a Stockholder. As to any particular shares constituting Stockholder
Shares, such shares will cease to be Stockholder Shares when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act. Notwithstanding the foregoing, for
purposes of determining the number of Stockholder Shares owned by each holder
thereof, Common Stock issuable upon exercise of the Warrant shall be disregarded
until the Warrant becomes exercisable under the terms thereof.
"Qualified Public Offering" shall have the meaning set forth in the
Certificate of Determination.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon the conversion of Series D Preferred or upon the exercise of the
Warrant, and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Stockholders
Agreement, any person that holds Series D Preferred or Warrants shall be deemed
to be the holder of Underlying Common Stock obtainable upon conversion of such
Series D Preferred or exercise of such portion of the Warrant, provided that the
Common Stock issuable upon the exercise of the Warrants shall be deemed to
constitute Underlying Common Stock for the purpose of any calculations under
this Agreement only to the extent that the Series D Preferred has been redeemed
by the Company pursuant to paragraph 4I of the Certificate of Determination. Any
particular share of Underlying Common Stock shall cease to be Underlying Common
Stock when it has been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering it, or (b)
distributed to the public through a broker, dealer or market-maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force).
"Warrant" means the Stock Purchase Warrant issued pursuant to the
Purchase Agreement and any warrant or warrants issued in exchange, substitution
or replacement thereof.
9. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
10. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, holders of a majority
of the Underlying Common Stock and holders of a majority of the Stockholders
Shares owned by Executives and their Permitted Transferees. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
11. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in
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<PAGE> 8
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
12. Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
13. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares. Without limiting the
generality of the foregoing, the holders of Underlying Common Stock shall be
entitled to assign their rights under paragraph 4(b) hereof to any other person.
14. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
15. Remedies. The Company, the Investor, holders of Underlying Common
Stock and the Executives shall be entitled to enforce their rights under this
Agreement specifically to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
Company, the Investor, any holder of Underlying Common Stock and any Executive
may in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
16. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Computer Motion, Inc.
130-B Cremona Drive
Goleta, CA 93117
Attn: Mr. Robert W. Duggan
Chairman
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of
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law provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. Any dispute relating hereto shall be heard
in the state or federal courts of Santa Barbara County, California, and the
parties agree to jurisdiction and venue therein.
18. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
19. Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
COMPUTER MOTION, INC.
By: _______________________________
Its:_______________________________
CHASE MANHATTAN CAPITAL CORPORATION
By: _______________________________
Its:_______________________________
EXECUTIVES
___________________________________
Robert W. Duggan
___________________________________
Yulun Wang
___________________________________
Remo Butera
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SCHEDULE OF EXECUTIVES
Robert W. Duggan
Yulun Wang
Remo Butera
<PAGE> 1
EXHIBIT 10.10
SALES AGREEMENT
THIS SALES AGREEMENT (the "Agreement") is made and entered into as of
the 28th day of May, 1997, between COMPUTER MOTION, INC. (as defined below,
"CMI"), a California corporation, and MEDTRONIC, INC. (as defined below,
"Medtronic"), a Minnesota corporation.
WITNESSETH:
WHEREAS, CMI and Medtronic have entered into a Debenture Purchase
Agreement dated March 19, 1997 (the "Debenture Purchase Agreement") pursuant to
which (i) Medtronic purchased a $4 million convertible debenture dated March 19,
1997 (the "Debenture") and received a security interest in CMI's intellectual
property pursuant to a Security Agreement dated March 19, 1997 (the "Security
Agreement"), and (ii) Medtronic and CMI agreed to the Principal Terms attached
to the Debenture Purchase Agreement as Exhibit C thereto (the "Principal
Terms"); and
WHEREAS, the parties desire to enter into this Agreement further
elaborating on the Principal Terms in more detail.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1) Specific Definitions. As used in this Agreement, the following
terms have the meanings set forth or referenced below:
"Affiliate" of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. "Control"
shall mean ownership of more than 50% of the shares of stock entitled to vote
for the election of directors in the case of a corporation, and more than 50% of
the voting power in the case of a business entity other than a corporation.
"Change of Control" means, with respect to CMI, any of the following events: (1)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) in a single transaction acquires "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of CMI
representing 50% or more of the combined voting power (with respect to the
election of directors) of CMI's then outstanding securities; (2) the
consummation of a merger, combination or consolidation of CMI with or into any
other corporation, other than a merger, combination or consolidation which would
result in the voting securities of CMI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or
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<PAGE> 2
by being converted into voting securities of the surviving entity) more than 50%
of the combined voting power (with respect to the election of directors) of the
securities of CMI or of such surviving entity outstanding immediately after such
merger, combination or consolidation; or (3) the consummation of a plan of
complete liquidation of CMI or of an agreement for the sale or disposition by
CMI of all or substantially all of CMI's business or assets.
"CMI" means Computer Motion, Inc. and its Affiliates.
"Confidential Information" means know-how, trade secrets, and other unpublished
or proprietary information disclosed (whether before or during the term of this
Agreement) by one of the parties (the "disclosing party") to the other party
(the "receiving party") or generated under this Agreement, excluding information
which:
(a) is now or comes to be in the public domain through no fault of the
receiving party;
(b) is released without restriction to the receiving party by the
disclosing party in writing;
(c) is lawfully obtained by the receiving party from third parties;
(d) can be demonstrated by competent proof to have been known by the
receiving party prior to any disclosure of "Confidential Information by
the disclosing party;
(e) has been in the possession of the receiving party, as a result of
disclosure under this Agreement, for a period of five (5) years; or
(f) is required by law to be disclosed; provided that the receiving
party has given the disclosing party prompt written notice of such
disclosure requirement and has cooperated with the disclosing party so
that the disclosing party may seek a protective order or other
appropriate remedy to avoid or limit such disclosure.
All Confidential Information disclosed by one party to the other under
this Agreement shall be in writing and bear a legend "Proprietary,"
"Confidential" or words of similar import or, if disclosed in any manner other
than writing, shall be preceded by an oral statement indicating that the
information is Company proprietary or confidential, and shall be followed by
transmittal of a reasonably detailed written summary of the information provided
to the receiving party with identification as Confidential Information
designated as above within thirty (30) days.
"FDA" means the U.S. Food and Drug Administration.
"FDA Good Manufacturing Practices" means as defined in 21 Code of Federal
Regulations Part 820.
"Field of Use" means minimally invasive cardiothoracic surgical procedures.
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"Intellectual Property" means all patents, trade names, trademarks, service
marks, copyrights, and applications or registrations for any of the foregoing,
inventions, discoveries, know-how, trade secrets, data, information, technology,
processes, formulas, drawings, designs, computer programs, licenses, and all
amendments, modifications, and improvements to any of the foregoing.
"Medtronic" means Medtronic, Inc. and its Affiliates.
"Medtronic Competitors" means any person engaged in the manufacture or sale of
cardiac surgery products that are marketed to the same class of persons (e.g.
cardiac surgeons) to whom Medtronic markets the Systems.
"Medtronic Territory" means those countries included within Medtronic's
currently designated "Europe", "Middle East" and "Africa" sales regions as more
fully described on Schedule 1.1 hereto.
"Net Revenues of Systems" in North America for a particular period means the
aggregate amount CMI invoices non-Affiliated third parties (or invoices
Medtronic pursuant to Section 2.3) for the sale, lease, license or other use of
Systems during such period, excluding sales, use or excise tax, freight, duty or
insurance included therein, discounts, rebates, and credits or repayments due to
rejection, defects or returns, and excluding a reasonable allowance for bad
debts and excluding amounts invoiced for installation fees, training, and other
services. In the event CMI combines the Systems with other CMI products in a
package in which the individual Systems are not invoiced separately, then CMI's
Net Revenues attributable to the Systems component of such combined package
shall be established by CMI in good faith; provided, however, that if the
Systems component of such combined package is sold, leased, or licensed as an
individual product by CMI in the same geographic area, then CMI's Net Revenues
attributable to such Systems in the combined package shall be based on the Net
Revenues of such Systems when sold, leased, or licensed individually in such
geographic area.
"North America" means The United States of America and Canada, including all
territories and possessions thereof.
"Prime Rate" means, for any calendar quarter, the prime commercial lending rate
quoted by the Wall Street Journal, as in effect on the first day of such
quarter.
"Specifications" means the current specifications for the Systems, as may be
amended from time to time hereafter by CMI.
"Systems" means CMI's current and future computer and voice controlled robotic
systems that position and maneuver both visualization equipment and instruments
for minimally invasive surgical solutions in the Field of Use, including
disposables and reusables, and further including without limitation current and
future ZEUS systems.
1.2) Other Terms. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.
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<PAGE> 4
1.3) Other Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provisions of this
Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) References to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to or referenced in this
Agreement, and references to an "Article" or a "Section" are, unless
otherwise specified, to one of the Articles or Sections of this
Agreement.
(d) The term "person" includes any individual, partnership,
joint venture, corporation, trust, unincorporated organization or
government or any department or agency thereof.
(e) The term "Dollars" or "$" shall refer to the currency of
the United States of America.
(f) The term "knowledge" means actual knowledge of a fact or
the knowledge which such person or its officers or employees could
reasonably be expected to have based on reasonable investigation and
inquiry.
(g) All references to time shall refer to Minneapolis,
Minnesota time.
ARTICLE 2
MEDTRONIC AS SALES AGENT IN NORTH AMERICA
-----------------------------------------
2.1) Appointment. Subject to commencement of the term of this Agreement
as set forth in Section 6.1, CMI hereby appoints Medtronic and Medtronic hereby
accepts appointment as CMI's exclusive sales agent for sales of the Systems in
the Field of Use in North America. Medtronic's duties, to be performed by
applicable portions of Medtronic's "cardiac surgery sales force" (i.e. the sales
force within Medtronic responsible for selling the products of Medtronic's
Cardiac Surgery Business) listed on Schedule 2.1, shall include (without
limitation of the other provisions of this Agreement):
(i) introducing the Systems and distributing literature and sales
materials about the Systems to current and potential customers who may
be interested in purchasing a System;
(ii) providing CMI with names of and contacts for potential purchasers
of Systems;
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<PAGE> 5
(iii) passing along to CMI information or ideas of which Medtronic's
cardiac surgery sales force becomes aware in the Field of Use for
increasing utilization or new potential applications of the Systems;
and
(iv) acting as an account manager to monitor the performance of, and
customer satisfaction with, the Systems within Medtronic accounts in
the Field of Use, including but not limited to reviewing and suggesting
ways to improve utilization of the Systems within such accounts, and
communicating this information to CMI on a regular basis.
Except as otherwise agreed to by the parties, Medtronic will not have the right
to quote prices on the Systems to potential customers.
2.2) CMI Sales and Distribution.
(a) CMI shall retain the exclusive right to distribute Systems within
the Field of Use in North America and, subject to Sections 4.1 and 4.2, outside
the Field of Use worldwide and within the Field of Use outside of the Medtronic
Territory. CMI shall establish a direct sales force for Systems in North America
through a combination of CMI employees and/or independent third-party sales
representatives. CMI shall use its best efforts to ensure that any such
independent third-party sales representatives of Systems in North America are
not Medtronic Competitors. During the term of Medtronic's sales agency pursuant
to this Article 2, CMI shall not appoint or permit any persons other than CMI
employees or independent third-party sales representatives to act as
distributors or sales agents for the System in the Field of Use in North
America. For clarification purposes, the parties acknowledge that CMI is not
restricted from licensing any third party, whether or not a competitor of
Medtronic, rights for such third party to make and sell devices developed by
such third party which are adapted to be used with the System (such third
parties are referred to herein as "Compatible Product Sellers"). Such Compatible
Product Sellers may promote and market their products for use with the Systems
and train their customers on the use of their products with the Systems;
provided, however, that such Compatible Product Sellers shall not be permitted
to promote or market the Systems independently. Subject to Section 4.2, nothing
herein shall impair CMI's rights to distribute or sell any product for any use
outside of the Field of Use.
(b) CMI shall cooperate with Medtronic as Medtronic reasonably requests
to enable Medtronic to include the System in Medtronic's "strategic alliance"
sales program, including making a CMI sales manager available to participate
with Medtronic in such meetings with such customers as Medtronic may reasonably
request; provided that such sales manager (i) shall be an employee of CMI, and
(ii) shall enter into a confidentiality agreement providing that all information
received by such CMI sales manager in connection with Medtronic's "strategic
alliance" program shall be held strictly confidential.
2.3) Completion of Sales. Except as otherwise agreed to by the parties,
CMI shall be solely responsible for undertaking and completing the actual sale
and invoicing of all Systems in North America and the collection of accounts
receivable therefrom; provided that, in those instances where Medtronic
reasonably believes it is necessary for Medtronic to invoice sales of Systems to
a customer under Medtronic's "strategic alliance" sales program (in order
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<PAGE> 6
for Medtronic to obtain credit under such program for the sale of such System),
CMI and Medtronic shall cooperate to have CMI invoice Medtronic for such Systems
and thereby allow Medtronic to invoice the sales of Systems to such "strategic
alliance" customer. In such event, Medtronic shall pay CMI the price quoted by
CMI to Medtronic or such customer for the Systems so purchased by Medtronic.
Such payment shall be due and payable 60 days after CMI's invoice date.
2.4) North America Installation and Service; Training.
(a) CMI shall be solely responsible for installing and servicing all
Systems at CMI's cost and expense.
(b) CMI shall be solely responsible for providing, at CMI's cost and
expense, customer and physician in-service training to any purchaser of a System
in North America. CMI shall coordinate with Medtronic and allow Medtronic the
opportunity to concurrently train those purchasers who are also purchasers of
Medtronic's cardiothoracic surgical products on the use of such Medtronic
products with the Systems, provided that Medtronic shall bear its proportional
share of the cost for any such training. Notwithstanding the foregoing,
Medtronic and CMI shall share the cost of training at those designated "centers
of excellence", as the parties may mutually agree, with the sites, strategy,
scope and cost of such training as may be mutually agreed to by the parties.
(c) CMI will provide training for Medtronic's U.S. and Canadian sales
personnel on such dates and at such locations as Medtronic reasonably designates
to CMI. Medtronic will be responsible for all out-of-pocket expenses incurred by
CMI personnel in the course of such training, unless Medtronic elects to receive
such training at a scheduled CMI training session for other CMI sales personnel.
2.5) Regulatory Approvals.
(a) CMI shall be solely responsible for obtaining, at CMI's cost and
expense and in CMI's name, all necessary regulatory and other approvals from the
FDA and any other applicable regulatory agencies prerequisite to the commercial
sale of the Systems in the Field of Use in North America. Such approval efforts
shall include, but not necessarily be limited to, the preparation and filing of
any required Investigational Device Exemption, Pre-Market Approval or Section
510(k) filings and the establishment and oversight of any required clinical
investigations and clinical follow-up relating to future commercial sale of the
Systems. CMI shall promptly notify Medtronic of receipt of any such approvals,
and shall provide Medtronic with such information regarding the status of
pending approvals as Medtronic may reasonably request.
(b) CMI shall be responsible for obtaining, at CMI's cost and expense,
all import licenses and permits as may be required to import the Systems into
the United States (if applicable) and Canada in accordance with then prevailing
laws and regulations of such country. All such filings and registrations of the
Systems shall be in the name of CMI. Medtronic shall cooperate fully with CMI in
its efforts to obtain any such approvals.
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2.6) Sales and Marketing.
(a) Medtronic and CMI shall jointly develop and carry out protocols and
sales strategies for use by the Medtronic sales agents and CMI sales
representatives to co-market the Systems and Medtronic's minimally invasive
cardiac surgery products to potential customers in North America.
Notwithstanding the foregoing, CMI shall have no responsibility to market
Medtronic's minimally invasive cardiac surgical products except in connection
with CMI Systems. CMI and Medtronic also will establish protocols and procedures
for coordinating System demonstrations.
(b) CMI and Medtronic shall jointly fund such additional marketing
clinical studies for use of Medtronic minimally invasive surgical products in
connection with the Systems as the parties mutually agree, the results of which
could be used by either or both of Medtronic and CMI in connection with the
marketing and sale of the Systems in the Field of Use.
(c) CMI shall be responsible for designing, developing and producing,
at CMI's cost and expense, Systems sales and marketing and promotional materials
for use in the Field of Use in North America. CMI, at its cost, shall provide
Medtronic with reasonable and adequate quantities of such appropriate sales and
marketing and promotional materials. In addition, CMI and Medtronic may jointly
develop sales and marketing materials that feature and showcase both the Systems
and Medtronic's minimally invasive surgical products, with the costs thereof to
be paid as mutually agreed by the parties.
(d) CMI and Medtronic may jointly fund and participate in those North
America trade shows as mutually agreed to by the parties. As further mutually
agreed to by the parties, employees of CMI and Medtronic, respectively, shall be
allowed to interact with customers in the appropriate trade show booth of the
other. In addition, Medtronic shall have the right to demonstrate the Systems in
its North America trade show booths in connection with the application of its
minimally invasive surgical products.
2.7) Medtronic's Commission.
(a) In consideration of Medtronic's performance as sales agent for the
Systems in North America, CMI shall pay to Medtronic on a calendar quarterly
basis a commission in an amount equal to [*] percent [*] of CMI's [*] of Systems
in the Field of Use in North America. Such payments shall be made within 45 days
after the end of each calendar quarter, and shall be accompanied by a written
statement setting forth the calculation of such amount in such detail as
Medtronic may reasonably request. CMI shall also give Medtronic monthly
estimates of the amount of commissions which have accrued for payment to
Medtronic.
(b) Medtronic will pay a percentage commission to Medtronic's cardiac
surgery sales force marketing the System in North America, the rate(s) of which
shall be in Medtronic's sole discretion.
(c) CMI shall keep accurate written records sufficient in detail to
enable CMI's Net Revenues of Systems in the Field of Use in North America to be
determined and verified
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<PAGE> 8
by Medtronic. Such records for each calendar quarter shall be retained by CMI
for a period of not less than three years after the end of such quarter.
(d) Upon reasonable notice and during regular business hours, CMI shall
from time to time (but no more frequently than once annually) make available the
records referred to in Section 2.7(c) for audit by independent accounting
representatives selected by Medtronic and reasonably acceptable to CMI to verify
the accuracy of the statements provided to Medtronic. Such representatives shall
execute a suitable confidentiality agreement reasonably acceptable to CMI prior
to conducting such audit. Such representatives may disclose to Medtronic only
their conclusions regarding the accuracy of CMI's calculation of CMI's Net
Revenues of Systems in the Field of Use in North America, and shall not disclose
CMI's confidential business information to Medtronic without the prior written
consent of CMI. Such audit shall be at Medtronic's cost and expense unless such
audit demonstrates that CMI's Net Revenues of Systems in the Field of Use in
North America was understated in the written report given to Medtronic pursuant
to Section 2.7(a) above by more than 5%, in which event CMI shall reimburse
Medtronic for all costs and expenses incurred in connection with such audit.
2.8) Noncompetition. During the term of Medtronic's sales agency
pursuant to this Article 2, Medtronic shall not market or sell in North America
minimally invasive cardiothoracic surgery products which are competitive with
the Systems in the Field of Use ("Competitive Products").
2.9) Demonstration Units. Medtronic will be entitled to purchase from
CMI a reasonable number of System demonstration units, as mutually determined by
CMI and Medtronic, for use in selected Medtronic training centers at a transfer
price equal to CMI's fully burdened manufacturing costs reasonably determined in
accordance with generally accepted accounting principles (excluding freight,
duties and customs, and any extraordinary start-up costs). This "reasonable
number of demonstration units" will be consistent with the number of Medtronic
"training centers" for the Systems in North America. Medtronic and CMI will
agree by December 31, 1997 upon terms pursuant to which CMI will be entitled to
reasonable access and use of such Medtronic "training centers" in North America.
During the fourth quarter of calendar 1998 or upon earlier availability,
Medtronic may purchase two (2) demonstration Systems for use in Medtronic's
"training centers" in North America at a price equal to [*]. Payment for all
demonstration units purchased by Medtronic shall be made within 15 days of CMI's
invoice. No commission shall be payable by CMI to Medtronic with respect to such
sales of demonstration units. Medtronic shall not be entitled to resell such
demonstration units.
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ARTICLE 3
MEDTRONIC AS DISTRIBUTOR IN EUROPE, MIDDLE EAST AND AFRICA
----------------------------------------------------------
3.1) Appointment.
(a) Subject to commencement of the term of this Agreement as set forth
in Section 6.1, CMI hereby appoints Medtronic, and Medtronic hereby accepts
appointment, as CMI's exclusive distributor, with the right to sell and
distribute the Systems in the Field of Use in the Medtronic Territory. CMI
represents and warrants to Medtronic that all other distributorship agreements
or sales representative agreements, if any, written or oral, with any third
party permitting the sale of Systems in the Field of Use in the Medtronic
Territory have been terminated at CMI's sole cost and expense. For clarification
purposes, the parties acknowledge that CMI is not restricted from licensing
Compatible Product Sellers, whether or not a competitor of Medtronic, rights to
make and sell devices developed by such Compatible Product Seller which are
adapted to be used with the System. Such Compatible Product Sellers may promote
and market their products for use with the Systems and train their customers on
the use of their products with the Systems; provided, however, that such
Compatible Product Sellers shall not be permitted to promote or market the
Systems independently.
(b) Medtronic may appoint subdistributors for the sale or distribution
of Systems in the Field of Use in the Medtronic Territory, and will provide to
CMI a list of such subdistributors from time to time. Notwithstanding such
appointment of subdistributors, Medtronic shall remain fully responsible for the
performance of all of its covenants and obligations hereunder, and any sales by
CMI to such Medtronic subdistributors shall be billed by CMI to Medtronic
directly.
(c) CMI shall promptly forward to Medtronic all leads for sales of
Systems in the Field of Use in \the Medtronic Territory.
(d) During the term of Medtronic's distribution rights pursuant to this
Article 3. Medtronic shall not market or sell Competitive Products (as defined
in Section 2.8) in the Medtronic Territory.
3.2) Regulatory Approvals.
(a) Medtronic shall be solely responsible for obtaining as desired by
Medtronic, at Medtronic's cost and expense and in Medtronic's name, all
necessary regulatory and other approvals from the applicable regulatory agencies
prerequisite to the commercial sale of the Systems in the Field of Use in the
Middle East and Africa. Any such approval efforts which are undertaken by
Medtronic shall include, but not necessarily be limited to, the preparation and
filing of any required filings and the establishment and oversight of any
required clinical investigations and clinical follow-up relating to future
commercial sale of the Systems in the Field of Use in the Middle East and
Africa.
(b) In Europe, CMI will be responsible for gaining, at CMI's cost and
expense and in CMI's name, the CE Mark under the appropriate Medical Device
Directive. Medtronic will be responsible for all dealings with the appropriate
Competent Authority such as Notification,
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Medical Device Vigilance and national labeling issues, provided that CMI will
bear final legal responsibility for the content of all its own labeling.
Medtronic will assist CMI in translating the directions for use of the System
and other System labeling into the requisite languages for obtaining the CE Mark
as follows: (i) Medtronic will recommend vendors to perform such translations
for CMI at CMI's expense, and (ii) Medtronic will send drafts of such
translations to Medtronic personnel in the applicable country for review and
comment by such personnel. The commercial printing of such directions for use
and labeling will either (as the parties may agree) be the responsibility of CMI
and the costs thereof included in CMI's fully-burdened manufacturing cost, or be
the responsibility of Medtronic and excluded from the calculation of CMI's
fully-burdened manufacturing cost. Medtronic will also be named as the
"Authorized Representative" as defined in the Directives. Medtronic may also
distribute Systems in particular countries within Europe under country-specific
regulatory approvals prior to CMI's gaining the CE Mark or in particular
countries where CE Mark approval is not the requisite form of commercial sale
approval, and in such circumstances CMI shall (i) provide Medtronic with such
information and cooperation as is necessary to obtain any such country-specific
approvals in Europe, (ii) bear the expenses of meeting any applicable product
design and manufacturing facility requirements, and (iii) take all steps as are
necessary to meet the EMC Directive.
3.3) Pricing.
(a) For the period from the date hereof until December 31, 1998,
Medtronic shall purchase the reusable (or "hardware") and/or disposable
components of the System from CMI at price(s) (the "Transfer Prices") to be
agreed to by the parties on or before March 31, 1998 based on expected market
conditions for the System and the following parameters: (i) the target Transfer
Prices for the hardware components shall target a [*] ([*]%) gross margin for
CMI, shall give Medtronic all of the upside profit potential thereafter, and
shall in no event exceed $[*] per set of System hardware components (as
presently contemplated), and (ii) the Transfer Prices for the disposables shall
assure Medtronic a minimum [*] of [*] ([*%]) and CMI a minimum of [*] of [*]
([*%]), with a formula whereby Medtronic would share a [*] of any additional
upside profit with CMI. In the event the parties are unable to agree upon such
Transfer Prices then such dispute shall be settled by binding arbitration
pursuant to Section 10.15. No later than December 31, 1998, and by each December
31 thereafter, the parties shall amend the Transfer Price for the following
twelve-month period pursuant to a formula to be mutually agreed to by the
parties, taking into account then market conditions and the foregoing
parameters.
(b) In addition, Medtronic shall be entitled to purchase from CMI a [*]
of demonstration Systems, as mutually determined by CMI and Medtronic, at a
price equal to [*]. Such [*] of demonstration Systems shall be consistent with
the number of Medtronic's "sales specialists" that Medtronic hires to
demonstrate and sell the Systems in the Medtronic Territory. Such demonstration
units may not be resold by Medtronic.
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(c) Payments made by Medtronic for Systems purchased for resale by
Medtronic pursuant to Section 3.3(a) shall be due and payable in full within
sixty (60) days after the date of invoice by CMI. Payments made by Medtronic for
demonstration Systems shall be due and payable in full within fifteen (15) days
after the date of invoice by CMI.
3.4) Inspection and Warranty
(a) In the event of any shortage, damage or discrepancy in or to a
shipment of Systems or in the event any of the Systems fail to comply with the
then current Specifications for the Systems, Medtronic shall report the same to
CMI and furnish such written evidence or other documentation as CMI reasonably
may deem appropriate. If the substantiating evidence delivered by Medtronic
demonstrates that such shortage, damage or discrepancy or non-conformity with
Specifications existed at the time of delivery of the Systems at the F.O.B.
point, Medtronic may return the Systems to CMI at CMI's expense, and at
Medtronic's request CMI shall use all reasonable efforts to deliver promptly
replacement Systems to Medtronic in accordance with the delivery procedures set
forth herein.
(b) CMI represents and warrants to Medtronic that all Systems sold and
delivered to any account under this Agreement will have been manufactured, if
required by law, in accordance with FDA Good Manufacturing Practices, European
Medical Device Directive requirements, ISO 9001 certification or successor
requirements, and all other applicable manufacturing requirements, and that
continually during the term of this Agreement no Systems delivered by CMI to
Medtronic or to any Medtronic account shall be adulterated or misbranded at the
time of delivery within the meaning of the U.S. Food, Drug and Cosmetic Act and
regulations thereunder. CMI shall cause Medtronic's regulatory personnel to be
provided with reasonable access from time to time to the facilities and records
of CMI for the purpose of confirming CMI's compliance with all applicable
requirements noted in this Section.
(c) CMI warrants to Medtronic and to Medtronic's customers that Systems
sold by CMI will not infringe any currently issued patents, trade secrets,
trademarks, or other intellectual property rights of any third party, and that
such products shall, when delivered at the F.O.B. point, meet the Specifications
and shall be free from defects in materials and workmanship. Medtronic shall
invoice CMI for, and CMI shall promptly pay, Medtronic's reasonable labor
charges and Medtronic's out-of-pocket materials, handling, shipping,
transportation, insurance and other expenses actually incurred in replacing
defective Systems which were under warranty.
(d) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY CMI, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE, EXCEPT CMI SHALL ALSO PROVIDE WITH RESPECT TO SYSTEMS SOLD TO
MEDTRONIC OR TO MEDTRONIC'S CUSTOMERS SUCH OTHER WARRANTIES AS CMI CUSTOMARILY
PROVIDES TO ITS CUSTOMERS OR END-USERS OF THE SYSTEMS IN THE FIELD OF USE (A
COPY OF THE CURRENT VERSION OF SUCH CUSTOMER WARRANTY IS ATTACHED HERETO AS
SCHEDULE 3.4).
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3.5) Sales and Service.
(a) Medtronic shall be solely responsible for selling, installing and
servicing all Systems in the Field of Use in the Medtronic Territory. The
Systems shall be sold under CMI trademarks and trade names subject to
Medtronic's right to indicate its status as distributor thereof on sales and
marketing materials for the Systems.
(b) Subject to Section 3.7 below, Medtronic shall be solely responsible
for providing customer and physician training to any purchaser of Systems for
use in the Field of Use in the Medtronic Territory.
(c) Medtronic shall be solely responsible for establishing the
marketing, selling and pricing strategies for the Systems in the Field of Use in
the Medtronic Territory. Such strategies will be available for review by CMI.
3.6) Marketing.
(a) CMI, at CMI's cost and expense, shall provide Medtronic from time
to time as requested by Medtronic with an adequate supply of Systems sales,
marketing, advertising and promotional materials in English for use in the
Medtronic Territory. Medtronic shall have the right, at its cost and expense and
subject to the reasonable approval of CMI, to adapt or modify the CMI sales,
marketing, advertising and promotional materials and user manuals as deemed
appropriate by Medtronic to reflect the culture or business practices and
languages of the particular regions within the Medtronic Territory and to
reflect Medtronic as the exclusive distributor of the Systems, or as otherwise
deemed appropriate by Medtronic.
(b) CMI and Medtronic may jointly fund and participate in trade shows
as mutually agreed to by the parties. As further mutually agreed to by the
parties, employees of CMI and Medtronic, respectively, shall be allowed to
interact with customers in the appropriate trade show booth of the other. In
addition, Medtronic shall have the right to demonstrate the Systems in its trade
show booths in connection with the application of its minimally invasive
surgical products.
3.7) Training.
(a) CMI, one time at its cost and expense, will provide the initial
technical training of Medtronic's sales specialists and field service
supervisors in the use, installation and service of the Systems on such date and
place as Medtronic shall designate. CMI shall also provide, at its cost and
expense, any additional training necessary with respect to any enhancements or
modifications made by CMI to the System. Medtronic will be responsible for the
cost and expense of ongoing training of its field sales and service
representatives, such training to be provided by CMI (e.g., Medtronic will pay
travel costs for its sales personnel). CMI will be responsible for the costs and
expenses of CMI's personnel and training materials for one additional annual
training course. In the event Medtronic requests any additional training, CMI
shall provide such training at a cost to Medtronic of $500 per day plus travel,
meals and other expenses reasonably incurred by CMI training personnel.
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(b) CMI will provide training for the "customer trainers" (i.e., those
Medtronic personnel and other third parties engaged in training customers at
training sites) on such dates and at such places as Medtronic shall designate to
CMI (not to exceed once per quarter). CMI will bear the cost of such training
and Medtronic will bear the costs associated with the Medtronic personnel and
customers.
3.8) Orders.
(a) Medtronic and CMI shall jointly develop order and delivery
procedures and guidelines for the Systems, including quarterly forecasts that
correspond to Medtronic's fiscal periods. Medtronic's orders shall be given no
less favorable treatment by CMI than orders from customers in North America. The
parties intend that Medtronic will maintain minimal inventories of Systems and
that, under most circumstances, CMI will ship Systems directly to locations
designated by Medtronic.
(b) Medtronic shall submit purchase orders for Systems to CMI in
writing, whether by mail, telecopier, telegram or otherwise, which shall, at a
minimum, set forth the product numbers, quantities, delivery dates, and shipping
instructions and shipping addresses for all Systems ordered. All orders shall be
subject to acceptance in accordance with the terms of this Agreement by CMI at
its office. Each purchase order shall, upon acceptance by CMI, give rise to a
contract between Medtronic and CMI for the sale of the Systems ordered and shall
be subject to and governed by the terms of this Agreement. The terms and
conditions of this Agreement shall so govern and supersede any additional or
contrary terms set forth in Medtronic's purchase order or any CMI or Medtronic
acceptance, confirmation, invoice or other document unless duly signed by an
officer of Medtronic and an officer of CMI and expressly stating and identifying
which specific additional or contrary terms shall supersede the terms and
conditions of this Agreement. Deliveries will first commence to Medtronic no
earlier than 90 days from the date Medtronic delivers its initial forecast to
CMI.
(c) On or before March 31, 1998, Medtronic shall provide CMI with a
twelve-month international sales plan indicating by month the number of Systems
anticipated to be sold by Medtronic or purchased by Medtronic for use as
demonstration units (as updated as provided herein, the "Plan"). The Plan shall
be updated by Medtronic on a monthly basis (on or before the first day of each
subsequent month) for a rolling successive twelve-month period. The first three
months of each Plan shall constitute a firm purchase commitment by Medtronic for
delivery of the number of Systems specified therein. The fourth through sixth
months of each Plan shall constitute a firm purchase commitment only insofar as
Medtronic agrees not to reduce the quantity specified therein by more than 50%,
but Medtronic otherwise may modify such quantity in the next Plan. The seventh
through twelfth months of each Plan shall be used for purposes of facilitating
Medtronic's marketing plans and meeting the lead times required by certain of
CMI's suppliers, but are not legally binding on Medtronic in any manner.
(d) CMI shall not be required to deliver quantities in excess of 100%
of forecasted requirements unless CMI has been given at least 90 days advance
written notice of the quantities to be delivered which exceed the forecasted
amounts; provided, however, that CMI shall use all commercially reasonable
efforts to supply such excess.
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(e) No purchase order shall be modified or canceled except upon the
mutual agreement of the parties. Mutually agreed change orders shall be subject
to all provisions of this Agreement, whether or not the change order so states.
Notwithstanding the foregoing, any purchase order may be cancelled by Medtronic
as to any Systems which are not delivered within sixty (60) days of the delivery
date requested by Medtronic, and any such cancellation shall not limit or affect
any contract remedies available to Medtronic with respect thereto. Any such
cancellation by Medtronic must be by written notice to CMI given within fifteen
(15) business days after such 60th day.
(f) All deliveries of Systems shall be F.O.B. CMI's manufacturing
facility. Except as provided in Section 3.4 above, CMI shall have no further
responsibility for Systems, and all risk of damage to or loss or delay of
Systems shall pass to Medtronic, upon their delivery at the aforesaid F.O.B
point. All Systems deliveries shall be made by a common carrier specified by
Medtronic or, in the event that no carrier shall have been specified by
Medtronic on or before the date fifteen (15) days prior to the requested
shipment date, a common carrier reasonably selected by CMI.
(g) CMI shall promptly inform Medtronic of any modifications or
enhancements of the Systems or any other material changes in the Specifications
for the Systems. If such changes would affect the applicable regulatory
approvals of the Systems, Medtronic shall not be required to purchase such
Systems. Notwithstanding the foregoing, CMI shall not, without Medtronic's
consent, make any changes to the Product which would make the System less useful
or effective for the Field of Use.
(h) CMI shall be responsible for packaging and any necessary
sterilization of Systems purchased under this Agreement in accordance with the
Specifications.
3.9) Upgrades. CMI shall make software and hardware upgrades and
replacement parts available to Medtronic for the Systems at prices and on terms
and conditions no less favorable than those offered to CMI's "preferred
customers" (defined as distributors, not "end users") if any, in the Field of
Use.
3.10) Reports. Medtronic shall provide CMI, on a quarterly basis, with
current customer lists for Systems sold by Medtronic and physician users (of
which Medtronic is aware) of the Systems in the Field of Use in the Medtronic
Territory. Medtronic also will periodically provide CMI with the customer name
and address for each System installation in the Field of Use in the Medtronic
Territory for warranty and regulatory purposes. Medtronic shall report any
"adverse events" (as defined by FDA regulations) promptly to CMI.
3.11) Export/Import Approvals.
(a) CMI shall be responsible for obtaining, at CMI's cost and expense,
all export licenses and permits as may be required to export the Systems from
the country of manufacture into the particular countries within the Medtronic
Territory.
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(b) Medtronic shall be responsible for obtaining, at Medtronic's cost
and expense, all import licenses and permits as may be required to import the
Systems into particular countries within the Medtronic Territory as selected by
Medtronic in accordance with then prevailing laws and regulations of such
countries. All such filings and registrations of the Systems shall be in the
name of Medtronic, whenever feasible in accordance with prevailing laws and
regulations. CMI shall cooperate fully with Medtronic in its efforts to obtain
any such approvals.
3.12) Development Sites. Medtronic will assist CMI in establishing a
reasonable number of System development sites in Europe. Medtronic will receive
a fee equal to [*]% of all proceeds received by CMI for the placement of Systems
in each of the selected sites, excluding from such proceeds any development,
consulting or upgrade expenses charged to such site. Such fee will be payable
when and as the proceeds are received by CMI.
ARTICLE 4
FIRST REFUSAL FOR OTHER DISTRIBUTION RIGHTS
-------------------------------------------
4.1 Right of First Refusal Outside Medtronic Territory.
(a) In the event that CMI proposes to enter into any distribution,
sales representative or similar license agreement which would give such third
party rights to sell the Systems with any third party regarding the sale,
distribution or licensing of the Systems in the Field of Use in North America
and/or outside the Medtronic Territory (such regions to be described as (i)
Japan (ii) Asia Pacific (excluding Japan), (iii) Australia/New Zealand, and (iv)
Central/South America), then, prior to entering into any discussions regarding
such distribution, sales representative or similar license agreement, CMI shall
notify Medtronic in writing of such intention to enter into such discussions,
including the material terms and provisions upon which CMI would be willing to
enter into such a distribution, sales representative or similar license
agreement for such region (for purposes of this Section 4.1, "CMI's Notice").
(b) For a period of 45 days after Medtronic's receipt of CMI's Notice
(for purposes of this Section 4.1, the "Exclusive Period"), CMI shall negotiate
in good faith exclusively with Medtronic regarding such distribution, sales
representative or similar license agreement for the applicable region specified
in CMI's Notice. During the Exclusive Period, CMI will not solicit offers from,
negotiate with, or provide information to any third party regarding any
distribution, sales representative or similar license relationship for Systems
in such region.
(c) If Medtronic and CMI fail to reach mutual agreement upon the terms
and provisions of a definitive agreement for such distribution, sales
representative or license relationship, then CMI may enter into a definitive
agreement for such distribution, sales representative or similar license
relationship with a third party for the applicable region specified in CMI's
Notice; provided that CMI may not enter into such definitive agreements unless
the terms and provisions thereof are, in the aggregate, no less favorable to CMI
than the terms and provisions proposed by Medtronic during the Exclusive Period.
If CMI fails to enter into such definitive agreement for the applicable region
within 180 days after expiration of the Exclusive Period, then Medtronic's
rights under this Section shall be reinstated and CMI may not enter into
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any distribution, sales representative or similar license relationship with
respect to Systems in such region without first giving Medtronic a new CMI's
Notice and complying with the terms of this Section.
(d) Medtronic's rights under this Section 4.1 shall terminate upon a
Change of Control of CMI. Notwithstanding the foregoing, Medtronic will continue
to have distribution rights to the Systems in any such region pursuant to the
terms of any then effective distribution agreement between CMI and Medtronic.
4.2 Right of First Refusal Outside Field of Use.
(a) In the event that CMI proposes to enter into any distribution,
sales representative or license agreement with any third party regarding the
sale, distribution or licensing of the Systems for use in enabling minimally
invasive surgical procedures in cardiology (outside of the Field of Use), [*]
procedures, then, prior to entering into any discussions regarding such
distribution, sales representative or licensing agreement, CMI shall notify
Medtronic in writing of such intention to enter into such discussions, including
the material terms and provisions upon which CMI would be willing to enter into
such a distribution, sales representative or licensing agreement for such
procedures (for purposes of this Section 4.2, "CMI's Notice").
(b) For a period of 45 days after Medtronic's receipt of CMI's Notice
(for purposes of this Section 4.2, the "Exclusive Period"), CMI shall negotiate
in good faith exclusively with Medtronic regarding such distribution, sales
representative or licensing agreement for the applicable procedures specified in
CMI's Notice. During the Exclusive Period, CMI will not solicit offers from,
negotiate with, or provide information to any third party regarding any
distribution, sales representative or licensing relationship for Systems for
such procedures.
(c) If Medtronic and CMI fail to reach mutual agreement upon the terms
and provisions of a definitive agreement for such distribution, sales
representative or licensing relationship, then CMI shall have [*] days from the
earlier of expiration of the Exclusive Period or termination by Medtronic of
negotiations between CMI and Medtronic in which to negotiate and enter into a
definitive agreement for such distribution, sales representative or licensing
relationship with a third party for the applicable procedures specified in CMI's
Notice; provided that CMI may not enter into such definitive agreements unless
the terms and provisions thereof are, in the aggregate, no less favorable to CMI
than the terms and provisions proposed by Medtronic during the Exclusive Period.
If CMI fails to enter into such definitive agreement for the applicable
procedures within such definitive agreement for the applicable procedures within
such [*] period, then Medtronic's rights under this Section shall be reinstated
and CMI may not enter into any distribution, sales representative or licensing
relationship for the sale of Systems for such procedures without first giving
Medtronic a new CMI's Notice and complying with the terms of this Section.
(d) Medtronic's rights under this Section 4.2 will terminate at the end
of the "Initial Term" (as defined below).
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ARTICLE 5
PRODUCT DEVELOPMENT
-------------------
5.1) Customized Systems. Medtronic may refer new product ideas or
product customization requests for the Systems in the Field of Use to designated
CMI marketing representatives. CMI shall undertake development of Medtronic's
custom product requests in a reasonable and timely manner consistent with the
way in which CMI undertakes custom product requests for its customers in North
America.
5.2) New Products. CMI and Medtronic shall each have the right, in
their respective discretion, to offer to the other party the opportunity to
co-develop products or technologies with potential application inside or outside
the Field of Use which the offering party owns or has the right to use, subject
to such mutually acceptable terms and conditions as the parties may agree. The
cost of such co-development efforts shall be shared as may be mutually agreed to
by the parties.
ARTICLE 6
TERM AND TERMINATION
--------------------
6.1) Initial Term. The initial term (the "Initial Term") for
Medtronic's rights and obligations as the sales agent for Systems in North
America and the exclusive distributor for Systems in the Medtronic Territory
shall commence on the date the Debenture is converted into shares of CMI common
stock and continue until the third anniversary of the initial commercial release
of Systems in Europe for the Field of Use.
6.2) Renewal Term; Performance Objectives.
(a) The Initial Term of Medtronic's rights and obligations as sales
agent for Systems in North America may be renewed for successive periods (a
"Renewal Term") by mutual agreement of the parties. The parties agree to
negotiate in good faith the terms and provisions of any Renewal Period. The
Initial Term of Medtronic's rights and obligations as exclusive distributor for
Systems in the Medtronic Territory shall be automatically renewed for an
additional three year period (a "Renewal Term"), provided Medtronic has met or
exceeded certain reasonable and mutually agreeable performance objectives to be
established by the parties pursuant to (b) below and as further specified in
Schedule 6.2 hereto (the "Performance Objectives"). Thereafter, the term will be
automatically renewed for additional (2) years periods (each a "Renewal Term"),
provided Medtronic has met or exceeded the Performance Objectives for the
Medtronic Territory for the then current Renewal Term to be established by the
parties.
(b) CMI and Medtronic shall negotiate in good-faith to establish on or
before December 31, 1997 the Performance Objectives for the Medtronic Territory
for the Initial Term. Six (6) months prior to the end of the Initial Term and
any Renewal Term, CMI and Medtronic shall negotiate in good faith the
Performance Objectives for the Medtronic Territory for the upcoming Renewal
Term. The Performance Objectives for the Medtronic Territory shall take into
account such factors as the size of the market, average selling prices of the
Systems,
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potential applications of the Systems, selling cycle, CMI's manufacturing
capacity, size of the relative sales forces, and other relevant factors. There
shall be one set of Performance Objectives with respect to Medtronic's rights
and obligations as the sales agent for Systems in North America on an aggregate
basis, and one set of Performance Objectives with respect to Medtronic's rights
and obligations as the exclusive distributor for Systems in the Medtronic
Territory on an aggregate basis. In the event the parties are unable to agree
upon the Performance Objectives for the Medtronic Territory, then such dispute
shall be settled by binding arbitration pursuant to Section 10.15.
6.3) Termination for Failure to meet Performance Objectives.
(a) Subject to Article 8 hereof, if Medtronic fails to meet the
Performance Objectives for North America, CMI shall have the right to terminate
Medtronic's future rights and obligations as sales agent for North America. CMI
shall give Medtronic written notice of any such intent to terminate, and
Medtronic shall have sixty (60) days in which to cure such failure to meet the
Performance Objectives or present CMI with reasonable evidence of a plan that
will cure any such failure to meet the Performance Objectives within an
additional 60 days. In the event Medtronic does not cure such failure within
such additional 60 days, CMI shall have the right to terminate Medtronic's
rights as sales agent for North America. CMI's rights under this Section 6.3(a)
shall be CMI's sole and exclusive remedy for Medtronic's failure to meet the
Performance Objectives with respect to North America.
(b) Upon any such termination of Medtronic's rights and obligations as
sales agent in North America pursuant to Subsection 6.3(a) above, CMI will
repurchase from Medtronic, at Medtronic's cost, Medtronic's entire inventory of
demonstration Systems, accessories and related materials that Medtronic may have
as of the termination date relating to Medtronic's activities as North America
sales agent. For purposes of CMI's repurchase of demonstration units,
Medtronic's cost of the Systems shall be adjusted in accordance with the
depreciation schedule attached hereto as Schedule 6.3. Notwithstanding the
foregoing, CMI shall not be obligated to repurchase any Systems, accessories or
related materials which are not in good repair or which are not, due to any
action or inaction by Medtronic, suitable for their original intended purposes.
(c) If (i) CMI has elected to utilize a "procedure-based pricing
strategy" in North America (which strategy would involve the payment of
Medtronic's commission over the collective term of individual System
agreements), and (ii) CMI terminates Medtronic's rights and obligations as its
North American sales agent for failure to meet the Performance Objectives
pursuant to subsection (a) above, CMI will be required to pay Medtronic for only
[*] of the revenue-based commissions earned but not yet paid on all such
agreements in effect on the termination date, up to a maximum of [*] of such
revenue-based commissions from the date CMI gives Medtronic written notice of
failure to meet such Performance Objectives. This formula will recognize that
all such agreements were entered into during the period that Medtronic was CMI's
sales agent, and that Medtronic's revenue-based commissions were to be paid over
the term of each such agreement; provided that Medtronic will not be entitled to
the full amount of such revenue-based commissions as a result of its failure to
meet the mutually agreed Performance Objectives.
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6.4) Conversion to Non-Exclusive for Failure to meet Performance
Objectives. Subject to Article 8 hereof, if Medtronic fails to meet the
Performance Objectives for the Medtronic Territory, CMI shall have the right to
convert Medtronic's future rights and obligations as distributor for the
Medtronic Territory to a non-exclusive basis. CMI shall give Medtronic at least
90 days prior written notice of any such intent to convert to non-exclusive, and
Medtronic shall have sixty (60) days in which to cure such failure to meet the
Performance Objectives or present CMI with reasonable evidence of a plan that
will cure any such failure to meet the Performance Objectives within an
additional 60 days. In the event Medtronic does not cure such failure within
such additional 60 days, CMI shall have the right to convert Medtronic's rights
as distributor in the Medtronic Territory to nonexclusive. CMI's rights under
this Section 6.4 shall be CMI's sole and exclusive remedy for Medtronic's
failure to meet the Performance Objectives with respect to the Medtronic
Territory.
6.5) Termination for Change of Control; Nonrenewal. In the event (i)
CMI has elected to utilize a "procedure-based pricing strategy" in North
America, and (ii) there has been a Change of Control of CMI, then CMI will have
the right, exercisable by written notice to Medtronic within 90 days after such
Change of Control, to terminate Medtronic's rights and obligations as its North
American sales agent effective six months after such written notice. In the
event of such termination, or in the event of nonrenewal of the Initial Term or
any Renewal Term of Medtronic's rights as sales agent for the Systems in North
America, Medtronic will be entitled to receive payment for [*] percent of the
revenue-based commissions earned but not yet paid on all such agreements in
effect on the termination or expiration date. In the event of such termination
or nonrenewal, CMI will repurchase from Medtronic, [*], any inventory of Systems
(including demonstration Systems), accessories and related materials that
Medtronic may have as of the termination date relating to Medtronic's activities
as North American sales agent. For purposes of CMI's repurchase of demonstration
units, Medtronic's cost of the Systems shall be adjusted in accordance with the
depreciation schedule attached hereto as Schedule 6.3. Notwithstanding the
foregoing, CMI shall not be obligated to repurchase any Systems, accessories or
related materials which are not in good repair or which are not, due to any
action or inaction by Medtronic, suitable for their original intended purposes.
In no event will CMI have the right to terminate Medtronic's rights as the
exclusive distributor for the Systems in the Medtronic Territory, or any other
region, upon any Change in Control of CMI (other than upon expiration of the
term of the exclusive distribution rights as provided herein between CMI and
Medtronic).
6.6) Medtronic's Termination for CMI Breach.
(a) Subject to Article 8 hereof, if CMI breaches any of its material
obligations under this Agreement with respect to Article 2 and/or Article 3 of
this Agreement, then Medtronic shall be entitled to terminate Medtronic's rights
and obligations under Article 2 and/or, at Medtronic's election, Article 3 of
this Agreement. Medtronic shall give CMI written notice of any such intent to
terminate, specifying whether such termination will apply to Medtronic's rights
and obligations under Article 2 or Article 3, or both, and CMI shall have sixty
(60) days in which to cure such material breach.
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(b) Upon any such termination pursuant to Subsection 6.6(a) above, CMI
will repurchase from Medtronic, at a price equal to [*] thereof, Medtronic's
entire inventory of Systems (including demonstration Systems), accessories and
related materials as of the termination date relating to Medtronic's rights and
obligations under Article 2 and/or Article 3 of this Agreement, as applicable.
For purposes of CMI's repurchase of demonstration units, Medtronic's cost of the
Systems shall be adjusted in accordance with the depreciation schedule attached
hereto as Schedule 6.3. Notwithstanding the foregoing, CMI shall not be
obligated to repurchase any Systems, accessories or related materials which are
not in good repair or which are not, due to any action or inaction by Medtronic,
suitable for their original intended purposes.
(c) Upon any such termination pursuant to Subsection 6.6(a) above with
respect to Medtronic's rights and obligations under Article 2, if CMI has
elected to utilize a "procedure-based pricing strategy" in North America, CMI
shall continue to pay Medtronic for [*] percent [*]% of all revenue-based
commissions which would have become due and payable but for such termination on
all such North America "procedure-based pricing" customer agreements in effect
on the termination date.
6.7) CMI's Termination for Medtronic Breach.
(a) Subject to Article 8 hereof and except as otherwise provided in
Section 6.4, if Medtronic breaches any of its material obligations under this
Agreement with respect to Article 2 and/or Article 3 of this Agreement, then CMI
shall be entitled to terminate Medtronic's rights and obligations under Article
2 and/or, at CMI's election, Article 3 of this Agreement. CMI shall give
Medtronic written notice of any such intent to terminate, specifying whether
such termination will apply to Medtronic's rights and obligations under Article
2 or Article 3, or both, and Medtronic shall have sixty (60) days in which to
cure such material breach.
(b) Upon any such termination pursuant to Subsection 6.7(a) above, CMI
shall have the option, exercisable within 20 days after such termination, to
repurchase from Medtronic, at Medtronic's cost, Medtronic's entire inventory of
Systems (including demonstration Systems), accessories and related materials, as
of the termination date relating to Medtronic's rights and obligations under
Article 2 and/or Article 3 of this Agreement, as applicable. In the event CMI
fails to exercise such repurchase option, Medtronic shall have the right to
sell-off its remaining inventory of Systems. For purposes of CMI's repurchase of
demonstration units, Medtronic's cost of the Systems shall be adjusted in
accordance with the depreciation schedule attached hereto as Schedule 6.3.
Notwithstanding the foregoing, CMI shall not be obligated to repurchase any
Systems, accessories or related materials which are not in good repair or which
are not, due to any action or inaction by Medtronic, suitable for their original
intended purposes.
(c) Upon any such termination pursuant to Subsection 6.7(a) above with
respect to Medtronic's rights and obligations under Article 2, if CMI has
elected to utilize a "procedure-based pricing strategy" in North America, CMI
shall continue to pay Medtronic for [*] percent [*]% of all revenue-based
commissions which would have become due and payable but for such termination on
all such North America "procedure-based pricing" customer agreements in effect
on the termination date up to a maximum of eighteen months (measured from the
date CMI gives Medtronic written notice of such breach).
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6.8) Rights and Obligations on Termination. In the event of termination
of all or a portion of this Agreement for any reason, the parties shall have the
following rights and obligations:
(a) Termination of all or a portion of this Agreement shall not release
either party from the obligation to make payment of all amounts
previously due and payable;
(b) In the event of the termination of Medtronic's distribution rights
with respect to all of the Medtronic Territory in accordance with
Section 6.6 or Section 6.7, (i) all purchase orders for Systems which
provide for delivery after the effective date of termination shall be
cancelled, (ii) Medtronic shall assign, at CMI's cost and expense, all
regulatory approvals and files regarding sales of Systems in such
geographic area to CMI, and (iii) Medtronic and CMI shall cooperate to
assure continued service and support to customers in such geographic
area who purchased Systems from Medtronic. CMI hereby acknowledges
Medtronic's right to continue to sell Systems purchased from CMI to any
person or entity in the Medtronic Territory until such time as
Medtronic's entire inventory of Systems is sold; and
(c) Without limitation of Section 10.6 hereof, the parties' payment and
audit obligations pursuant to Articles 2 and 3 hereof, and the parties
obligations pursuant to Articles 7, 9 and 10 hereof, shall survive
termination of this Agreement.
ARTICLE 7
INDEMNIFICATION
---------------
7.1) CMI's Liability. CMI shall indemnify, defend and hold harmless
Medtronic and each of its subsidiaries, officers, directors, employees,
shareholders and distributors from and against and in respect of any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, interest and penalties, costs and expenses (including, without
limitation, reasonable legal fees and disbursements incurred in connection
therewith and in seeking indemnification therefor, and any amounts or expenses
required to be paid or incurred in connection with any action, suit, proceeding,
claim, appeal, demand, assessment or judgment) ("Indemnifiable Losses"),
resulting from, arising out of, or imposed upon or incurred by any person to be
indemnified hereunder by reason of (i) any breach of representation, warranty,
covenant or agreement on the part of CMI under this Agreement, (ii) total or
partial Systems recalls, or (iii) alleged defects in materials, workmanship,
product performance, or design of the Systems, but in any event excluding
matters for which Medtronic is responsible under Section 7.2 below. CMI shall
maintain product liability insurance or self-insurance in such amounts as is
advisable pursuant to ordinary good business practice for a similar company in a
similar type of business, and shall provide Medtronic with evidence of this
coverage.
7.2) Medtronic's Liability. Medtronic shall indemnify, defend and hold
harmless CMI and each of its subsidiaries, officers, directors, employees,
shareholders and suppliers from and against and in respect of any and all
demands, claims, actions or causes of action, assessments,
21
<PAGE> 22
losses, damages, liabilities, interest and penalties, costs and expenses
(including, without limitation, reasonable legal fees and disbursements incurred
in connection therewith and in seeking indemnification therefor, and any amounts
or expenses required to be paid or incurred in connection with any action, suit,
proceeding, claim, appeal, demand, assessment or judgment) ("Indemnifiable
Losses"), resulting from, arising out of, or imposed upon or incurred by any
person to be indemnified hereunder by reason of (i) any breach of
representation, warranty, covenant or agreement on the part of Medtronic under
this Agreement, (ii) product claims whether written or oral, made or alleged to
be made, by Medtronic in its advertising, publicity, promotion, or sale of any
Systems where such product claims were not provided by or approved by CMI, or
(iii) negligent handling by Medtronic of the Systems, but in any event excluding
matters for which CMI is responsible under Section 7.1 above.
7.3) Third Party Claims. If a claim by a third party is made against
any indemnified party, and if the indemnified party intends to seek indemnity
with respect thereto under this Article 7, such indemnified party shall promptly
notify the indemnifying party of such claim; provided, however, that failure to
give timely notice shall not affect the rights of the indemnified party so long
as the failure to give timely notice does not materially adversely affect the
indemnifying party's ability to defend such claim against a third party. The
indemnifying party shall be entitled to settle or assume the defense of such
claim, including the employment of counsel reasonably satisfactory to the
indemnified party, as provided below. If the indemnifying party elects to settle
or defend such claim, it shall notify the indemnified party within thirty (30)
days (but in no event less than twenty (20) days before any pleading, filing or
response on behalf of the indemnified party is due) of its intent to do so. If
the indemnifying party elects not to settle or defend such claim or fails to
notify the indemnified party of its election within thirty (30) days (or such
shorter period provided above) after receipt of the indemnified party's notice
of a claim of indemnity hereunder, the indemnified party shall have the right to
contest, settle or compromise the claim without prejudice to any rights to
indemnification hereunder. Regardless of which party is controlling the
settlement or defense of any claim, (i) both the indemnified party and
indemnifying party shall act in good faith, (ii) the indemnifying party shall
not thereby permit to exist any lien, encumbrance or other adverse charge upon
any asset of any indemnified party or of its subsidiaries, (iii) the
indemnifying party shall permit the indemnified party to participate in such
settlement or defense through counsel chosen by the indemnified party, provided
that all fees, costs and expenses of such counsel in an action controlled by the
indemnifying party shall be borne by the indemnified party, unless the
indemnifying party and indemnified party have conflicting available defenses to
such third party claim, in which case such fees, costs and expenses shall be
borne by the indemnifying party, (iv) no entry of judgment or settlement of a
claim may be agreed to without the written consent of both the indemnified party
and the indemnifying party, which consents shall not be unreasonably withheld,
and (v) the indemnifying party shall agree promptly to reimburse the indemnified
party for the full amount of such claim pursuant to this Article 7. So long as
the indemnifying party is reasonably contesting any such claim in good faith as
permitted herein, the indemnified party shall not pay or settle any such claim;
provided that the indemnified party may settle any such claim so long as the
indemnifying party is not adversely affected thereby. The controlling party
shall deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the settlement or
22
<PAGE> 23
defense of any such claim, and timely notices of, and the right to participate
pursuant to (iii) above in any hearing or other court proceeding relating to
such claim.
7.4) Cooperation as to Indemnified Liability. Each party hereto shall
cooperate fully with the other parties with respect to access to books, records,
or other documentation within such party's control, if deemed reasonably
necessary or appropriate by any party in the defense of any claim which may give
rise to indemnification hereunder.
ARTICLE 8
FORCE MAJEURE
-------------
8.1) Force Majeure. "Force Majeure" shall mean any event or condition,
not existing as of the date of signature of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either
party, which prevents in whole or in material part the performance by one of the
parties of its obligations hereunder, such as act of God, act of government, war
or related actions, civil insurrection, riot, sabotage, strike, epidemic, fire,
flood, windstorm, and similar events.
8.2) Notice. Upon giving notice to the other party, a party affected by
an event of Force Majeure shall be released without any liability on its part
from the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the extent
and only for the period that its performance of such obligations is prevented by
the event of Force Majeure.
8.3) Suspension of Performance. During the period that the performance
by one of the parties of its obligations under this Agreement has been suspended
by reason of an event of Force Majeure, the other party may likewise suspend the
performance of all or part of its obligations (other than payment obligations)
hereunder to the extent that such suspension is commercially reasonable.
ARTICLE 9
INTELLECTUAL PROPERTY
---------------------
9.1) Trademark License. Medtronic shall have a royalty-free license to
use all trademarks, trade names and logotypes of CMI relating to the Systems
solely in connection with the sale or other distribution, promotion, advertising
and/or maintenance of the Systems in the Field of Use. Medtronic shall acquire
no right, title or interest in such CMI trademarks, trade names and logotypes,
other than as provided for above, and Medtronic shall not use any CMI
trademarks, trade names and logotypes as part of Medtronic's corporate or trade
name or permit any third party under Medtronic's control to do so without the
prior written consent of CMI. All rights under this Section 9.1 shall terminate
upon termination of this Agreement under Article 6, subject to Section 6.8(b).
23
<PAGE> 24
9.2) Ownership. CMI represents and warrants to Medtronic the following:
CMI is the exclusive owner or licensee of all right, title and interest in and
to all Intellectual Property used in the research, design, development,
manufacture or sale of the Systems (the "CMI Intellectual Property") free and
clear of any liens, charges, security interests, mortgages, pledges,
restrictions, adverse claims or any other encumbrances of any kind except for
Medtronic's security interest. To the knowledge of CMI, neither CMI, its
business, any of the Systems, nor the execution and performance of this
Agreement and the transactions contemplated herein, infringes, misuses,
misappropriates or conflicts with the rights, including patent and other
intellectual property rights or contract rights, of others. To the knowledge of
CMI, the CMI Intellectual Property is valid and has not been challenged in any
judicial or administrative proceeding. To the knowledge of CMI, CMI has not
failed to take any necessary steps or appropriate actions to record its
interests, or to protect its rights, in the CMI Intellectual Property. To the
knowledge of CMI, no person or entity nor such person's or entity's business or
products has infringed, misused, misappropriated or conflicted with the CMI
Intellectual Property or currently is infringing, misusing, misappropriating or
conflicting with the CMI Intellectual Property.
9.3) Protection of CMI's Intellectual Property and Improvements. During
the term of this Agreement, CMI shall promptly inform Medtronic of any
invention, improvement, upgrading or modification relating to the Systems or
CMI's Intellectual Property relating to the Systems.
ARTICLE 10
MISCELLANEOUS
-------------
10.1) Non-Disclosure. Except as permitted or required for performance
by the party receiving such Confidential Information of its rights or duties
hereunder, each party agrees (i) not to disclose or use any Confidential
Information of the other party obtained in connection with the performance of
this Agreement, and (ii) not to disclose or provide any of such Confidential
Information of the other party to any third party and to take appropriate
measures to prevent any such disclosure by its present and future employees,
officers, agents, subsidiaries, or consultants.
10.2) Relationship. This Agreement does not make either party the
employee, agent or legal representative of the other for any purpose whatsoever.
Neither party is granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party. In fulfilling its obligations pursuant to this Agreement, each
party shall be acting as an independent contractor.
10.3) Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors or assigns of the parties
hereto; provided, that (i) the rights and obligations of CMI herein may not be
assigned except to any person who succeeds to substantially all of the assets
and business of CMI to which this Agreement relates, and (ii) the rights and
obligations of Medtronic herein may not be assigned except to any person who
succeeds to substantially all of that portion of Medtronic's business to which
this Agreement relates.
24
<PAGE> 25
10.4) Complete Agreement. This Agreement, the Debenture Purchase
Agreement, the Debenture, the Security Agreement, and the Exhibits hereto and
thereto constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements whether written
or oral relating hereto. This Agreement supersedes those portions of the
Principal Terms that are directly related to the subject matter hereof.
10.5) Governing Law. Except as set forth in Section 10.15, the parties
agree that in the event of any dispute, the resolution of that dispute shall be
conducted on the state or federal courts in and for the county of Santa Barbara,
California. The parties agree that this contract is entered into and is to be
performed in the county of Santa Barbara. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California,
including all matters of construction, validity, performance and enforcement,
without giving effect to principles of conflict of laws.
10.6) Survival. All of the representations, warranties, and covenants
made in this Agreement, and all terms and provisions hereof intended to be
observed and performed by the parties after the termination hereof, shall
survive such termination and continue thereafter in full force and effect.
10.7) Waiver, Discharge, Amendment, Etc. The failure of any party
hereto to enforce at any time any of the provisions of this Agreement shall in
no way be construed to be a waiver of any such provision, nor in any way to
affect the validity of this Agreement or any part thereof or the right of the
party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to be a waiver of any other or subsequent
breach. Any amendment to this Agreement shall be in writing and signed by the
parties hereto.
10.8) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
10.9) Titles and Headings; Construction. The titles and headings to
Sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. This Agreement shall be construed without regard to any presumption
or other rule requiring construction hereof against the party causing this
Agreement to be drafted.
10.10) Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.11) Notices. All notices or other communications to a party required
or permitted hereunder shall be deemed given if in writing and delivered
personally or sent by telecopy (with confirmation of transmission) or certified
mail (return receipt requested) to such party at the following addresses (or at
such other addresses as shall be specified by like notice):
25
<PAGE> 26
if to Medtronic, to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: General Counsel
FAX (612) 572-5459
with a copy to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: Vice President Corporate Development and
Associate General Counsel
FAX (612) 572-5404
and if to CMI, to:
Computer Motion, Inc.
130-B Cremona Drive
Goleta, CA 93117
Attention: Gene Wang
FAX (805) 685-5170
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Lawrence B. Cohn
FAX (714) 725-4100
Medtronic or CMI may change their respective above-specified recipient and/or
mailing address by notice to the other party given in the manner herein
prescribed. All notices shall be deemed given on the day when actually delivered
as provided above (if delivered personally or by telecopy) or on the day shown
on the return receipt (if delivered by mail).
10.12) Illegality. In case any provision of this 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.
10.13) Public Announcement. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable law or any exchange upon which such
party's capital stock is listed or traded, no press release or similar public
announcement or communication will be made or caused to be made
26
<PAGE> 27
concerning the execution or performance of this Agreement unless specifically
approved in advance by Medtronic and CMI. The foregoing shall not restrict
either party's communications with employees, customers or private investors.
10.14) Execution of Further Documents. Each party agrees to execute and
deliver without further consideration any further applications, licenses,
assignments or other documents, and to perform such other lawful acts as the
other party may reasonably require to fully secure and/or evidence the rights or
interests herein.
10.15) Dispute Resolution. Any dispute with respect to the
determination of the Transfer Prices pursuant to Section 3.3 or the Performance
Objectives pursuant to Section 6.2(b) which remains unresolved for a period of
at least 90 days despite the parties good faith efforts to negotiate a
resolution thereof may be submitted by either party to binding arbitration
pursuant to the commercial arbitration rules of the American Arbitration
Association. The arbitrator shall be an individual mutually agreed to by the
parties, or if the parties are unable to agree, selected by the AAA, who is
knowledgeable and experienced in the high-technology medical device industry.
IN WITNESS WHEREOF, each of the parties has caused this Sales Agreement
to be executed in the manner appropriate to each, as of the date first above
written.
COMPUTER MOTION, INC.
By
_____________________________________
Its
____________________________
MEDTRONIC, INC.
By
_______________________________________
Its
_____________________________
ATTACHMENTS:
Schedule 1.1 - The Medtronic Territory
Schedule 2.1 - Medtronic's "cardiac surgery sales force"
Schedule 3.4 - CMI's System product warranty
Schedule 6.2 - Performance Objectives
Schedule 6.3 - Depreciation Schedule
27
<PAGE> 28
Schedule 1.1
The Medtronic Territory
-----------------------
1. Europe. Europe shall include all of continental Europe, and further
include the United Kingdom, Ireland and the Scandinavian countries and
Eastern Europe, including the Czech Republic, Serbia, Russia and
Central Independent States of the former USSR.
2. Middle East. The Middle East shall include all of the Middle East north
and east of the Red Sea, from Turkey in the north and west, to Iran in
the east and Yemen in the south, excluding Afghanistan and Pakistan.
3. Africa. Africa shall include the entire continent of Africa and all
islands appurtenant thereto.
<PAGE> 29
Schedule 2.1
Medtronic's "Cardiac Surgery Sales Force"
-----------------------------------------
Medtronic's "cardiac surgery sales force" shall mean: (1) Medtronic's DLP sales
force (selling cannulae and related products); (2) Medtronic's heart valve sales
force (selling heart valves and related products); and /or (3) such other sales
force(s) as Medtronic, with CMI's consent (not to be unreasonably withheld),
deems appropriate to promote the System.
<PAGE> 30
Schedule 6.2
Performance Objectives
----------------------
North America. The Performance Objectives for North America shall be considered
to have been satisfied so long as Medtronic uses commercially reasonable best
efforts to perform its obligations under Section 2.1.
Medtronic Territory. The Performance Objectives for the Medtronic Territory
shall consist of aggregate unit volume sales targets for the hardware components
of the System to be negotiated pursuant to Section 6.2(b) based on the factors
specified therein.
<PAGE> 31
Schedule 6.3
Depreciation of Demonstration Systems
-------------------------------------
CMI's repurchase of demonstration Systems shall be at a depreciated
price based on the generally accepted accounting principles and depreciation
schedule used by CMI for financial accounting purposes.
<PAGE> 1
EXHIBIT 10.11
Computer Motion, Inc.
March 18, 1997
Page 1
[Exhibit A]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
$4,000,000 March 19, 1997
Prime + 1% Goleta, California
SECURED CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, the undersigned, COMPUTER MOTION, INC., a
California corporation (hereinafter, together with its successors in title and
assigns, called "Borrower"), promises and agrees to pay to the order of
MEDTRONIC, INC., a Minnesota corporation, (hereinafter, together with its
successors in title and assigns, called "Holder"), at 7000 Central Avenue N.E.,
Minneapolis, Minnesota 55432 or such other address provided to Borrower by
written notice, in immediately available funds on December 31, 1997, the
principal sum of Four Million Dollars ($4,000,000) together with interest from
the date hereof, compounded monthly, on the unpaid principal amount hereof at a
per annum rate (computed on the basis of actual number of days elapsed in a
360-day year) equal to 1% in excess of the "prime" or "base" reference rate then
in effect as announced by Norwest Bank Minnesota N.A. from time to time.
The obligations of Borrower and the rights of Holder under and pursuant
to this Debenture shall be subject to all of the following terms and conditions,
and Borrower agrees to be bound by such terms and conditions:
1. Payment of Principal and Interest. Unless converted pursuant to
Section 6 hereof and subject to acceleration pursuant to Section 5 hereof, the
entire unpaid principal
-1-
<PAGE> 2
Computer Motion, Inc.
March 18, 1997
Page 2
amount of this Debenture, together with all accrued interest, shall be due and
payable on December 31, 1997.
2. Prepayment. Borrower may prepay any or all of the principal amount
of this Debenture only if Borrower shall have given Holder written notice at
least 60 days prior to such prepayment, specifying the date and amount of such
prepayment. During such 60-day period, Holder shall have the opportunity to
convert this Debenture pursuant to Section 6(b) below. All payments received by
Holder shall be applied first to the payment of accrued but unpaid interest
hereunder, then to reduction of principal hereunder until it is paid in full.
3. Compounded Interest. All accrued but unpaid interest on this
Debenture shall be compounded monthly and shall bear the same interest as the
principal of this Debenture until such accrued interest is paid.
4. Covenants. Borrower covenants and agrees that, so long as this
Debenture is outstanding:
(a) Definitions. For purposes of this Debenture, the following terms
shall have the following meanings:
"Capital Assets" shall mean fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible (such as patents,
copyrights, trademarks, franchises and goodwill); provided that Capital Assets
shall not include any item customarily charged directly to expense or
depreciated over a useful life of twelve (12) months or less in accordance with
generally accepted accounting principles.
"Capital Expenditures" shall mean amounts paid or Indebtedness incurred
by Borrower or any of its Subsidiaries in connection with the purchase or lease
by Borrower or any of its Subsidiaries of Capital Assets that would be required
to be capitalized and shown on its balance sheet in accordance with generally
accepted accounting principles.
"Capitalized Leases" shall mean leases under which Borrower or any of
its Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
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<PAGE> 3
Computer Motion, Inc.
March 18, 1997
Page 3
"Distribution" shall mean the declaration or payment of any dividend on
or in respect of any shares of any class of capital stock of Borrower or any
Subsidiary, as the case may be, other than dividends payable solely in shares of
common stock of Borrower or any Subsidiary; the purchase, redemption, or other
retirement of any shares of any class of capital stock of Borrower or any
Subsidiary, directly or indirectly through a Subsidiary of Borrower or any
Subsidiary or otherwise; the return of capital by Borrower or any Subsidiary to
its shareholders as such; or any other distribution on or in respect of any
shares of any class of capital stock of Borrower or any Subsidiary.
"Event of Default" shall mean any event or condition identified as such
in Section 5, and "Potential Default" shall mean any event or condition which,
with the lapse of time, or giving of notice, or both, would constitute an Event
of Default.
"Indebtedness" shall mean all obligations, contingent and otherwise,
that in accordance with generally accepted accounting principles should be
classified upon the obligor's balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (a) all debt and similar monetary obligations,
whether direct or indirect; (b) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property owned
or acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
"Investments" shall mean all expenditures made and all liabilities
incurred (contingently or otherwise) for the acquisition of stock or
Indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or in respect of any guaranties (or other commitments as described
under Indebtedness), or obligations of, others, including without limitation,
investments in joint ventures or limited partnerships. In determining the
aggregate amount of Investments outstanding at any particular time: (a) the
amount of any Investment represented by a guaranty shall be taken at not less
than the principal amount of the obligations guaranteed and still outstanding;
(b) there shall be included as an Investment all interest accrued with respect
to Indebtedness constituting an Investment unless and until such interest is
paid; (c)
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<PAGE> 4
Computer Motion, Inc.
March 18, 1997
Page 4
there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
"Subsidiary" shall mean any corporation, association, trust,
partnership or other business entity of which Borrower shall at any time own,
directly or indirectly through a Subsidiary or Subsidiaries, at least a majority
(by number of votes) of the outstanding stock or similar equity interest
(however designated) entitled to vote for the election of a majority of the
directors (or persons performing similar functions), or partnership or other
equity interests therein.
(b) Restrictions on Investments. Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
i) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase;
ii) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000;
iii) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States
of America or any state thereof that at the time of purchase have been
rated and the ratings for which are not less than "P 1" if rated by
Moody's Investors Services, Inc., and not less than "A 1" if rated by
Standard and Poor's; and
iv) Investments by Borrower in Subsidiaries of Borrower existing
on the date hereof or in wholly-owned Subsidiaries of Borrower created
after the date hereof.
-4-
<PAGE> 5
Computer Motion, Inc.
March 18, 1997
Page 5
(c) Restrictions on Indebtedness. Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
i) Indebtedness to Holder arising under this Debenture or
otherwise;
ii) current liabilities of Borrower or such Subsidiary listed on
Disclosure Schedule 4(c) attached hereto, or liabilities incurred in
the ordinary course of business not incurred through (A) the borrowing
of money, or (B) the obtaining of credit except for credit on an open
account basis customarily extended and in fact extended in connection
with normal purchases of goods and services;
iii) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies not yet
due or which are being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, if such
reserve or other appropriate provision, if any, as shall be required by
generally accepted accounting principles shall have been made therefor;
iv) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
Borrower or such Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review;
v) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
vi) obligations under Capitalized Leases not exceeding
$1,000,000 in aggregate amount at any time outstanding; or
-5-
<PAGE> 6
Computer Motion, Inc.
March 18, 1997
Page 6
vii) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property in the ordinary
course of business by Borrower or such Subsidiary, provided that the
aggregate principal amount of such Indebtedness of Borrower and its
Subsidiaries shall not exceed the aggregate amount of $1,000,000 at any
one time.
(d) Restrictions on Liens. Borrower will not, and will not permit
any of its Subsidiaries to, (i) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (ii) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors, except as set forth on Disclosure Schedule
4(d) attached hereto; (iii) acquire, or agree or have an option to acquire, any
property or assets upon conditional sale or other title retention or purchase
money security agreement, device or arrangement; (iv) suffer to exist for a
period of more than thirty (30) days after the same shall have been incurred any
Indebtedness or claim or demand against it that if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors; or (v) sell, assign, pledge or otherwise transfer any
accounts, contract rights, general intangibles, chattel paper or instruments,
with or without recourse; provided that Borrower and its Subsidiaries may create
or incur or suffer to be created or incurred or to exist:
liens to secure taxes, assessments, other government charges and
claims for labor, material or supplies not yet due or which are being
contested in good faith by appropriate proceedings promptly initiated
and diligently conducted, if such reserve or other appropriate
provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor;
ii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
iii) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section 4(c);
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Computer Motion, Inc.
March 18, 1997
Page 7
iv) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in existence less than 120 days from
the date of creation thereof in respect of obligations not overdue;
v) encumbrances on real estate consisting of easements, rights
of way, zoning restrictions, restrictions on the use of real property
and defects and irregularities in the title thereto, landlord's or
lessor's liens under leases to which Borrower or any of its
Subsidiaries is a party, and other minor liens or encumbrances none of
which in the opinion of Borrower interferes materially with the use of
the property affected in the ordinary conduct of the business of
Borrower and its Subsidiaries, which defects do not individually or in
the aggregate have a materially adverse effect on the business of
Borrower individually or of Borrower and its Subsidiaries on a
consolidated basis;
vi) liens existing on the date hereof and listed on Schedule
4(d) hereto;
vii) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof
to secure purchase money Indebtedness of the type and amount permitted
by Section 4(c)(vii), incurred in connection with the acquisition of
such property, which security interests or mortgages cover only the
real or personal property so acquired; and
viii) liens in favor of Holder.
Distributions; Use of Proceeds. Borrower will not make any
Distributions other than Distributions, in an aggregate cumulative amount not in
excess of $100,000 after the date hereof, made by Borrower in connection with
stock repurchases in the event of the termination of the status of a stockholder
as an employee, director or consultant of Borrower. No Subsidiary shall make any
Distribution except to Borrower or a wholly-owned Subsidiary of Borrower.
Borrower will use the $4,000,000 proceeds from the sale of this Debenture for
product development and other general corporate purposes, but shall not use any
such proceeds to repay any obligations outstanding under the Bridge Financing
Agreements referenced in Schedule 4(c) hereto.
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Computer Motion, Inc.
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Page 8
(f) Change of Business. Borrower and its Subsidiaries shall not
change the general character of its business as conducted at the date hereof, or
engage in any type of business not reasonably related to its business as
normally conducted.
(g) Merger, Consolidation and Disposition of Assets. Borrower will
not, and will not permit any of its Subsidiaries to, become a party to or agree
to or effect any merger or consolidation, asset acquisition or stock acquisition
(other than the acquisition of assets in the ordinary course of business) except
(i) the merger or consolidation of one or more of the wholly-owned Subsidiaries
of Borrower with Borrower, or (ii) the merger or consolidation of two or more
wholly-owned Subsidiaries of Borrower. Borrower will not, and will not permit
any of its Subsidiaries to, become a party to or agree to or effect any
disposition of assets, other than the disposition of assets in the ordinary
course of business, consistent with past practices.
(h) Sale and Leaseback. Borrower will not, and will not permit any
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby Borrower or Subsidiary shall sell or transfer any property owned by it
in order then or thereafter to lease such property or lease other property that
Borrower or Subsidiary intends to use for substantially the same purpose as the
property being sold or transferred.
(i) Capital Expenditures. Borrower will not make, or permit any of
its Subsidiaries to make, Capital Expenditures in any fiscal year that exceed,
in the aggregate, $1,600,000 for such fiscal year.
(j) Financial Statements. Borrower will deliver to Holder:
i) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of Borrower, the
consolidated balance sheet of Borrower and its Subsidiaries as at the
end of such year, and the related consolidated statement of income and
consolidated statement of cash flow for such year, each setting forth
in comparative form the figures for the previous fiscal year and all
such consolidated statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles, and certified
without qualification by independent certified public accountants
reasonably satisfactory to Holder;
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Computer Motion, Inc.
March 18, 1997
Page 9
ii) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal
quarters of Borrower and, in the case of the fourth fiscal quarter of
Borrower, no later than ninety (90) days after the end of such fourth
fiscal quarter, copies of the unaudited consolidated balance sheet of
Borrower and its Subsidiaries as at the end of such quarter, and the
related consolidated statement of income and consolidated statement of
cash flow for the portion of Borrower's fiscal year then elapsed, all
in reasonable detail and prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of Borrower that the information
contained in such financial statements fairly presents the financial
position of Borrower and its Subsidiaries on the date thereof (subject
to year-end adjustments) and that to such person's knowledge after due
investigation Borrower is in compliance with all of the terms of this
Debenture and that no event has occurred which constitutes an Event of
Default or a Potential Default, and, if any such event has occurred,
stating in reasonable detail the facts with respect thereto;
iii) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders of Borrower; and
iv) from time to time such other financial data and information
(including accountants' management letters) as Holder may reasonably
request.
(k) Inspection of Properties and Books. Borrower will permit Holder,
and any duly authorized employees or agents of Holder, to visit and inspect any
of the properties of Borrower or any of its Subsidiaries, to examine the books
of account of Borrower and its Subsidiaries (and to make copies thereof and
extracts therefrom), and to discuss the affairs, finances and accounts of
Borrower and its Subsidiaries with, and to be advised as to the same by, its and
their officers, all at such reasonable times and intervals as Holder may
reasonably request as may be reasonably necessary to protect Holder's interests
as a creditor of Borrower under this Debenture; provided, that Holder and its
employees and agents shall agree (i) to treat in confidence information gained
from such inspections, examinations and discussions; (ii) not to disclose any
such information to a third party (other than an assignee or
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Computer Motion, Inc.
March 18, 1997
Page 10
Holder's legal counsel and accountants), except as required by applicable
Federal, State or municipal laws or regulations or by a court, administrative
board or tribunal of competent jurisdiction; and (iii) not to make use of such
information for purposes unrelated to the transactions contemplated in this
Debenture.
(l) Notice of Defaults. Borrower will promptly notify Holder in
writing of the occurrence of any Potential Default or Event of Default
hereunder.
(m) Grant of Security Interest to Holder. Borrower shall grant to
Holder a first-priority security interest in all of Borrower's intellectual
property, including without limitation patents, patent applications, trademarks,
copyrights, computer software, know-how, and trade secrets. Borrower shall
execute all such agreements, documents and instruments as Holder deems necessary
to create, perfect and maintain such first-priority security interest.
5. Event of Default. The entire principal amount outstanding and all
accrued but unpaid interest thereon shall, at the option of Holder, become
immediately due and payable upon the occurrence of any of the following events
(whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or otherwise):
(a) if Borrower shall fail to pay when due the entire unpaid
principal amount of this Debenture, and all interest accrued thereon, which
failure has not been cured within 30 days after such due date; or
(b) if Borrower or any of its Subsidiaries shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall petition
or apply for the appointment of a trustee or other custodian, liquidator or
receiver of Borrower or any of its Subsidiaries or of any substantial part of
the assets of Borrower or any of its Subsidiaries or shall commence any case or
other proceeding relating to Borrower or any of its Subsidiaries under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect, or shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any such
case or other proceeding shall be commenced against Borrower or any of its
Subsidiaries and Borrower or any of its Subsidiaries shall indicate its approval
thereof, consent thereto or acquiescence therein; or
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Computer Motion, Inc.
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Page 11
(c) if a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating Borrower or any of its
Subsidiaries bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in respect of
Borrower or any of its Subsidiaries in an involuntary case under federal
bankruptcy laws as now or hereafter constituted; or
(d) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any final
(as to which the time for further appeals has expired or to which the appeals
process has been exhausted) judgment against Borrower or any of its Subsidiaries
that, with other outstanding final judgments, undischarged, against Borrower or
any of its Subsidiaries exceeds in the aggregate $50,000; or
(e) if Borrower shall be in default under the terms of any
indebtedness in excess of $250,000 or such other event has occurred and remains
uncured for a period of thirty (30) days resulting in the acceleration of any
indebtedness in excess of $250,000; or
(f) if Borrower or any of its Subsidiaries shall be indicted for a
federal crime, a punishment for which could include the forfeiture of any assets
of Borrower or such Subsidiary having a fair market value in excess of $100,000;
or
(g) if Borrower shall fail to comply with any of its covenants
contained in Section 4 hereof; or
(h) if Borrower breaches any of its representations, warranties,
covenants or agreements set forth herein or in the letter agreement dated as of
the date hereof (the "Debenture Purchase Agreement") between Borrower and
Medtronic, Inc. or the Security Agreement of even date herewith between Borrower
and Medtronic, Inc. (the "Security Agreement").
(i) the occurrence of any event designated as an Event of Default in
the Debenture Purchase Agreement or the Security Agreement.
6. Conversion into Common Stock.
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Computer Motion, Inc.
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(a) Upon the Closing of a "Qualified IPO", the entire principal
amount of this Debenture, and all accrued interest thereon, shall automatically
convert into shares of Common Stock at a per share conversion price equal to
eighty percent (80%) of the per share public offering price of such Qualified
IPO. For purposes of this Debenture, a "Qualified IPO" shall mean a firm
commitment, underwritten public offering of the Common Stock registered under
the Securities Act of 1933 on Forms S-1 or SB-2 (or comparable forms) having an
aggregate public offering price of at least $5,000,000.
(b) If either (i) Borrower has not filed a registration statement
for a Qualified IPO within three months after the date hereof or has not
completed a Qualified IPO by December 1, 1997, (ii) Borrower gives notice of
prepayment pursuant to Section 2 hereof, or (iii) an Event of Default occurs,
then, upon the occurrence of any event described in (i), (ii) or (iii) above,
Holder may, in its discretion, by written notice (the "Conversion Notice")
delivered by commercial express delivery service or mailed (registered or
certified mail, postage prepaid) to Borrower at its principal office, elect to
convert all or any part of the outstanding principal amount of this Debenture,
and all interest accrued thereon to the date of the Conversion Notice, into
shares of Common Stock at the per share price equal to eighty percent (80%) of a
proposed IPO per share price established by an independent investment banker
mutually acceptable to the parties. The Conversion Notice shall be accompanied
by instructions specifying the name or names in which the shares of stock
deliverable upon such conversion shall be registered, along with the addresses
of the persons so named and, if required by Borrower, accompanied by a written
instrument of transfer in form satisfactory to Borrower duly executed by Holder.
(c) If, prior to conversion of this Debenture pursuant to (a) or (b)
above, the parties execute the definitive agreements contemplated by the
Debenture Purchase Agreement, then the entire principal amount of this
Debenture, and all accrued interest thereon, shall automatically convert into
shares of Common Stock at a per share conversion price equal to eighty percent
(80%) of a proposed IPO per share price established by an independent investment
banker mutually acceptable to the parties.
7. Common Stock Issued on Conversion. As promptly as practicable
after the surrender of this Debenture for conversion, Borrower shall deliver to
Holder, or to such person or persons as designated by Holder in the Conversion
Notice, a certificate or certificates representing the number of fully paid and
nonassessable shares of Common Stock
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Computer Motion, Inc.
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Page 13
into which this Debenture is to be converted in such name or names as are
specified in the Conversion Notice, together with any cash payable in respect of
a fractional share. Such conversion shall be deemed to have been effected at the
close of business on the date when this Debenture shall have been surrendered
for conversion, so that the person entitled to receive the shares of Common
Stock upon conversion shall be treated for all purposes as having become the
record holder of such shares of Common Stock at such time and the conversion
shall be at the Conversion Price in effect at the time.
8. Anti-dilution Adjustments.
(a) If Borrower completes an initial public offering within 12
months after conversion of this Debenture pursuant to Subsection 6(b) or (c) at
a per share public offering price less than the conversion price at which this
Debenture was converted (adjusted for stock splits, combinations and/or stock
dividends), then Borrower shall promptly issue to Holder, for no additional
consideration, such number of additional shares of Common Stock as necessary to
cause the quotient of (i) the aggregate principal amount of this Debenture and
accrued interest thereon, divided by (ii) the sum of the shares of Common Stock
issued on such prior conversion hereof plus the number of shares of Common Stock
issued under this Section 8(a), to equal such per share public offering price.
(b) If any capital reorganization or reclassification of the capital
stock of Borrower, or consolidation or merger of Borrower with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby Holder shall hereafter have the right to receive upon the
basis and upon the terms and conditions specified in this Debenture and in lieu
of the shares of the Common Stock into which this Debenture was immediately
theretofore convertible, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock into
which this Debenture was immediately theretofore convertible had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of Holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the conversion price and of the
number of shares into which this Debenture may be converted) shall thereafter
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Computer Motion, Inc.
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Page 14
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion hereof. Borrower
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than Borrower)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of
Borrower, the obligation to deliver to such holder such shares of stock,
securities or assets into which, in accordance with the foregoing provisions,
such holder may be entitled to convert this Debenture.
(c) Upon any adjustment of the Conversion Price, then and in each
such case, Borrower shall give written notice thereof, by first class mail,
postage prepaid, addressed to the registered holder of this Debenture at the
address of such holder as shown on the books of Borrower, which notice shall
state the Conversion Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares into which this Debenture may be
converted, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
9. Authorization and Reservation of Shares. Borrower covenants and
agrees that all Common Stock which may be issued upon conversion of this
Debenture will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof. Borrower further covenants and agrees that Borrower will at all
times have authorized, and reserved for the purpose of issue upon conversion
hereof, a sufficient number of shares of its Common Stock to provide for the
conversion of this Debenture.
10. Registration Rights. The shares of Common Stock issued upon
conversion hereof shall have the registration rights set forth in the
Registration Agreement, as amended by Amendment No. 3 attached hereto as Exhibit
A. Borrower shall use its best efforts to obtain all necessary consents and
signatures to Amendment No. 3 within 15 business days after the date hereof. If
Amendment No. 3 has not been fully consented to and executed within 15 business
days after the date hereof, Medtronic shall have registration rights identical
to those set forth in such Registration Agreement, for purposes of which the
shares of Common Stock issued upon conversion hereof and any additional shares
purchased by Medtronic pursuant to the "Additional Minority Investment" section
of the Principal Terms
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Computer Motion, Inc.
March 18, 1997
Page 15
attached as Exhibit C to the Debenture Purchase Agreement shall constitute the
only "Registrable Securities" thereunder.
11. Common Stock. As used herein, the term "Common Stock" shall mean
and include Borrower's presently authorized shares of common stock and shall
also include any capital stock of any class of Borrower hereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of Borrower.
12. No Voting Rights. This Debenture shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of Borrower.
13. Exercise or Transfer of Debenture or Resale of Common Stock.
Holder, by acceptance hereof, agrees to give written notice to Borrower before
transferring this Debenture, in whole or in part, or transferring any shares of
Common Stock issued upon the conversion hereof, of Holder's intention to do so,
describing briefly the manner of any proposed transfer. If Holder so elects, it
may, or if Borrower reasonably requests, it shall, at its own expense, include
an opinion of counsel reasonably satisfactory to Borrower that (i) the proposed
transfer may be effected without registration or qualification under the
Securities Act of 1933, as amended (the "Act") and any applicable state
securities or blue sky laws, or (ii) the proposed transfer has been registered
under such laws. If the notice is not accompanied by such an opinion of counsel,
then promptly upon receiving such written notice, Borrower shall present copies
of the written notice thereof to counsel to Borrower. If in the opinion of such
counsel the proposed transfer (i) may be effected without registration or
qualification under the Act and any applicable state securities or blue sky
laws, or (ii) has been registered under such laws, Borrower, as promptly as
practicable, not exceeding 20 days after Borrower receives such notice, shall
notify such holder of such opinion, whereupon such holder shall be entitled to
transfer this Debenture or to dispose of the shares of Common Stock received
upon the previous exercise of this Debenture, all in accordance with the terms
of the notice delivered by such holder to Borrower, provided that an appropriate
legend may be endorsed on the certificates for such shares respecting
restrictions upon transfer thereof necessary or advisable in the opinion of
counsel to Borrower to prevent further transfer which would be in violation of
Section 5 the Act and applicable state securities or blue sky laws.
If in the opinion of counsel to Borrower or other counsel reasonably
acceptable to Borrower the proposed transfer of this Debenture or the shares
described in the written notice
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Computer Motion, Inc.
March 18, 1997
Page 16
given pursuant to this Section 13 may not be effected without registration of
this Debenture or the shares of Common Stock issued on the exercise hereof,
Borrower shall promptly give written notice thereof to the holder hereof not
exceeding 20 days after Borrower receives such notice, and Holder will limit its
activities in respect to such as, in the opinion of such counsel, is permitted
by law.
14. Certain Notices. Holder shall be entitled to receive from Borrower
immediately upon declaration thereof and at least five (5) days prior to the
record date for determination of shareholders entitled thereto or to vote
thereon (or if no record date is set, prior to the event), written notice of any
event which could require an adjustment pursuant to Section 8 hereof or would
require notice to or a vote of the holders of Common Stock. Any notice required
or permitted to be given shall be delivered or sent by commercial express
delivery service or certified or registered mail, addressed (a) if to the holder
of this Debenture or the shares issued upon exercise thereof, at Holder's
address as shall have been furnished by the holder to Borrower in writing, or
(b) if to Borrower, to Computer Motion, Inc., 130-B Cremona Drive, Goleta, CA
93117, Attention: President, or such other address as the parties shall have
furnished to the other in the manner set forth above.
15. Remedies. When any Event of Default has occurred and is continuing,
Holder shall have the option to declare the unpaid principal balance hereof and
all accrued and unpaid interest thereon (through the date of full payment
hereof) to be immediately due and payable. In addition, Holder shall have and
may exercise all other rights and remedies permitted by law.
16. Board Representative.
(a) So long as the Debenture remains outstanding and, if the
Debenture is converted, thereafter so long as Medtronic, Inc. (together
with its affiliates, "Medtronic") owns at least 50% of the shares of
Common Stock issued upon such conversion, Borrower shall permit
Medtronic to designate one representative reasonably acceptable to
Borrower as an observer to, or if Medtronic so elects as a member of,
Borrower's Board of Directors (the "Board"). If Medtronic's
representative has a change in employment responsibilities or ceases to
be employed by Medtronic, Medtronic shall be entitled to designate a
replacement for its representative. Medtronic's representative shall
receive all notices, documents, and other information in the same time
and manner as such information is supplied to members of the Board.
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Computer Motion, Inc.
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Borrower shall make reasonable efforts to permit Medtronic's
representative to participate in or observe Board meetings by telephone
if such representative is unable to attend in person. Borrower agrees
to pay the reasonable expenses incurred by Medtronic's representative
in connection with attending Board meetings as a member of (but not as
an observer to) the Board if and to the extent that Borrower pays any
expenses of any other member of the Board.
(b) So long as Medtronic has the right to have a representative to
the Board pursuant to (a) above and does not elect to have such
representative become a member of the Board, Medtronic shall receive
from Borrower notices of all meetings of the Board, including without
limitation telephonic meetings, and Medtronic shall receive, with such
limitations provided herein, any materials distributed for such
meeting, and may send one representative to such meetings.
(c) Notwithstanding the foregoing subsection (a) and (b), Borrower
may require as a condition precedent that such Medtronic's
representative proposing to attend any meeting of the Board shall agree
to hold in confidence and trust, and to act in a fiduciary manner if
such individual is a member of the Board with respect to all
information so received during such meetings and may require that such
representative sign a confidentiality agreement with Borrower and;
provided, further, that Borrower reserves the right not to provide
information and to exclude such representative from any meeting or
portion thereof if attendance at such meeting by such representative or
dissemination of any information at such meeting to such representative
would, in the good faith judgment of the Board, would compromise or
adversely affect the attorney-client privilege between Borrower and its
counsel, or would, in the good faith judgment of the Board, result in a
conflict of interest situation. In no event shall any provision of this
Section waive any obligation of confidentiality to Borrower owed by any
such representative or Medtronic.
(d) Unless Medtronic elects to have its designee to act as a
non-voting observer to the Board, the Board agrees to nominate
Medtronic's designee for election to the Board and Borrower agrees to
use its best efforts to cause Medtronic's designee to be so elected.
(e) Medtronic's rights pursuant to this Section 16 shall terminate
upon the closing of a Qualified IPO.
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Computer Motion, Inc.
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17. Miscellaneous.
(a) Upon default in its obligations hereunder, Borrower shall pay
the costs, including reasonable attorneys' fees, of the holder of this
Debenture in the pursuit of such holder's remedies hereunder.
(b) Borrower hereby waives presentment, demand for payment, notice
of dishonor, and all other notices or demands in connection with the
delivery, acceptance, performance, default or endorsement of this
Debenture.
(c) No delay or failure on the part of Holder in exercising any
right or remedy hereunder, or at law or at equity, shall operate as a
waiver of or preclude the exercise of such right or remedy or of any
other right or remedy, and no single or partial exercise by Holder of
any such right or remedy shall preclude or estop another or further
exercise thereof or exercise of any other right or remedy. No waiver by
Holder shall be effective unless in writing signed by Holder or, if
more than one Holder, by a majority in principal amount of the
Debenture. A waiver on any one occasion shall not be construed as a
waiver of any such right or remedy on any prior or subsequent occasion.
(d) No amendment, modification or waiver of any provision of this
Debenture shall be effective unless he same shall be in writing and
signed by the holder hereof.
(e) This Debenture shall be governed by and construed in
accordance with the laws of the State of Minnesota.
(f) If any provision or application of this Debenture is held
unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications
which can be given effect, and this Debenture shall be construed as if
the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby.
(g) This Debenture, the Debenture Purchase Agreement, and the
Security Agreement contain the entire agreement between the parties
hereto with
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Computer Motion, Inc.
March 18, 1997
Page 19
respect to the subject matter hereof, shall supersede any
prior oral negotiations or agreements, and shall be binding upon the
parties hereto and their respective legal representatives, successors
and assigns.
(h) Section headings in this Debenture are for convenience of
reference only and shall not govern the interpretation of any of the
provisions hereof.
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed by
its authorized officers and dated as of the date stated above.
ATTEST: COMPUTER MOTION, INC.
By:________________________________ By:_______________________________
Its:___________________________ Its:___________________________
Attachments:
Disclosure Schedule 4(c)
Disclosure Schedule 4(d)
Exhibit A - Amendment No. 3 to Registration Agreement
652747
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<PAGE> 1
EXHIBIT 10.12
BRIDGE FINANCING AGREEMENT
THIS FINANCING AGREEMENT (the "Agreement") is made as of May 1, 1996, by
and among COMPUTER MOTION, INC., a corporation organized and existing under the
laws of the State of California ("Borrower"), and ____________________________,
(the "Lender") with reference to the following:
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to Borrower certain loans provided for
herein; and
WHEREAS, Borrower is willing to issue to the Lender warrants to purchase
Common Stock of Borrower;
NOW, THEREFORE, IT IS AGREED:
Section 1. Amount and Terms of Loans.
1.1 The Loans. Subject to and upon the terms and conditions set
forth herein, the Lender agrees to loan ______________________________________
to Borrower. The Loan may be prepaid at any time.
1.2 Disbursement of Funds. Proceeds of Loan obtained by Borrower
pursuant hereto shall be used to meet working capital requirements of Borrower.
1.3 The Notes. The obligation of Borrower to pay the principal
of, and interest on, the Loan made by the Lender shall be evidenced by a
promissory note, substantially in the forms of Exhibit A, with blanks
appropriately completed in conformity herewith (the "Notes"), duly executed and
delivered by Borrower. Such Note shall (i) be payable to the order of the Lender
and be dated the date of such Loan; (ii) be payable in the principal amount of
the Loan evidenced thereby; (iii) mature and became due and payable, with
respect to each Loan evidenced thereby, Thirty (30) months from the date of the
Note; (iv) be entitled to the benefits of this Agreement; and (v) bear interest
as provided in Section 1.4.
1.4 Interest. The unpaid principal amount of the Loan shall bear
interest at a rate equal to the lesser of (a) the rate publicly announced from
time to time by Chase Manhattan Bank as its "prime" or "reference" rate, plus
one percent (1%) and (b) the highest rate permitted by law. Such interest shall
be compounded on a daily basis and shall be paid by Borrower monthly in arrears
on or before the fifth business day of each calendar month succeeding a month
during which an unpaid principal amount has been outstanding.
1.5 Voluntary Prepayments. Borrower shall have the right to
prepay the Notes, without premium or penalty, in whole or in part, at any time
and from time to time.
Section 2. Warrants. In connection with this Borrowing , Borrower shall
offer to the Lender warrants to purchase Common Stock of Borrower in the amount
of .63158 Warrants earned
<PAGE> 2
for each Dollar loaned the Company, with conventional rounding used to determine
the ultimate number of warrants earned. For instance, if the Lender loaned the
Borrower One Hundred Thousand Dollars ($100,000), the Lender would earn Sixty
Three Thousand One Hundred Fifty-Eight Warrants (63,158). Such warrants being in
the form attached as Exhibit B (the "Warrants"). The Lender may elect to
purchase these Warrants at a purchase of $0.0001 per Warrant. The Warrants shall
be entitled to registration rights pursuant to the Amendment No. 1 to
Registration Agreement in the form of Exhibit C and are exercisable for a period
of Seven (7) years from issuance at Two Dollars Thirty-Seven Cents ($2.37) per
Warrant.
Section 3. Representations, Warranties and Agreements. In order to
induce the Lender to enter into this Agreement and to make this Loan, Borrower
makes the following representations, warranties and agreements, which shall
survive the execution and delivery of this Agreement, the Note and the making of
the Loan.
3.1 Corporate Status. Borrower (i) is a duly organized and
validly existing corporation in good standing under the laws of the State of
California; (ii) has the corporate power and authority to own its property and
assets and to transact the business in which it is engaged; and (iii) is duly
qualified as a foreign corporation and in good standing in each jurisdiction
where the ownership, leasing or operation of property or the conduct of its
business requires such qualification.
3.2 Corporate Power and Authority; Legal Capacity. Borrower has
the corporate power to execute, deliver and perform the terms and provisions of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of this Agreement, the Note
and the Warrants. Borrower has duly executed and delivered this Agreement and
the Note and Warrants to the extent deliverable on the date hereof, and each
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms.
3.3 Validity of Securities. The issuance of the Note and
Warrants, and the shares of Common Stock issuable on exercise thereof,
(collectively, the "Securities") is not and will not be subject to any
preemptive rights or rights of first refusal that have not been waived and, when
issued, sold and delivered in compliance with the provisions of this Agreement,
the Securities will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
3.4 Offering. Assuming the accuracy of the representations and
warranties of the Investor contained in Section 4 hereof, the offer, issue, and
sale of the Securities is and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and has been registered or qualified (or are exempt from
registration and qualification) under the registration, permit, or qualification
requirements of all applicable state securities laws.
Section 4. Representations and Warranties of Lender. The Lender hereby
severally represents and warrants to Borrower as follows:
4.1 Legal Power. It has the requisite legal power to enter into
this Agreement, to make the Loan hereunder, to purchase the Securities
hereunder, and to carry out and perform its obligations under the terms of this
Agreement.
<PAGE> 3
4.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by Borrower,
this Agreement will be a valid and binding agreement of it.
4.3 Investment Representations.
(i) It is acquiring the Securities and will acquire any
security issued upon exercise thereof for its own account, not as nominee or
agent, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
1933 Act.
(ii) It understands that (i) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom,
that the Securities must be held by it indefinitely, and that it must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the 1933 Act or is exempt
form such registration; (ii) the Securities will be endorsed with the
following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO RULE 144
OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933
ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT."
and (iii) Borrower will instruct any transfer agent not to register the transfer
of any of the Securities unless the conditions specified in the foregoing legend
are satisfied; provided, however, that no such opinion of counsel shall be
necessary if the sale, transfer or assignment is made pursuant to Rule 144 under
the 1933 Act and Lender provides Borrower with evidence reasonably satisfactory
to Borrower and its counsel that the proposed transaction satisfies the
requirements of Rule 144. Borrower agrees to remove the foregoing legend from
any securities if the requirements of Rule 144(k) (or any successor rule or
regulation) apply with respect to such securities and Borrower and its counsel
are provided with reasonably satisfactory evidence that the requirements of Rule
144(k) apply.
(iii) It is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Securities.
(iv) It understands that the Securities it is purchasing
are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Borrower in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
1933 Act,
<PAGE> 4
only in certain limited circumstances, and it represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act.
(v) It is an "accredited investor" as such term is defined
in Regulation D under the Securities Act or an employee or other affiliate
of the Borrower with significant knowledge of historical, current and
forecasted financial condition of the Borrower and by reason of its business
or financial experience it has the capacity to protect its own interest in
connection with this Agreement.
(vi) Lender was not formed for the specific purpose of
acquiring the Securities offered hereunder.
(vii) Its principal business address is as set forth below
its name hereto and it does not reside in any state of the United States
other than the state so specified.
Section 5. Negative Covenants.
Borrower covenants and agrees that on and after the date hereof and
until the Notes are paid in full, without the prior written consent of the
holders of a majority of the principal amount outstanding under the Bridge
Financing Notes and all other similar Notes issued pursuant to Bridge Financing
Agreements which are substantially similar to this Agreement.
5.1 Liens. Borrower will not create, incur, assume or
suffer to exist any Lien (as defined below) upon or with respect to any property
or assets (real or personal, tangible or intangible) of Borrower, whether now
owned or hereafter acquired. "Lien" shall mean any mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing). However, the provisions
of this Section 5.1 shall not prevent the creation, incurrence, assumption or
existence of any of the following:
(i) Liens for taxes, assessments and other governmental
charges or levies not yet due and payable, or which are being contested in good
faith by appropriate proceedings and for which reserves, if any, required under
generally accepted accounting principles shall have been established;
(ii) Liens in respect of property or assets of Borrower
imposed by law, which were incurred in the ordinary course of business, such as
carriers', warehousemen's and mechanics' liens and other similar Liens arising
in the ordinary course of business;
(iii) deposits or pledges to secure bids, tenders,
contracts, leases, the payment of workmen's compensation, unemployment insurance
or other social security benefits or obligations, public or statutory
obligations, surety or appeal bonds or other obligations of a like general
nature incurred in the ordinary course of business;
(iv) zoning restrictions, easements, license, restrictions
on the use of real property and minor irregularities in title thereto which do
not materially impair the use or the value of such property;
<PAGE> 5
(v) inchoate liens arising under ERISA to secure current
service pension liabilities as they are incurred; and
(vi) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any property,
or to use such property in a manner which does not materially impair the use of
such property.
5.2 Indebtedness. Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any indebtedness for borrowed money which is not subordinated in right of
payment to the prior payment in full of the Note and all interest accrued
thereon; provided, however, that Borrower may incur additional indebtedness of
up to Three Million Two Hundred Fifty Thousand Dollars ($3,250,000), less the
Loan made by the Borrower hereunder. For example, if the Loan under this
Agreement aggregates to Four Hundred Thousand Dollars ($400,000) the Borrower
may borrow up to Two Million Eight Hundred Fifty Thousand Dollars ($2,850,000).
Such additional indebtedness will be equal in right of payment to the Note.
5.3 Business. Borrower will not engage, directly or
indirectly, in any business other than the business in which Borrower is engaged
on the date hereof.
Section 6. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
6.1 Payments. Borrower shall (i) default in the payment
when due of any principal of the Note or (ii) default in the payment when due of
any interest on the Note or any other amounts owing to the Lender hereunder or
under the Note and such default shall continue unremedied for a period of
fifteen (15) days after receipt by Borrower of written notice from Lender of the
occurrence thereof; or
6.2 Representations, etc. Any representation, warranty or
statement made by the Borrower herein or in any certificate or report delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
6.3 Default Under Other Agreements. Any Event of
Noncompliance (as defined in Section 9A of the Certificate of Determination of
Series D Convertible Preferred Stock) occurs; or
6.4 Bankruptcy, etc. Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy", as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Borrower or any of its Subsidiaries, and the petition is not
controverted within 30 days, or is not dismissed within 90 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Borrower or any such Subsidiary, or Borrower or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to Borrower
or any of its Subsidiaries, or there is commenced against Borrower or any of its
Subsidiaries any such proceeding which remains undismissed for a period of 90
days, or Borrower or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Borrower or any of its Subsidiaries
<PAGE> 6
suffers any appointment of any custodian or the like for it or any substantial
part of its property to continue undischarged or unstayed for a period of 90
days; or Borrower or any of its Subsidiaries makes a general assignment for the
benefit of creditors; or any action is taken by Borrower or any of its
Subsidiaries for the purpose of effecting any of the foregoing;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, any Lender may by written notice to Borrower, take any
or all of the following actions, without prejudice to the rights of such Lender:
(i) declare such Lender's commitment to make Loans pursuant to this Agreement
terminated, and (ii) declare the principal and accrued interest of all Loans
made by such Lender and the related Note to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by Borrower.
Section 7. Miscellaneous.
7.1 Notices. All notices and other communications
hereunder shall be made in writing and shall be deemed given upon personal
delivery during regular business hours or three (3) days after mailing if mailed
by first class mail, postage prepaid, to the following addresses:
To Borrower: Computer Motion, Inc.
130-B Cremona Drive
Goleta, California 93117
Attention: Chief Financial Officer
To Lender:
7.2 Governing Law; Submission to Jurisdiction; Venue.
(a) This Agreement and the rights and obligations
of the parties hereunder and thereunder shall be construed in accordance with
and be governed by the laws of the State of California.
(b) Any legal action or proceeding with respect to
this Agreement shall be brought in the courts of the County of Santa Barbara,
State of California or of the United States for the Central District of
California, and, by execution and delivery of this Agreement, Borrower and
Lender hereby irrevocably accept the jurisdiction of, and venue in the aforesaid
courts.
7.3 Counterparts. This Agreement may be executed in
counterparts each of which when so executed and delivered shall be in an
original, but which shall together constitute one and the same instrument.
7.4 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
7.5 Amendment or Waiver. Except as set forth in Section 5,
the terms of this Agreement may not be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by the
Borrower and Lender.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
"Borrower"
COMPUTER MOTION, INC.
By:
-------------------------------------
Title:
-------------------------------------
"Lender"
--------------------------------------------
--------------------------------------------
<PAGE> 8
PROMISSORY NOTE
$100,000 Goleta, California
May 1, 1996
For value received, the undersigned, COMPUTER MOTION, INC., a California
corporation ("Payor"), promises to pay to ______________________________________
at ______________________________________________________ or at such other place
as may be designated in writing by Payee, the principal sum of One Hundred
Thousand Dollars ($100,000) with interest on the unpaid principal balance from
time to time outstanding at a rate equal to the lesser of (a) the rate publicly
announced from time to time by Chase Manhattan Bank as its "prime" or
"reference" rate, plus one percent (1%) or (b) the highest rate permitted by law
(the "Interest Rate"). Interest shall be compounded on a daily basis and shall
be paid monthly in arrears on or before the fifth business day of each calendar
month. All sums owing hereunder are payable in lawful money of the United States
of America.
The entire unpaid principal balance of this note, together with all
accrued and unpaid interest, shall be due and payable Thirty (30) months from
the date of this Note ("Maturity Date"). Prepayment of principal hereunder may
be made, in whole or in part, at any time and from time to time without premium
or penalty.
This Note is issued pursuant to that certain Bridge Financing Agreement
dated as of May 1, 1996 (the "Agreement"), by and among Payor and Payee who is
subject to, and entitled to the benefits of, the Agreement.
Upon the occurrence of an Event of Default, as defined in Section 6 of
the Agreement, Payee may, at its sole option, declare all sums owing under this
Note immediately due and payable.
Should suit be brought to enforce this Note, the prevailing party in
such suit shall be awarded reasonable attorneys' fees in the defense or
prosecution thereof.
Payor waives presentment, demand, notice of protest and nonpayment and
diligence in taking any action to collect any sums owing under this Note. Time
is of the essence with respect to every provision hereof. This Note shall be
construed and enforced in accordance with the laws of the State of California,
and any action with respect to this Note shall be brought only in the courts of
the County of Santa Barbara, State of California, or the United States for the
Central District of California.
"PAYOR"
Address: Computer Motion, Inc. COMPUTER MOTION, INC.
130-B Cremona Drive
Goleta, California 93117
Attention: Chief Financial Officer By:
-------------------------
Its:
-------------------------
<PAGE> 9
ANNEX I TO WARRANT
SUBSCRIPTION AGREEMENT
The undersigned holder of the Warrant to which this Subscription
Agreement is attached as Annex I hereby (i) subscribes for ___________________
Warrant Shares (as defined in the Warrant) which the undersigned is entitled to
purchase pursuant to the terms of such Warrant, (ii) encloses payment of the
Exercise Price for such Warrant Shares in the amount of $_________ and (iii)
directs that the certificates evidencing such shares of Common Stock be issued
and delivered to _______________________________.
Date:
-------------------
----------------------------------
----------------------------------
<PAGE> 10
BRIDGE FINANCING AGREEMENT
THIS FINANCING AGREEMENT (the "Agreement") is made as of, May 20, 1996,
by and among COMPUTER MOTION, INC., a corporation organized and existing under
the laws of the State of California ("Borrower"), and ___________________ (the
"Lender") with reference to the following:
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to Borrower certain loans provided for
herein; and
WHEREAS, Borrower is willing to issue to the Lender warrants to purchase
Common Stock of Borrower;
NOW, THEREFORE, IT IS AGREED:
Section Amount and Terms of Loans.
1.1 The Loans. Subject to and upon the terms and conditions set
forth herein, the Lender agrees to loan __________________ Dollars ($xx0,000) to
Borrower. The Loan may be prepaid at any time.
1.2 Disbursement of Funds. Proceeds of Loan obtained by Borrower
pursuant hereto shall be used to meet working capital requirements of Borrower.
1.3 The Notes. The obligation of Borrower to pay the principal
of, and interest on, the Loan made by the Lender shall be evidenced by a
promissory note, substantially in the forms of Exhibit A, with blanks
appropriately completed in conformity herewith (the "Notes"), duly executed and
delivered by Borrower. Such Note shall (i) be payable to the order of the Lender
and be dated the date of such Loan; (ii) be payable in the principal amount of
the Loan evidenced thereby; (iii) mature and became due and payable, with
respect to each Loan evidenced thereby, Thirty (30) months from the date of the
Note; (iv) be entitled to the benefits of this Agreement; and (v) bear interest
as provided in Section 1.4.
1.4 Interest. The unpaid principal amount of the Loan shall bear
interest at a rate equal to the lesser of (a) the rate publicly announced from
time to time by Chase Manhattan Bank as its "prime" or "reference" rate, plus
one percent (1%) and (b) the highest rate permitted by law. Such interest shall
be compounded on a daily basis and shall be paid by Borrower monthly in arrears
on or before the fifth business day of each calendar month succeeding a month
during which an unpaid principal amount has been outstanding.
1.5 Voluntary Prepayments. Borrower shall have the right to
prepay the Notes, without premium or penalty, in whole or in part, at any time
and from time to time.
Section 2. Warrants. In connection with this Borrowing , Borrower shall
offer to the Lender warrants to purchase Common Stock of Borrower in the amount
of .63158 Warrants earned
<PAGE> 11
for each Dollar loaned the Company, with conventional rounding used to determine
the ultimate number of warrants earned. For instance, if the Lender loaned the
Borrower One Hundred Thousand Dollars ($100,000), the Lender would earn Sixty
Three Thousand One Hundred Fifty-Eight Warrants (63,158). Such warrants being in
the form attached as Exhibit B (the "Warrants"). The Lender may elect to
purchase these Warrants at a purchase of $0.0001 per Warrant. The Warrants shall
be entitled to registration rights pursuant to the Amendment No. 1 to
Registration Agreement in the form of Exhibit C and are exercisable for a period
of Seven (7) years from issuance at Two Dollars Thirty-Seven Cents ($2.37) per
Warrant.
Section 3. Representations, Warranties and Agreements. In order to
induce the Lender to enter into this Agreement and to make this Loan, Borrower
makes the following representations, warranties and agreements, which shall
survive the execution and delivery of this Agreement, the Note and the making of
the Loan.
3.1 Corporate Status. Borrower (i) is a duly organized and
validly existing corporation in good standing under the laws of the State of
California; (ii) has the corporate power and authority to own its property and
assets and to transact the business in which it is engaged; and (iii) is duly
qualified as a foreign corporation and in good standing in each jurisdiction
where the ownership, leasing or operation of property or the conduct of its
business requires such qualification.
3.2 Corporate Power and Authority; Legal Capacity. Borrower has
the corporate power to execute, deliver and perform the terms and provisions of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of this Agreement, the Note
and the Warrants. Borrower has duly executed and delivered this Agreement and
the Note and Warrants to the extent deliverable on the date hereof, and each
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms.
3.3 Validity of Securities. The issuance of the Note and
Warrants, and the shares of Common Stock issuable on exercise thereof,
(collectively, the "Securities") is not and will not be subject to any
preemptive rights or rights of first refusal that have not been waived and, when
issued, sold and delivered in compliance with the provisions of this Agreement,
the Securities will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
3.4 Offering. Assuming the accuracy of the representations and
warranties of the Investor contained in Section 4 hereof, the offer, issue, and
sale of the Securities is and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and has been registered or qualified (or are exempt from
registration and qualification) under the registration, permit, or qualification
requirements of all applicable state securities laws.
Section 4. Representations and Warranties of Lender. The Lender hereby
severally represents and warrants to Borrower as follows:
4.1 Legal Power. It has the requisite legal power to enter into
this Agreement, to make the Loan hereunder, to purchase the Securities
hereunder, and to carry out and perform its obligations under the terms of this
Agreement.
<PAGE> 12
4.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by Borrower,
this Agreement will be a valid and binding agreement of it.
4.3 Investment Representations.
(i) It is acquiring the Securities and will acquire any
security issued upon exercise thereof for its own account, not as nominee or
agent, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
1933 Act.
(ii) It understands that (i) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom,
that the Securities must be held by it indefinitely, and that it must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the 1933 Act or is exempt
form such registration; (ii) the Securities will be endorsed with the
following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO RULE 144
OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933
ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT."
and (iii) Borrower will instruct any transfer agent not to register the transfer
of any of the Securities unless the conditions specified in the foregoing legend
are satisfied; provided, however, that no such opinion of counsel shall be
necessary if the sale, transfer or assignment is made pursuant to Rule 144 under
the 1933 Act and Lender provides Borrower with evidence reasonably satisfactory
to Borrower and its counsel that the proposed transaction satisfies the
requirements of Rule 144. Borrower agrees to remove the foregoing legend from
any securities if the requirements of Rule 144(k) (or any successor rule or
regulation) apply with respect to such securities and Borrower and its counsel
are provided with reasonably satisfactory evidence that the requirements of Rule
144(k) apply.
(iii) It is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Securities.
(iv) It understands that the Securities it is purchasing
are characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Borrower in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
1933 Act,
<PAGE> 13
only in certain limited circumstances, and it represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act.
(v) It is an "accredited investor" as such term is defined
in Regulation D under the Securities Act or an employee or other affiliate
of the Borrower with significant knowledge of historical, current and
forecasted financial condition of the Borrower and by reason of its business
or financial experience it has the capacity to protect its own interest in
connection with this Agreement.
(vi) Lender was not formed for the specific purpose of
acquiring the Securities offered hereunder.
(vii) Its principal business address is as set forth below
its name hereto and it does not reside in any state of the United States
other than the state so specified.
Section 5. Negative Covenants.
Borrower covenants and agrees that on and after the date hereof and
until the Notes are paid in full:
5.1 Liens. Without the prior written consent of the Lender,
Borrower will not create, incur, assume or suffer to exist any Lien (as defined
below) upon or with respect to any property or assets (real or personal,
tangible or intangible) of Borrower, whether now owned or hereafter acquired.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing). However, the provisions of this Section 5.1
shall not prevent the creation, incurrence, assumption or existence of any of
the following:
(i) Liens for taxes, assessments and other governmental
charges or levies not yet due and payable, or which are being contested in good
faith by appropriate proceedings and for which reserves, if any, required under
generally accepted accounting principles shall have been established;
(ii) Liens in respect of property or assets of Borrower
imposed by law, which were incurred in the ordinary course of business, such as
carriers', warehousemen's and mechanics' liens and other similar Liens arising
in the ordinary course of business;
(iii) deposits or pledges to secure bids, tenders,
contracts, leases, the payment of workmen's compensation, unemployment insurance
or other social security benefits or obligations, public or statutory
obligations, surety or appeal bonds or other obligations of a like general
nature incurred in the ordinary course of business;
(iv) zoning restrictions, easements, license, restrictions
on the use of real property and minor irregularities in title thereto which do
not materially impair the use or the value of such property;
<PAGE> 14
(v) inchoate liens arising under ERISA to secure current
service pension liabilities as they are incurred; and
(vi) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any property,
or to use such property in a manner which does not materially impair the use of
such property.
5.2 Indebtedness. Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
indebtedness for borrowed money which is not subordinated in right of payment to
the prior payment in full of the Note and all interest accrued thereon;
provided, however, that Borrower may incur additional indebtedness of up to
Three Million Two Hundred Fifty Thousand Dollars ($3,250,000), less the Loan
made by the Borrower hereunder. For example, if the Loan under this Agreement
aggregates to Four Hundred Thousand Dollars ($400,000) the Borrower may borrow
up to Two Million Eight Hundred Fifty Thousand Dollars ($2,850,000) without
prior approval or consent of the Lender. Such additional indebtedness will be
equal in right of payment to the Note.
5.3 Business. Without the prior written consent of Lender,
Borrower will not engage, directly or indirectly, in any business other than the
business in which Borrower is engaged on the date hereof.
Section 6. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
6.1 Payments. Borrower shall (i) default in the payment when due
of any principal of the Note or (ii) default in the payment when due of any
interest on the Note or any other amounts owing to the Lender hereunder or under
the Note and such default shall continue unremedied for a period of fifteen (15)
days after receipt by Borrower of written notice from Lender of the occurrence
thereof; or
6.2 Representations, etc. Any representation, warranty or
statement made by the Borrower herein or in any certificate or report delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
6.3 Default Under Other Agreements. Any Event of Noncompliance
(as defined in Section 9A of the Certificate of Determination of Series D
Convertible Preferred Stock) occurs; or
6.4 Bankruptcy, etc. Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against
Borrower or any of its Subsidiaries, and the petition is not controverted within
30 days, or is not dismissed within 90 days, after commencement of the case; or
a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of Borrower or any such
Subsidiary, or Borrower or any of its Subsidiaries commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Borrower or any of
its Subsidiaries, or there is commenced against Borrower or any of its
Subsidiaries any such proceeding which remains undismissed for a period of 90
days, or Borrower or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Borrower or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to
<PAGE> 15
continue undischarged or unstayed for a period of 90 days; or Borrower or any of
its Subsidiaries makes a general assignment for the benefit of creditors; or any
action is taken by Borrower or any of its Subsidiaries for the purpose of
effecting any of the foregoing;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, any Lender may by written notice to Borrower, take any
or all of the following actions, without prejudice to the rights of such Lender:
(i) declare such Lender's commitment to make Loans pursuant to this Agreement
terminated, and (ii) declare the principal and accrued interest of all Loans
made by such Lender and the related Notes to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by Borrower.
Section 7. Miscellaneous.
7.1 Notices. All notices and other communications hereunder shall
be made in writing and shall be deemed given upon personal delivery during
regular business hours or three (3) days after mailing if mailed by first class
mail, postage prepaid, to the following addresses:
To Borrower: Computer Motion, Inc.
130-B Cremona Drive
Goleta, California 93117
Attention: Chief Financial Officer
To Lender: _____________________
_____________________
_____________________
_____________________
7.2 Governing Law; Submission to Jurisdiction; Venue.
(a) This Agreement and the rights and obligations of the
parties hereunder and thereunder shall be construed in accordance with and be
governed by the laws of the State of California.
(b) Any legal action or proceeding with respect to this
Agreement shall be brought in the courts of the County of Santa Barbara, State
of California or of the United States for the Central District of California,
and, by execution and delivery of this Agreement, Borrower and Lender hereby
irrevocably accept the jurisdiction of, and venue in the aforesaid courts.
7.3 Counterparts. This Agreement may be executed in counterparts
each of which when so executed and delivered shall be in an original, but which
shall together constitute one and the same instrument.
7.4 Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
7.5 Amendment or Waiver. The terms of this Agreement may not be
changed, waived, discharged or terminated unless such change, waiver, discharge
or termination is in writing signed by the Borrower and Lender.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
"Borrower"
COMPUTER MOTION, INC.
By:
---------------------------
Title:
---------------------------
"Lender"
By:
---------------------------
Title:
---------------------------
<PAGE> 17
EXHIBIT A
PROMISSORY NOTE
$xx0,000 Goleta, California
DATE
For value received, the undersigned, COMPUTER MOTION, INC., a California
corporation ("Payor"), promises to pay to ("Payee"), at , or at such other place
as may be designated in writing by Payee, the principal sum of Dollars
($xx0,000) with interest on the unpaid principal balance from time to time
outstanding at a rate equal to the lesser of (a) the rate publicly announced
from time to time by Chase Manhattan Bank as its "prime" or "reference" rate,
plus one percent (1%) or (b) the highest rate permitted by law (the "Interest
Rate"). Interest shall be compounded on a daily basis and shall be paid monthly
in arrears on or before the fifth business day of each calendar month. All sums
owing hereunder are payable in lawful money of the United States of America.
The entire unpaid principal balance of this note, together with all
accrued and unpaid interest, shall be due and payable Thirty (30) months from
the date of this Note ("Maturity Date"). Prepayment of principal hereunder may
be made, in whole or in part, at any time and from time to time without premium
or penalty.
This Note is issued pursuant to that certain Bridge Financing Agreement
dated as of DATE, 1996 (the "Agreement"), by and among Payor and Payee who is
subject to, and entitled to the benefits of, the Agreement.
Upon the occurrence of an Event of Default, as defined in Section 6 of
the Agreement, Payee may, at its sole option, declare all sums owing under this
Note immediately due and payable.
Should suit be brought to enforce this Note, the prevailing party in
such suit shall be awarded reasonable attorneys' fees in the defense or
prosecution thereof.
Payor waives presentment, demand, notice of protest and nonpayment and
diligence in taking any action to collect any sums owing under this Note. Time
is of the essence with respect to every provision hereof. This Note shall be
construed and enforced in accordance with the laws of the State of California,
and any action with respect to this Note shall be brought only in the courts of
the County of Santa Barbara, State of California, or the United States for the
Central District of California.
"PAYOR"
Address: Computer Motion, Inc. COMPUTER MOTION, INC.
130-B Cremona Drive
Goleta, California 93117
Attention: Chief Financial Officer By:
------------------------
Its:
------------------------
<PAGE> 18
ANNEX I TO WARRANT
SUBSCRIPTION AGREEMENT
The undersigned holder of the Warrant to which this Subscription
Agreement is attached as Annex I hereby (i) subscribes for ___________________
Warrant Shares (as defined in the Warrant) which the undersigned is entitled to
purchase pursuant to the terms of such Warrant, (ii) encloses payment of the
Exercise Price for such Warrant Shares in the amount of $_________ and (iii)
directs that the certificates evidencing such shares of Common Stock be issued
and delivered to _______________________________.
Date:
---------------
By:
-------------------------------
Its:
-------------------------------
<PAGE> 1
EXHIBIT 10.13
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER
OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
OF COMPUTER MOTION, INC.
This certifies that ____________________________________________ (the
"Holder") and the Holder's registered successors and assigns are entitled,
subject to the terms and conditions set forth below, to subscribe for and
purchase from Computer Motion, Inc., a California corporation, (the "Company")
_____________________________ (________) shares of the Common Stock of the
Company (the "Warrant Shares").
The initial "Exercise Price" per Warrant Share shall be Five Dollars
($5.00) per share. The Exercise Price and the number and character of the
Warrant Shares are subject to adjustment as provided herein. The term "Warrant
Shares" as used herein includes the shares of the Company's Common Stock (and
such other securities of property into which such shares of Common Stock may
hereafter be changed) which are at the time receivable by the Holder upon
exercise of this Warrant. This Warrant is being issued pursuant to that certain
Subscription Agreement of even date herewith between the Company and Holder (the
"Subscription Agreement") and is subject to the provisions thereof. This Warrant
is redeemable by the Company as set forth in Section 3 hereof. The term
"Warrant" as used herein shall include this Warrant and any Warrant delivered in
substitution or exchange herefor, as provided herein.
1. Exercise and Expiration.
1.1 Exercisability of Warrant. This Warrant may be exercised
in full or in part at any time, or from time to time, after the date hereof.
1.2 Expiration of Warrant; Method of Exercise. This Warrant
must be exercised, if at all, prior to December 31, 2003, at which time this
Warrant shall expire. This Warrant shall be exercised by surrender hereof
together with delivery of a signed Exercise Agreement in the form attached
hereto as Annex I specifying the number of shares to be purchased, together with
payment of the purchase price for the shares to be purchased. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a
<PAGE> 2
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
2. Adjustment of Exercise Price and Number of Shares.
The Exercise Price and the number of shares purchasable upon the
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section 2.
2.1 Stock Dividends, Splits. If the Company shall (i) pay a
dividend or make a distribution in shares of capital stock (whether shares of
Common Stock or capital stock of any other class), (ii) effect a stock split or
subdivide its outstanding Common Stock, (iii) effect a reverse stock split or
combine its outstanding Common Stock into a smaller number of shares, or (iv)
effect any other reclassification or recapitalization, the Exercise Price in
effect immediately prior thereto shall be adjusted so that upon the subsequent
exercise of this Warrant the Holder hereof shall be entitled to receive the
number of shares of capital stock of the Company which the Holder hereof would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised immediately prior to the
happening of such event. An adjustment made pursuant to this Section 2.1 shall
become effective immediately after the record date for any event requiring such
adjustment or shall become effective immediately after the effective date of
such event if no record date is set.
2.2 Distribution of Assets. In case the Company shall
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid from retained earnings of
the Company in respect of its Common Stock), then in each such case the Exercise
Price shall be adjusted so that the Exercise Price shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
record date for such distribution by a fraction of which the numerator shall be
the then current market price per share (as defined in Section 2.3 below) of the
Common Stock on the record date for such event less the then fair market value
(as determined by the Board of Directors of the Company, whose determination, if
reasonable, shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of the Common Stock
outstanding as of such record date, and the denominator shall be the then
current market price per share (as defined in Section 2.3 below) of the Common
Stock. Such adjustment shall become effective immediately after the record date
for the determination of shareholders entitled to receive such distribution.
2.3 Definitions. For the purposes of any computation under
Section 2.2 above:
(a) The current market price per share on any record
date or other date for determination of value shall be deemed to be the average
of the closing price per share on the ten (10) trading days before such record
or determination date. For the purpose of all relevant provisions of this
Warrant, the closing price for each day shall be the last sale price regular way
or,
<PAGE> 3
in case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the New York Stock Exchange, or, if
the shares are not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if the shares are not listed or admitted to trading on
any national securities exchange, the last reported sale price as reported by
NASDAQ, or if no such sales are then being reported, the average of the highest
reported bid and lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc., through NASDAQ or a other organization
if NASDAQ is no longer reporting such information. If no price is determinable
as described above for the purposes required herein, the fair value of such
shares, as reasonably determined by the Board of Directors of the Company, shall
be used.
(b) Shares outstanding shall mean the aggregate of
all shares of Common Stock of the Company outstanding and all shares of Common
Stock issuable upon the exercise of all outstanding rights, warrants or options
to subscribe for or purchase Common Stock (or securities convertible into Common
Stock) and the conversion of all outstanding indebtedness or equity securities
convertible into or exchangeable for shares of Common Stock.
2.4 Special Adjustment. In the event that the Corporation does
not complete $3,700,000 in equity financing or financings (whether Preferred
Stock, Common Stock and/or warrants therefor) within one hundred twenty (120)
days of the first issuance of Series E Preferred Stock (such $3,700,000 to
exclude amounts received from issuance of Series E Preferred Stock), the
Exercise Price shall be decreased by twenty percent (20%).
2.5 De Minimis Change. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease
of at least one cent ($0.01) in such price; provided, however, that any
adjustments which by reason of this Section 2.5 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 2 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 2 to the contrary notwithstanding, the Company shall be entitled to make
such reductions in the Exercise Price, in addition to those required by this
Section 2, as it in its discretion shall determine to be advisable.
2.6 Adjustment of Warrant Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 2, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment; and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
2.7 Notice. Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly prepare a notice of such adjustment of the
Exercise Price setting forth the adjusted Exercise Price, the number of shares
issuable upon exercise of the Warrant and the date on which such adjustment
becomes effective and shall mail such notice of such adjustment of the Exercise
Price to the holder of this Warrant at the address of such Holder as in the
records of the Company.
<PAGE> 4
2.8 Deferrals. In any case in which this Section 2 provides
that an adjustment shall become effective immediately after a record date for an
event, the Company may elect to defer until the occurrence of such event (i)
issuing to the Holder of this Warrant exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise before giving effect to such adjustment and (ii)
paying to the Holder any amount in cash in lieu of any fractional share.
2.9 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of outstanding shares of Common Stock issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Company is a party other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock, or (iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety; then the Company or such successor
or purchaser, as the case may be, shall execute a new Warrant providing that the
new Warrant shall be convertible only into the kind and amount of shares of
stock and other securities, cash or property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon conversion of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
2.10 No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms herein, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
dilution or other impairment.
3. Call of Warrants. The Company may, at its option, at any
time a public trading market for the Company's Common Stock exists, upon not
less than 15 days' nor more than 60 days' notice, call for redemption of all or
any portion of the then outstanding Warrant at a call price of $.05 per
underlying Warrant Share (such price is hereinafter referred to as the "Call
Price"), at any time, provided the average of the closing of the Company's
Common Stock, as determined pursuant to Section 2.3(a) above, has been at least
200% of the then effective Exercise Price of the Warrant, for 20 consecutive
business days ending within 15 days of the date of the notice of such call shall
have been given to the Warrant holder by the Company. In the event the Company
exercises its right to redeem the Warrant, such Warrant will be exercisable
until the close of business on the date fixed for redemption in such notice. If
any Warrant called for redemption is not exercised by such time, such Warrant
shall cease to be exercisable and the holder thereof shall be entitled only to
the redemption price.
<PAGE> 5
4. Registration Rights. The Holder may request registration of
the Warrant Shares under that certain Registration Agreement dated as of August
24, 1994, as amended January 17, 1996, and September __, 1996, by and among the
Company, Holder and others, and any and all amendments thereto shall apply to
the Warrant Shares issued or issuable upon exercise of this Warrant.
5. Transfer of Warrant. This Warrant shall be registered on
the books of the Company and shall be transferable in whole or in part on such
books by the registered Holder hereof in person or by duly authorized attorney.
Unless and until this Warrant and the Warrant Shares are registered under the
Securities Act of 1933 (the "Securities Act"), this Warrant and any certificate
for Warrant Shares issued or issuable upon exercise of this Warrant shall
contain a legend on the face thereof, in form and substance satisfactory to
counsel for the Company, stating that this Warrant and the Warrant Shares may
not be sold, transferred or otherwise disposed of unless, in the opinion of
counsel satisfactory to the Company, the Warrant or the Warrant Shares may be
transferred without such registration. This Warrant and the Warrant Shares may
also be subject to restrictions on transferability under applicable state
securities or blue sky laws. Until this Warrant and the Warrant Shares are
registered under the Securities Act, the Company may require, as a condition of
transfer of this Warrant or the Warrant Shares that the transferee (who may be
the Holder in the case of an exercise or exchange) represent that the securities
being transferred are being acquired for investment purposes and for the
transferee's own account and not with a view to or for sale in connection with
any distribution of the security. The Company may also require that transferee
provide written information adequate to establish that the transferee is an
"accredited investor" within the meaning of Regulation D issued under the
Securities Act, and otherwise meets all qualifications necessary to comply with
exemptions to any applicable state securities and Blue Sky laws, all as
determined by counsel to the Company.
6. Reservation of Common Stock. The Company hereby covenants and agrees
that it shall at all times reserve and keep authorized and available for
issuance, free of any preemptive rights or rights of first refusal, a sufficient
number of Warrant Shares for the purpose of issuance upon exercise of this
Warrant to permit the exercise of this Warrant in whole.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by its duly authorized officers as of the _____ day of
September, 1996.
COMPUTER MOTION, INC.
By
-------------------------------
Its
-------------------------------
<PAGE> 6
ANNEX I TO WARRANT
EXERCISE AGREEMENT
The undersigned holder of the Warrant to which this Exercise Agreement
is attached as Annex I hereby (i) subscribes for ___________________ Warrant
Shares (as defined in the Warrant) which the undersigned is entitled to purchase
pursuant to the terms of such Warrant, (ii) encloses payment of the Exercise
Price for such Warrant Shares in the amount of $_________ and (iii) directs that
the certificates evidencing such shares of Common Stock be issued and delivered
to _______________________________.
Date: ________________ ___________________________________
By:
------------------------------
Its:
------------------------------
<PAGE> 1
EXHIBIT 10.14
THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 NOR QUALIFIED UNDER ANY STATE SECURITIES LAW IN RELIANCE UPON
EXEMPTIONS THEREFROM. THE SECURITIES MAY BE ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED TO BE SO
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE SECURITIES ACT OF 1933 AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION SHALL NOT VIOLATE ANY FEDERAL OR STATE SECURITIES LAWS.
COMPUTER MOTION, INCORPORATED
PURCHASER REPRESENTATION AND
SUBSCRIPTION AGREEMENT
SERIES E PREFERRED STOCK AND
WARRANTS TO PURCHASE COMMON STOCK
1. SUBSCRIPTION. _________________________ ("Subscriber") hereby
irrevocably agrees to purchase, on the terms and conditions described herein,
_________________ (___________) shares of Series E Preferred Stock (the
"Shares") of COMPUTER MOTION, INCORPORATED (the "Company") and warrants to
purchase ________________________ (___________) [one warrant for each Share]
shares of Common Stock of the Company, in the form attached as Exhibit A hereto
(the "Warrants").
2. PURCHASE PRICE. The purchase price for the shares is Five Dollars
($5.00) per Share and $.01 per Warrant, which is payable in full by delivery
herewith of a check made payable to the order of COMPUTER MOTION, INCORPORATED.
3. SPECIAL EXCHANGE RIGHT. In the event the Company completes a subsequent
financing of capital stock (other than additional sales of Series E Preferred
Stock), the Subscriber shall have thirty (30) days after receipt of the
Company's notice of such fact to elect to exchange all of the Shares of Series E
Preferred Stock issued hereunder for the number of shares of such additional
capital stock and other securities issued in connection with such capital stock,
if any, as could have been purchased with the aggregate purchase price of Series
E Preferred Stock hereunder (deemed to be $5.00 per share) at the purchase price
of such additional capital stock in such subsequent financing. Such right of
exchange shall apply to all subsequent financings of capital stock; provided,
however, that such right expires at the earlier of such time as the Company has
raised an aggregate of $3,700,000 in one or more equity financings (excluding
proceeds from sales of Series E Preferred Stock) or the closing of a public
offering of capital stock by the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Subscriber as follows:
<PAGE> 2
(a) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as currently conducted and proposed to be conducted in
the Business Plan of the Company heretofore furnished to the Subscriber
("Business Plan").
(b) Capitalization and Voting Rights. The authorized capital of the
Company consists or will consist prior to the issuance of the Shares of:
(i) Common Stock. 25,000,000 shares of common stock ("Common
Stock"), have been authorized for issuance, of which 3,284,294 shares are issued
and outstanding.
(ii) Preferred Stock. 50,000,000 shares of preferred stock
("Preferred Stock"), of which 815,000 are designated as Series A Preferred
Stock, 815,000 of which are outstanding; 5,000,000 are designated as Series B
Preferred Stock, 1,130,667 of which are outstanding; 3,000,000 are designated as
Series C Preferred Stock, 740,256 of which are outstanding; 1,052,632 are
designated as Series D Preferred Stock, 1,052,632 of which are outstanding; and
600,000 are designated as Series E Preferred Stock, none of which are
outstanding.
(iii) Options and Warrants. Options for 1,822,250 shares of
Common Stock and Warrants for 2,352,635 shares of Common Stock are currently
outstanding.
(c) Future Financing. As an inducement to Subscriber to enter into
this Agreement and purchase the Shares hereunder, the Company represents and
warrants that it will use its good faith efforts to raise $3,700,000 in equity
financing(s) (excluding proceeds from sale of Series E Preferred Stock) within
120 days of the date hereof.
(d) Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the Shares and Warrants being sold hereunder has been
taken or will be taken prior to the Closing, and this Agreement constitutes a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms.
(e) Valid Issuance of Stock. The Shares which are being purchased by
the Subscriber hereunder, and the shares of Common Stock when issued on exercise
of the Warrants, when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein will be
duly and validly issued, fully paid and nonassessable and, based in part upon
the representations of the Subscriber in this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
2
<PAGE> 3
(f) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for filings required under
applicable securities laws, all of which will be effected after the sale of the
Shares and Warrants hereunder.
(g) Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company which questions the validity
of this Agreement or the right of the Company to enter into it, or to consummate
the transactions contemplated hereby, or which might result, either individually
or in the aggregate, in any material adverse changes in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any change in
the current equity ownership of the Company.
(h) Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
(i) Business Plan. The Business Plan of the Company has been prepared
in good faith by the Company and does not contain any untrue statement of a
material fact nor does it omit to state a material fact necessary to make the
statements made therein not misleading, except that with respect to projections
contained in the Business Plan, the Company represents only that such
projections were prepared in good faith and that the Company reasonably believes
there is a reasonable basis for such projections.
5. REPRESENTATIONS OF SUBSCRIBER. The Subscriber hereby represents and
warrants that:
(a) The Subscriber is capable of bearing the economic risks of this
investment, including the possible loss of the entire investment;
(b) The Shares, the Warrants and the shares issuable upon exercise
thereof are being acquired for investment only and for the Subscriber's own
account and not with a view to, or for sale in connection with, the distribution
thereof, nor with any present intention of distributing or selling any of the
shares;
(c) The Subscriber understands that the Shares, the Warrants and the
shares issuable upon exercise thereof have not been qualified under the
California Corporate Securities Law of 1968, as amended, (the "Law") or any
other applicable state securities laws and that the Shares, the Warrants and the
shares issuable upon exercise thereof have not been registered under the
Securities Act of 1933, as amended, (the "Act"), and are being offered and sold
pursuant to exemptions thereunder, and that in this connection the Company is
relying on the Subscriber's representations set forth in this Subscription
Agreement;
3
<PAGE> 4
(d) The Subscriber understands and agrees that the Shares, the
Warrants and the shares issuable upon exercise thereof may not be offered or
transferred in any manner unless (i) the Shares are subsequently registered
under the Act and any applicable state securities laws, or (ii) an opinion of
counsel satisfactory to the Company has been rendered stating that such offer or
transfer will not violate any applicable federal or state securities laws, or
(iii) such sale is made in compliance with all of the requirements of Rule 144
promulgated by the Securities and Exchange Commission under the Act;
(e) The Subscriber understands and agrees that in addition to any
other restrictive legend which may be imposed on the certificate, the
certificate evidencing said shares will bear the following legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE 1933 ACT.
(f) The representations which Subscriber has made herein are true and
correct on the date hereof and the Subscriber understands that the Company will
be relying on representations made herein in determining whether the offering is
exempt from registration under Act and under applicable state securities laws;
should any such information change prior to the issuance of the shares to
Subscriber, Subscriber agrees to immediately provide the Company with a written
notice setting forth the corrected information;
(g) By executing this Subscription Agreement, the Subscriber hereby
acknowledges receipt of all such information as the Subscriber deems necessary
and appropriate to enable the Subscriber to evaluate the merits and risks in
acquiring the Shares and the Warrants. The Subscriber acknowledges receipt of
satisfactory and complete information covering the business and financial
condition of the Company, including the opportunity to obtain information
regarding the Company's financial status, in response to all inquiries in
respect thereof;
(h) The Subscriber has been furnished with the materials relating to
the Company and the offering of the Shares and the Warrants which they have
requested, and has been afforded the opportunity to make inquiries concerning
the Company and such matters as the Subscriber has deemed
4
<PAGE> 5
necessary, and has further been afforded the opportunity to obtain any
additional information required by the Subscriber to the extent the Company
possesses such information or could acquire it without unreasonable effort or
expense;
(i) The Subscriber has substantial means of providing for his or her
current needs and personal contingencies and has no need for liquidity in this
investment;
(j) The Subscriber has determined that the Shares and the Warrants
are a suitable investment for him or her and that he or she could bear a
complete loss of his or her entire investment;
(k) The Subscriber has relied on his or her own tax and legal advisor
and his or her own investment counselor with respect to the income tax and
investment considerations of a purchase of the Shares;
(l) The Subscriber is an "accredited investor" within the meaning of
SEC Rule 501 of Regulation D, as presently in effect, as set forth on Exhibit A
attached hereto.
(m) The Subscriber did not learn of the offering described herein
through any general advertising or other literature, and he or she and/or his or
her Purchaser Representative have relied only on the information furnished or
made available to them by the Company described in subparagraph 3(g) above;
(n) If the Subscriber is a corporation, partnership, trust or other
entity, it is authorized and qualified to purchase the Shares and the Warrants;
the person signing this Subscription Agreement on behalf of such entity has been
duly authorized by such entity to do so; and this Agreement represents a valid,
binding and enforceable agreement of the Subscriber;
(o) No representations or warranties have been made to the Subscriber
by the Company, its officers, directors or shareholders or any persons acting on
behalf of the Company, or any affiliates of any of them, other than the
representations set forth herein and in the information provided by the Company;
and
(p) The foregoing representations, warranties and agreements of the
Subscriber shall survive the sale and issuance of the Shares and the Warrants to
the Subscriber.
6. ACCEPTANCE. Subscriber hereby confirms his or her understanding that
the Company has full and absolute discretion to accept or reject this
subscription in whole. In the case of rejection of this subscription, the total
subscription funds of the Subscriber will be promptly returned to him or her
without interest. Subscriber further understands that the offering may be
terminated by the Company at any time. In the event of termination prior to
acceptance of Subscriber's subscription, Subscriber's funds will be returned to
him or her without interest.
7. REGISTRATION RIGHTS. The shares of Common Stock issuable on conversion
of the
5
<PAGE> 6
Shares and exercise of the Warrants are subject to registration pursuant to
Amendment No. 2 to Registration Agreement dated September __, 1996.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same agreement.
9. ASSIGNABILITY. This Agreement is not transferable or assignable by
the Subscriber.
10. OWNERSHIP OF SHARES AND WARRANTS. Please print the name and
address of each person in whose name the Shares and the Warrants are to be
registered.
(1) Name
---------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------
Street Address
---------------------------------------------------------------------
City State Zip Code
Social Security or Tax I.D. No.
-------------------------------------
(2) Name
---------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------
Street Address
---------------------------------------------------------------------
City State Zip Code
Social Security or Tax I.D. No.
-------------------------------------
6
<PAGE> 7
11. TITLE TO SHARES AND WARRANTS. Please indicate by check mark below the
manner in which title to the shares is to be held:
___Community Property ___Individual
___Joint Tenancy ___Trust
___Tenancy in Common ___Company
___Separate Property ___Other (please indicate)
___As Custodian For
___under Uniform Gift to Minors Act
12. SIGNATURE. Each person in whose name the shares are to be registered
must sign in the space provided below.
IN WITNESS WHEREOF, the undersigned executes and agrees to be bound by
this Subscription Agreement on the date indicated below.
Dated this___ day of September, 1996.
--------------------------------------
Print Name of Individual(s),
Corporation, Company or Trust (Plan)
which is (are) subscribing
- ------------------------------------ --------------------------------------
Number of Shares Subscribed For Signature (if signing on behalf of a
Corporation, Company or Trust,
including a Plan, state capacity in
which you are signing)
- -----------------------------------
Number of Warrants Subscribed For
--------------------------------------
Print Name of Person Signing
$ [$5.00 per Share, $.01 per Warrant]
- ------------------------------------ --------------------------------------
Amount Paid Upon Subscription Signature of Co-Investor (if any,
including the Subscriber's spouse,
Co-Tenant or Co-Trustee
7
<PAGE> 8
--------------------------------------
Print Name of Co-Investor (if any,
including the Subscriber's spouse,
Co-Tenant or Co-Trustee
8
<PAGE> 9
EXHIBIT A
ACCREDITED INVESTOR
Accredited Investor. Accredited investor shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories, at the time of the sale of the
securities to that person:
13. Any bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of
the Securities Exchange Act of 1934; any insurance company as defined
in section 2(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or a business development company
as defined in section 2(a)(48) of that Act; any Small Business
Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of
1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; any employee benefit
plan within the meaning of the Employee Retirement Income Security
Act of 1974 if the investment decision is made by a plan fiduciary,
as defined in section 3(21) of such act, which is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
14. Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
15. Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
16. Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
17. Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds
$1,000,000;
18. Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same income level in the
current year;
19. Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in
Section 230.506(b)(2)(ii); and
<PAGE> 10
20. Any entity in which all of the equity owners are accredited
investors.
<PAGE> 1
EXHIBIT 10.15
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
OF COMPUTER MOTION, INC.
This certifies that ____________________________________________ (the
"Holder") and the Holder's registered successors and assigns are entitled,
subject to the terms and conditions set forth below, to subscribe for and
purchase from Computer Motion, Inc., a California corporation, (the "Company")
_____________________________ (________) shares of the Common Stock of the
Company (the "Warrant Shares").
The initial "Exercise Price" per Warrant Share shall be Five Dollars
($5.00) per share. The Exercise Price and the number and character of the
Warrant Shares are subject to adjustment as provided herein. The term "Warrant
Shares" as used herein includes the shares of the Company's Common Stock (and
such other securities of property into which such shares of Common Stock may
hereafter be changed) which are at the time receivable by the Holder upon
exercise of this Warrant. This Warrant is being issued pursuant to that certain
Subscription Agreement of even date herewith between the Company and Holder (the
"Subscription Agreement") and is subject to the provisions thereof. This Warrant
is redeemable by the Company as set forth in Section 3 hereof. The term
"Warrant" as used herein shall include this Warrant and any Warrant delivered in
substitution or exchange herefor, as provided herein.
1. Exercise and Expiration.
1.1 Exercisability of Warrant. This Warrant may be exercised in full
or in part at any time, or from time to time, after the date hereof.
1.2 Expiration of Warrant; Method of Exercise. This Warrant must be
exercised, if at all, prior to December 31, 2003, at which time this Warrant
shall expire. This Warrant shall be exercised by surrender hereof together with
delivery of a signed Exercise Agreement in the form attached hereto as Annex I
specifying the number of shares to be purchased, together with payment of the
purchase price for the shares to be purchased. As soon as practicable after each
such exercise of this Warrant, the Company shall issue and deliver to the Holder
a
<PAGE> 2
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions thereof)
subject to purchase hereunder.
2. Adjustment of Exercise Price and Number of Shares.
The Exercise Price and the number of shares purchasable upon the exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 2.
2.1 Stock Dividends, Splits. If the Company shall (i) pay a dividend
or make a distribution in shares of capital stock (whether shares of Common
Stock or capital stock of any other class), (ii) effect a stock split or
subdivide its outstanding Common Stock, (iii) effect a reverse stock split or
combine its outstanding Common Stock into a smaller number of shares, or (iv)
effect any other reclassification or recapitalization, the Exercise Price in
effect immediately prior thereto shall be adjusted so that upon the subsequent
exercise of this Warrant the Holder hereof shall be entitled to receive the
number of shares of capital stock of the Company which the Holder hereof would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised immediately prior to the
happening of such event. An adjustment made pursuant to this Section 2.1 shall
become effective immediately after the record date for any event requiring such
adjustment or shall become effective immediately after the effective date of
such event if no record date is set.
2.2 Distribution of Assets. In case the Company shall distribute to
all holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions paid from retained earnings of the
Company in respect of its Common Stock), then in each such case the Exercise
Price shall be adjusted so that the Exercise Price shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
record date for such distribution by a fraction of which the numerator shall be
the then current market price per share (as defined in Section 2.3 below) of the
Common Stock on the record date for such event less the then fair market value
(as determined by the Board of Directors of the Company, whose determination, if
reasonable, shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of the Common Stock
outstanding as of such record date, and the denominator shall be the then
current market price per share (as defined in Section 2.3 below) of the Common
Stock. Such adjustment shall become effective immediately after the record date
for the determination of shareholders entitled to receive such distribution.
2.3 Definitions. For the purposes of any computation under
Section 2.2 above:
(a) The current market price per share on any record date or
other date for determination of value shall be deemed to be the average of the
closing price per share on the ten (10) trading days before such record or
determination date. For the purpose of all relevant provisions of this Warrant,
the closing price for each day shall be the last sale price regular way or,
<PAGE> 3
in case no such sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case on the New York Stock Exchange, or, if
the shares are not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if the shares are not listed or admitted to trading on
any national securities exchange, the last reported sale price as reported by
NASDAQ, or if no such sales are then being reported, the average of the highest
reported bid and lowest reported asked prices as furnished by the National
Association of Securities Dealers, Inc., through NASDAQ or a other organization
if NASDAQ is no longer reporting such information. If no price is determinable
as described above for the purposes required herein, the fair value of such
shares, as reasonably determined by the Board of Directors of the Company, shall
be used.
(b) Shares outstanding shall mean the aggregate of all shares
of Common Stock of the Company outstanding and all shares of Common Stock
issuable upon the exercise of all outstanding rights, warrants or options to
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) and the conversion of all outstanding indebtedness or equity securities
convertible into or exchangeable for shares of Common Stock.
2.4 Special Adjustment. In the event that the Corporation does not
complete $3,700,000 in equity financing or financings (whether Preferred Stock,
Common Stock and/or warrants therefor) within one hundred twenty (120) days of
the first issuance of Series E Preferred Stock (such $3,700,000 to exclude
amounts received from issuance of Series E Preferred Stock), the Exercise Price
shall be decreased by twenty percent (20%).
2.5 De Minimis Change. No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any adjustments
which by reason of this Section 2.5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 2 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section 2 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Exercise Price, in addition to those required by this Section 2, as it in
its discretion shall determine to be advisable.
2.6 Adjustment of Warrant Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 2, the holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment; and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
2.7 Notice. Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly prepare a notice of such adjustment of the
Exercise Price setting forth the adjusted Exercise Price, the number of shares
issuable upon exercise of the Warrant and the date on which such adjustment
becomes effective and shall mail such notice of such adjustment of the Exercise
Price to the holder of this Warrant at the address of such Holder as in the
records of the Company.
<PAGE> 4
2.8 Deferrals. In any case in which this Section 2 provides that an
adjustment shall become effective immediately after a record date for an event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the Holder of this Warrant exercised after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such exercise before giving effect to such adjustment and (ii) paying to the
Holder any amount in cash in lieu of any fractional share.
2.9 Effect of Reclassification, Consolidation, Merger or Sale. If
any of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger to which the Company is a party other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock, or (iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety; then the Company or such successor
or purchaser, as the case may be, shall execute a new Warrant providing that the
new Warrant shall be convertible only into the kind and amount of shares of
stock and other securities, cash or property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon conversion of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
2.10 No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms herein, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
dilution or other impairment.
3. Call of Warrants. The Company may, at its option, at any time a
public trading market for the Company's Common Stock exists, upon not less than
15 days' nor more than 60 days' notice, call for redemption of all or any
portion of the then outstanding Warrant at a call price of $.05 per underlying
Warrant Share (such price is hereinafter referred to as the "Call Price"), at
any time, provided the average of the closing of the Company's Common Stock, as
determined pursuant to Section 2.3(a) above, has been at least 200% of the then
effective Exercise Price of the Warrant, for 20 consecutive business days ending
within 15 days of the date of the notice of such call shall have been given to
the Warrant holder by the Company. In the event the Company exercises its right
to redeem the Warrant, such Warrant will be exercisable until the close of
business on the date fixed for redemption in such notice. If any Warrant called
for redemption is not exercised by such time, such Warrant shall cease to be
exercisable and the holder thereof shall be entitled only to the redemption
price.
<PAGE> 5
4. Registration Rights. The Holder may request registration of the
Warrant Shares under that certain Registration Agreement dated as of August 24,
1994, as amended January 17, 1996, and September __, 1996, by and among the
Company, Holder and others, and any and all amendments thereto shall apply to
the Warrant Shares issued or issuable upon exercise of this Warrant.
5. Transfer of Warrant. This Warrant shall be registered on the
books of the Company and shall be transferable in whole or in part on such books
by the registered Holder hereof in person or by duly authorized attorney. Unless
and until this Warrant and the Warrant Shares are registered under the
Securities Act of 1933 (the "Securities Act"), this Warrant and any certificate
for Warrant Shares issued or issuable upon exercise of this Warrant shall
contain a legend on the face thereof, in form and substance satisfactory to
counsel for the Company, stating that this Warrant and the Warrant Shares may
not be sold, transferred or otherwise disposed of unless, in the opinion of
counsel satisfactory to the Company, the Warrant or the Warrant Shares may be
transferred without such registration. This Warrant and the Warrant Shares may
also be subject to restrictions on transferability under applicable state
securities or blue sky laws. Until this Warrant and the Warrant Shares are
registered under the Securities Act, the Company may require, as a condition of
transfer of this Warrant or the Warrant Shares that the transferee (who may be
the Holder in the case of an exercise or exchange) represent that the securities
being transferred are being acquired for investment purposes and for the
transferee's own account and not with a view to or for sale in connection with
any distribution of the security. The Company may also require that transferee
provide written information adequate to establish that the transferee is an
"accredited investor" within the meaning of Regulation D issued under the
Securities Act, and otherwise meets all qualifications necessary to comply with
exemptions to any applicable state securities and Blue Sky laws, all as
determined by counsel to the Company.
6. Reservation of Common Stock. The Company hereby covenants and agrees
that it shall at all times reserve and keep authorized and available for
issuance, free of any preemptive rights or rights of first refusal, a sufficient
number of Warrant Shares for the purpose of issuance upon exercise of this
Warrant to permit the exercise of this Warrant in whole.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by its duly authorized officers as of the _____ day of
September, 1996.
COMPUTER MOTION, INC.
By
----------------------------------
Its
----------------------------------
<PAGE> 6
ANNEX I TO WARRANT
EXERCISE AGREEMENT
The undersigned holder of the Warrant to which this Exercise Agreement is
attached as Annex I hereby (i) subscribes for ___________________ Warrant Shares
(as defined in the Warrant) which the undersigned is entitled to purchase
pursuant to the terms of such Warrant, (ii) encloses payment of the Exercise
Price for such Warrant Shares in the amount of $_________ and (iii) directs that
the certificates evidencing such shares of Common Stock be issued and delivered
to _______________________________.
Date: ________________ ___________________________________________
By:
--------------------------------------
Its:
--------------------------------------
<PAGE> 1
EXHIBIT 10.16
BUSINESS AGREEMENT between
Computer Motion, Inc. and Bulova Technologies, L.L.C.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
1. Purpose
2. Period of Agreement
3. Scope
4. Authorized Manufacturer Status
5. Quality Statement
6. Purchase Orders
7. Forecasts
8. Batch Manufacturing
9. Finished Goods Inventory
10. Pricing
11. Inventory Transfer from CMI to Bulova
12. Approved Suppliers and Open Purchase Orders
13. Invoices and Payment Terms
14. Shipping and Packaging
15. ECO Management, Document Control, and Configuration History
16. Non-Conforming Materials
16. Obsolete materials
18. Warranty & Non-Warranty
19. Service Spares and Replacement Parts
20. Root Cause and Corrective Action Process
21. Regulatory Compliance
22. Proprietary Information
23. Ownership
24. License
25. Product Liability and Insurance Coverage
26. Publicity
27. Survival
28. Assignments or Termination of Agreement
29. Miscellaneous
30. Agreement Signature Approvals
ADDENDUM A: Forecast Details
</TABLE>
Business Agreement
Page 1 of 10
<PAGE> 2
1. PURPOSE: This business agreement is made between Computer Motion, Inc.
(CMI) of Goleta, California and Bulova Technologies, L.L.C. (Bulova) of
Lancaster, Pennsylvania. CMI desires to purchase contract manufacturing
services provided by Bulova in accordance with the terms and conditions
established within this business agreement. Exclusive manufacturing
privileges are not provided by this agreement. Addendum's to this
agreement will be created as future products become available and the
specific terms and conditions for those products are defined by CMI and
Bulova. The addition of future products into this agreement is highly
dependent upon the performance and results associated with this first
product, the AESOP Positioner, and subject to mutual agreement of CMI and
Bulova.
2. PERIOD OF AGREEMENT: This agreement begins on February 28, 1997, and
continues until either CMI or Bulova exercises the termination clause
defined within section 28 of this agreement, "Assignments or Termination
of Agreement".
3. SCOPE
3.4 AESOP SCOPE POSITIONER: CMI will provide a completed design,
production ready samples, drawings, assembly instructions, certain
assembly tools, specifications, test fixtures, and test programs
related to an assembly referred to as a robotic positioning arm
(positioner), which is part of a CMI medical product system known as
AESOP (Automated Endoscopic System for Optimal Positioning). Bulova
will provide turnkey manufacturing services for this positioner
assembly, including component purchasing quality and reliability
management, documentation and configuration management, assembly
labor, manufacturing engineering, assembly processes, and functional
verification testing.
4. AUTHORIZED MANUFACTURER STATUS: Bulova is required to maintain status as
an authorized manufacturer, as defined in the following sections that
address assessments, qualification, product acceptance, and business
reviews.
4.1 ASSESSMENT PROCESS: The site assessment and product performance
review processes are conducted using CMI's TQRDCB assessment
techniques (Technology, Quality, Reliability, Delivery, Cost,
Business Relationship). CMI will provide a quarterly report card to
Bulova indicating the CMI rating of Bulova for performance against
expectations using these six assessment elements.
4.2 QUALIFICATIONS: Bulova will conform to a 2 level qualification
process, as described below.
4.2A MANUFACTURING SITE QUALIFICATION (MSQ): CMI has performed a
full assessment of the Bulova facility in Lancaster, PA, and
effective at the signing of this agreement, Bulova has earned
"manufacturing site" approval for this facility. This site
qualification is valid for the next 12 months and site
approval must renew each year by CMI. This renewal process
will include a follow-up site assessment and performance
review of the most recent year's contract activities with CMI.
Bulova will only manufacture CMI products from qualified
locations. If Bulova desires additional site qualifications, a
request should be made in writing to CMI at least 60 days in
advance of when any product or subassembly manufacturing
activity would begin. CMI will conduct the necessary site
audits within 30 days of receiving the written request, and
upon acceptance by CMI, a formal letter of Site Acceptance
would be provided. In no circumstance will any product or
subassembly work begin before this formal acceptance is
provided by CMI. Additionally, Bulova must maintain its
ISO9002 Registration for each site that is qualified.
4.2B PRODUCT MANUFACTURE QUALIFICATION (PMQ): CMI will allow a
conditional PMQ for the AESOP Positioner pending results from
the first quarterly performance review. PMQ is valid for an
indefinite period, and will be re-examined during all
quarterly performance reviews. Bulova must receive and
maintain specific PMQ for each product under contract with
CMI. Quarterly reviews will be conducted in conjunction with
Executive Business Reviews when possible, either by on site
visit or by telephone.
Page 2 of 10
<PAGE> 3
4.3 PRODUCT ACCEPTANCE CRITERIA: Bulova agrees to ship products that
conform to the CMI product acceptance checklist. This will include
functional test exercises and visual inspections that will be
documented by Bulova, and a duplicate copy of these acceptance test
results will be included with all shipments of the product to CMI.
Bulova will historically maintain all records of inspection and test
of components, sub-assemblies, and finished goods related to this
CMI agreement. Any shipment of non-conforming product to CMI will
result in an immediate suspension of all manufacturing activity for
that specific product. This suspension will remain in effect until
root cause and corrective actions are defined, as outlined in
section 20, "Root Cause and Corrective Action Process".
4.4 EXECUTIVE BUSINESS REVIEWS: Business reviews to discuss ratings,
performance, corrective actions, and building the strategic
relationship will be organized twice annually. Additional reviews
may be conducted as required, and can be initiated by either party.
The location of the semi-annual reviews will rotate between CMI and
Bulova.
5. QUALITY STATEMENT: Bulova agrees and assures that all products
manufactured by Bulova for CMI must conform to the rigorous requirements
that are typical of a class 2 medical device as they relate to quality and
long term reliability. Bulova will measure quality and reliability
performance for the duration of this agreement and provide written
quantitative results on a quarterly basis. The metrics for measurement and
reporting will be mutually agreed upon by Bulova and CMI.
6. PURCHASE ORDERS: CMI will issue blanket purchase orders as required
authorizing Bulova to procure all AESOP components required to meet at
least the next 12 months' delivery requirements. These blanket purchase
orders will be binding on CMI for all material required to meet CMI's 12
month delivery requirements. Monthly, all current open delivery dates will
be reviewed, and delivery dates and quantities will be adjusted to match
CMI requirements. Bulova will provide a detailed rolling delivery date
commitment with a horizon of 90 days. A blanket purchase order for 210
units will be issued with the signing of this business agreement, which
should meet the delivery requirements of CMI for the first 12 month
delivery period beginning June 1997.
7. FORECASTS: Quarterly, CMI will provide Bulova with a rolling 18 month
forecast. There is no commitment by CMI to Bulova resulting from this
forecast information, except as defined in blanket purchase orders. It is
the intent of CMI to limit all purchase liability to the commitments
provided in blanket purchase orders. The 18 month rolling forecast is
provided for strategic planning purposes only, and is non-binding. See
addendum A for the first forecast for the AESOP Scope Positioner.
8. BATCH MANUFACTURING: In order for Bulova to achieve economies associated
with component purchasing and product assembly, it is the intent of Bulova
to build positioner assemblies in 6 month batches. The first forecast
build schedule is estimated as follows, with trigger points and the
resulting build/ship periods defined.
<TABLE>
<CAPTION>
==============================================================================
fresh build supplier kit complete build ship
forecast qty POs Placed & released period period
- ------------------------------------------------------------------------------
6 months 30 days 90 days 30 days 6 months
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*]
==============================================================================
</TABLE>
Page 3 of 10
<PAGE> 4
9. FINISHED GOODS INVENTORY: In order to meet the demands of a dynamic
industry, Bulova shall manufacture and keep available a minimum of 90 days
worth of finished goods inventory on hand at all times. CMI will be liable
for this 90 days worth of finished goods inventory to include all material
and labor. This 90 day quantity will be defined directly from the
forecasts provided by CMI. This finished goods Inventory will provide the
necessary shipment flexibility to meet all planned and unplanned customer
demand. CMI agrees to purchase the number of units projected in the 90 day
forecast. Bulova agrees to store these completed units a maximum of 30
days beyond the 90 day rolling forecast at no cost. At the end of this 30
day period, Bulova will invoice for units not shipped.
10. PRICING: AESOP SCOPE POSITIONER: Initial AESOP positioner pricing will be
on a "cost plus not to exceed" basis. The unit price target for the first
100 units is $5,200, with a maximum unit price cap of $5,500. Cost plus
pricing will be calculated as follows:
<TABLE>
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
---
[*] [*]
[*] [*]
</TABLE>
All costs shown above are estimated. Actual prices to CMI are variable and will
depend upon actual cost results, except for Overhead (facility, OH, indirect
labor, profit). The overhead fee of $[*] per unit is fixed for these first 100
units. Pricing for the second batch of 100 units manufactured by Bulova will be
negotiated after all cost information is available from the first batch of 100
units. Bulova agrees to provide all cost information relating to materials,
direct labor, overhead labor, and overhead costs. The time frame of this
negotiation will be May/June 1997. All finished product prices shall include
packaging materials, packing labor, and taxes associated with the manufacture of
the product. Shipping costs will be charged separately at actual cost, or billed
direct to CMI in accordance with CMI instructions.
11. INVENTORY TRANSFER FROM CMI TO BULOVA: Bulova agrees to purchase existing
inventories from Teleflex Control Systems (TCS) in Oxnard, Ca. This is
CMI's current subcontractor for use in the manufacture of the AESOP
Positioner. The value of these inventories is approximately $[*].
Within 30 days of signing this agreement, Bulova agrees to issue a
purchase order to TCS for this inventory. Invoicing for these materials
will be 50% at the time of initial inventory transfer, and 50% 4 months
later. Payment terms will be net 45 days from invoice date. It is
estimated that this first 50% represents two thirds of the materials
requirement for the first 100 positioners. It is further estimated that
90% of this inventory will be consumed with the manufacture of the first
200 positioners. CMI assumes full responsibility for any non-conforming
materials that are a part of this initial inventory transfer, and as such
will facilitate a return for credit or replacement to TCS. CMI will
reimburse Bulova for the full value of any non-conforming product no later
than 45 days after Bulova determines the product is non-conforming. Bulova
agrees to make best efforts to control and protect the integrity of this
inventory, and to resolve all potential non-conformance's in a timely
fashion. Further, all non-conforming material dispositions must be in the
best interests of both CMI and Bulova. Non-conforming material
dispositions must be made jointly between CMI and Bulova if that
disposition results in a cost to CMI. Bulova will assume responsibility
for all materials damaged by Bulova.
12. APPROVED SUPPLIERS AND OPEN PURCHASE ORDERS: All component suppliers are
subject to approval by CMI prior to incorporating any supplied components
or assemblies into the final assembly for shipment to CMI or a CMI
customer. As part of the technical document package, an approved supplier
list will be provided. This approved supplier list will be ECO controlled
and all proposed changes to current approved suppliers will require
written ECO acceptance by CMI. The words "supplier" and "vendor" shall be
synonymous. This approved supplier list will be referred to as the AVL.
Bulova retains full responsibility for supplier compliance to quality and
reliability requirements independent of the AVL approval process.
Page 4 of 10
<PAGE> 5
Additionally, CMI will be assuming approximately $[*] in open component
purchase commitments from Teleflex Control Systems. These open purchase
orders are for current revision components related to the manufacture of
the AESOP positioner. In order to reduce this open purchase liability
between CMI and various approved suppliers, Bulova agrees to place
purchase orders with these current approved suppliers prior to placing
orders with any other approved suppliers. A complete listing of the open
purchase commitments will be provided with the technical document package
at the commencement of this business agreement. Quarterly reviews between
CMI and Bulova will examine progress toward reducing this CMI open
purchase order liability. Bulova agrees to make its best effort to
cooperate with CMI in this effort.
13. INVOICES AND PAYMENT TERMS: All invoices will reflect PO#, line#, ship
date, part#, and serial numbers for all products shipped. All invoices
will be dated no earlier than the date product is shipped to CMI or to a
CMI customer, and payable in net 45 days from invoice date. Invoices for
non-conforming products will be credited by Bulova to CMI upon
conformation of the non-conformance by Bulova. At the time of disposition
as a conforming product, a new invoice will be submitted by Bulova.
14. SHIPPING AND PACKAGING: Unless otherwise specified within the purchase
order, all products will be delivered F.O.B. Lancaster, PA to the CMI
delivery address. All products shipped from Bulova to CMI or to CMI
customers will conform to the CMI packaging specification for that
product. Shipping materials will be procured by Bulova in accordance with
these specifications. CMI will provide these specifications and
instructions prior to the shipment of first articles. Bulova will be
responsible for all damage or loss due to Bulova's failure to properly
package products in accordance with specifications and instructions. Under
no circumstances will Bulova ever ship CMI products via United Parcel
Service, unless prior written consent is provided by CMI.
15. ECO MANAGEMENT, DOCUMENT CONTROL, & CONFIGURATION HISTORY: CMI retains all
ECO (engineering change order) approval responsibility. All component
specification changes or design modifications must be approved by the CMI
Director of Quality and Regulatory Affairs. Bulova is permitted to propose
and document proposed changes. However all changes must be approved by CMI
prior to incorporation into any product manufactured for CMI. It will be
the responsibility of Bulova to maintain a complete technical document
package at the Lancaster facility, and properly manage the revision level
and location of all document copies. All documents that will change as a
result of an approved ECO, will be updated by Bulova, and a copy
(electronic or hard copy) will be provided to CMI within 30 days after
approval and incorporation. All products will display a unique serial
number. This serial number will be created in accordance with CMI
instructions. A detailed configuration history by product serial number
and ship date must be maintained at all times, with quarterly updates
provided to CMI. All documentation, approved ECO's, configuration
histories, inspection data, and acceptance test reports must be
periodically archived and held in a safe location other than the
manufacturing site in Lancaster, PA. Archives can be electronic, hard
copy, or microfilm, as long as duplication is possible in the event of a
forced recovery.
16. NON-CONFORMING MATERIALS: Bulova will fully manage and take responsibility
for all conformance requirements for materials. Bulova will make best
efforts to assure all material conformance, and seek return for
replacement or credit from suppliers who do not meet design, performance
or reliability specifications.
17. OBSOLETE MATERIALS: CMI will assume all responsibility for obsolete
materials resulting from any changes approved by CMI. It will be incumbent
upon Bulova to negotiate an equitable disposition of all obsolete material
for Bulova and CMI.
18. WARRANTY AND NON-WARRANTY: Bulova warrants that all finished products and
the components required to manufacture these products will be new at time
of delivery and, for a period
Page 5 of 10
<PAGE> 6
of [*] years following acceptance by CMI, will be free from defects in
material and workmanship. Bulova will repair or replace all products
returned to Bulova within this [*] year period at no additional charge to
CMI or CMI customers. All repairs or replacements performed by Bulova for
non-warranty products will be in accordance with the following formula.
Actual material cost plus [*]% to cover overhead, and actual direct
"touch" labor wages plus [*]% to cover overhead and G&A. Alternatively,
Bulova may negotiate fixed pricing for these non-warranty repairs. It is
the intent of CMI to minimize the revenue opportunity in non-warranty
repairs, and Bulova agrees to structure this activity as a non-profit
service to CMI and CMI customers. With this philosophy in mind, CMI and
Bulova agree to invest reasonable resources into designing and
manufacturing products intended to remain defect free for the useful life
of the product. This useful life is considered to be [*] years active duty
in an operating room or medical research environment. The warranty and
remedy provided under this section is the sole and exclusive warranty and
remedy offered by Bulova hereunder; and in particular Bulova hereby
excludes any implied warranty or merchantability or fitness for a
particular purpose. Bulova agrees to manufacture this product in
accordance with the appropriate specifications and drawings.
19. SERVICE SPARES AND REPLACEMENT PARTS: In the event that CMI desires to
provide repair services for products manufactured by Bulova, it is agreed
that Bulova will provide any spare or replacement parts to CMI at actual
cost plus [*]% to cover overhead and G&A. Bulova will provide these
components at any time during the production life of the product, but only
so long as the actual replacement part desired remains part of the
product. If any component or product is planned to experience an
end-of-life in production, CMI will be given notice and opportunity to
place an end-of-life purchase for spares and replacement components no
later than 120 days prior to a components end-of-production life. Bulova
will create and gain approval from CMI on an end-of-life component
purchase that Bulova will maintain for a period of two years after the
last product containing that component is shipped from Bulova to CMI or a
CMI customer. After this two year period, CMI will be responsible for the
purchase of these remaining material inventories less all quantities
consumed in the repair/replacement relationship. The purchase price will
be actual purchase prices without markup for overhead. Bulova will assume
responsibility for all other excess materials that were not part of the
inventory repair/replacement plan and remain after this two year period.
20. ROOT CAUSE AND CORRECTIVE ACTION PROCESS: All non-conforming products that
are identified at Bulova during the final test process, or any
non-conforming products that are discovered at CMI must become part of a
formal corrective action process. This process can be defined by Bulova
and approved by CMI. This process must include a conclusive root cause
effort and written corrective action plan for each non-conformance. It is
imperative that this process be as timely as possible. Any non-conforming
product that ships to CMI may result in an immediate suspension of all
future shipments to CMI until the root cause effort is complete, and the
corrective actions identified. This possible suspension of product
shipments will be at the discretion of CMI. Invoices for product found to
be non-conforming at CMI or CMI customer site, will be placed on hold
until final disposition as a conforming product, per section 13, "Invoices
and Payment Terms".
21. REGULATORY COMPLIANCE: CMI will forward copies of all customer complaints,
user reports, and MDR's relating to possible failures in performance of
any products manufactured by Bulova for CMI. Bulova will cooperate fully
in the investigation of these complaints and root cause determination of
all possible failure modes. If the investigation reveals that the affected
products were the result of non-compliance to this agreement by Bulova,
than all affected products will be modified or replaced by Bulova during a
CMI defined corrective action implementation effort, and the costs for
that investigation and corrective action implementation will be the sole
responsibility of Bulova. For any root cause determination that indicates
Bulova was not responsible, CMI will bear the cost of the investigation
and corrective action implementation. If suppliers contracted by Bulova
are found to be responsible for failures, than Bulova will take full
responsibility for the corrective action implementation with that
supplier, including the investigation activities by Bulova or the
supplier. All investigative activities and corrective action
implementation efforts will be documented in written reports provided to
CMI in a timely fashion. Bulova agrees to become registered with the FDA
as a
Page 6 of 10
<PAGE> 7
Contract Medical Device Manufacturer, in accordance with FDA Cosmetic Act
21 CFR Part 807 as amended, and manufacture all products in compliance
with all applicable regulations. Bulova will provide copies of any FAD GMP
Compliance inspection reports, FDA Form 483 observations, warning letters,
and close-out reports for any Bulova facility where CMI products are
manufactured.
22. PROPRIETARY INFORMATION: Bulova will maintain proprietary information (PI)
as confidential and protect against disclosure to any unauthorized person.
PI is defined as any and all drawings, specifications, blueprints, data,
trade secrets, manufacturing information, internal reports, testing
results, customer names, other confidential information or correspondence,
and business or business strategy information that Bulova learns or
aquires by virtue of the relationship between CMI and Bulova. PI shall not
include: a) information known to Bulova at the time of its disclosure by
CMI; b) information obtained by Bulova from a 3'rd party which to Bulova's
knowledge, is under no restriction as to its disclosure; c) information
which is subsequently developed by Bulova without reference to proprietary
information provided by CMI; d) information which enters into the public
domain without breech of this business agreement by Bulova. Authorized
persons are defined as Bulova employees or supplier employees needing to
have access to CMI PI in order for them to perform their job in support of
this agreement. Bulova will assure that all Bulova or supplier employees
that are provided access to PI will have a legal duty to protect all PI
and will fully understand their responsibility to protect all PI against
disclosure to any unauthorized person. Unauthorized persons are defined as
not employed by Bulova, or employed by Bulova but not required by job
responsibility to become involved in activities relating to this agreement
between Bulova and CMI.
23. OWNERSHIP: CMI will retain exclusive ownership of all PI, tooling, test
fixtures, test programs, ECO's, and related writings that are either
provided to Bulova, or created by Bulova as a result of this agreement. In
the event of a termination of this agreement by either party, these
exclusive rights will remain with CMI, and Bulova will provide all of
these documents, materials and equipment to CMI in a timely fashion
(within 90 days after termination notice is provided) in order for CMI to
transfer the manufacture of CMI products.
24. LICENSE: CMI grants no license, nor is any license, right, or privilege
implied by this agreement for Bulova to manufacture and ship products to
any customer or location other than as defined by CMI in a written
purchase order from CMI. All products under this agreement will be shipped
by Bulova in accordance with CMI instructions, and paid for by CMI
directly to Bulova. Bulova will not participate in any business
arrangement that conflicts with this agreement.
25. PRODUCT LIABILITY AND INSURANCE COVERAGE: Bulova agrees to indemnify, hold
harmless, and defend CMI, and CMI officers, directors, employees,
shareholders, and agents against all claims, damages, and costs including
attorneys' fees arising in favor of any person, group, or corporation on
account of product liability relating to a defect other than a defect for
which CMI bears responsibility in the manufacture of any product by Bulova
for CMI. Bulova will not enter into any settlement that affects CMI rights
or interest without prior written consent from CMI. Bulova shall have no
authority to settle any claim on behalf of CMI. During the period of this
agreement, Bulova will maintain at its expense the following minimum
levels of insurance coverage:
Comprehensive General Liability Insurance with personal and bodily
injury and property damage with a combined single limit of not less
than $2,000,000.
Workers Compensation Insurance to cover the full liability under the
laws of the state in which work is performed, with Employers'
Liability Coverage with a limit of not less than $500,000.
Page 7 of 10
<PAGE> 8
Automobile Liability Insurance covering bodily injury and property
damage liability arising out of the use by or on hired automobile
with combined single limits of not less than $1,000,000.
Product Liability Insurance with a single limit of not less than
$2,000,000.
26. PUBLICITY: Bulova will not disclose or advertise the existence of this
business agreement or any activities resulting from this business
agreement, as such information will be considered "proprietary
information". This includes information required by law to be incorporated
into financial or regulatory reports. Any financial or regulatory reports
containing proprietary information will be protected as proprietary
information, and provided only to those entities or persons who require it
by legal regulation.
27. SURVIVAL: All provisions defined in sections 15, 18, 19, 21, 22, 23, 24,
25, 26, and 27 of this agreement shall survive the termination of this
agreement for a period of five years.
28. ASSIGNMENTS OR TERMINATION OF AGREEMENT: The rights, duties, and
obligations of this business agreement are not transferable by Bulova in
part or in whole without prior written consent from CMI. Either Bulova or
CMI may terminate this agreement at any time. If Bulova terminates, such
termination must include formal written notification of intent to
terminate, and must include a transition plan that provides product
coverage to CMI for at least [*] months from the written termination
notification date. If CMI terminates. CMI agrees to purchase, and Bulova
agrees to release, all component and product inventory that is covered by
purchase order from CMI to Bulova. The cost for finished products will be
in accordance with the established pricing at the time of termination. The
cost for components will be at actual purchase cost without markup.
29. MISCELLANEOUS:
29.30 SECTION HEADINGS: The section headings used in this Business
Agreement (Agreement) are for purposes of convenience only. They
shall not be construed to limit or extend the meaning of any part of
this agreement.
29.31 NOTICES: Any notice, demand, approval, consent, or other
communication required or desired to be given under this Agreement
shall be in writing and shall be either personally served or mailed
in the United States mails, certified, return receipt requested,
postage prepaid, addressed to the party to be served with the copies
indicated below, at the last address given by that party to the
other under the provisions of this section. All such communications
shall be deemed delivered at the earlier of actual receipt or three
(3) business days following mailing as aforesaid.
CMI: Computer Motion, Inc.
130-B Cremona Drive
Goleta, CA 93117
Attention: David A. Stuart
VP of Operations
Bulova: Bulova Technologies, L.L.C.
P.O. Box 4787
101 N. Queen Street
Lancaster, PA 17604-4787
Attention: Ralph C. Buehler
Sr. Contract Administrator
Page 8 of 10
<PAGE> 9
29.3 BINDING EFFECT: All the terms, covenants and conditions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors.
29.4 ENTIRE AGREEMENT: This Agreement sets forth the entire understanding
and agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any prior understanding,
agreement or statement, written or oral, with respect to the same.
No provision of this Agreement shall be construed to confer any
rights or remedies on any person other than parties hereto.
29.5 CALIFORNIA LAW: This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such state.
29.6 TIME OF THE ESSENCE: Time is of the essence in the performance of
each and every provision of this Agreement.
29.7 ATTORNEYS' FEES: In the event of any controversy, claim or dispute
between the parties hereto rising out of or relating to this
Agreement or any of the documents provided for herein, or the breach
thereof, the prevailing party shall be entitled to recover from the
losing party reasonable attorneys' fees, expenses and costs.
29.8 PARTIES IN INTEREST: Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it
and their respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor
shall any right of subrogation or action over or against any party
to this Agreement.
29.9 MODIFICATION: This Agreement, and the Schedules referenced herein,
shall not be modified except by a writing signed on behalf of each
of the parties hereto.
29.10 SEVERABILITY: If any term, provision, covenant or condition of this
Agreement is found by a court of competent jurisdiction to be
invalid, void or unenforceable, then such term, provision, covenant
or condition shall be deemed to be stricken from this Agreement and
the remainder of this Agreement shall remain in full force and
effect and shall in no way be effected, impaired or invalidated
thereby.
29.11 INDEPENDENT CONTRACTOR STATUS, NO AGENCY: Bulova's and CMI's
activities hereunder shall be conducted as independent contractors
and no agency relationship shall exist between the parties.
30. AGREEMENT SIGNATURE APPROVALS
CMI and Bulova agree to execute this agreement on this day, February 18, 1997.
Computer Motion, Inc. Bulova Technologies, LLC
By: David A. Stuart By: Douglas A. Bell
Title: Vice President of Operations Title: Senior Vice President Operations
Signature: Signature:
- ----------------------------- -----------------------------
Page 9 of 10
<PAGE> 10
WITNESS: WITNESS:
By: By:
------------------------ --------------------------
Signature: Signature:
- ---------------------------- ------------------------------
ADDENDUM A: FORECAST DETAILS
Date of this forecast: February 18, 1997
Shipment Forecast for AESOP Scope Positioner over the first 18 shipment
months of this agreement will be as follows:
<TABLE>
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
Page 10 of 10
<PAGE> 1
EXHIBIT 10.17
NET, NET, NET
LEASE
THIS LEASE, dated March 1, 1994 for reference purposes only is made
between the Lessor and the Lessee named below, effective on the later of the
dates set forth under their respective signatures.
BASIC LEASE PROVISIONS
<TABLE>
<S> <C>
1. PREMISES: As depicted on Exhibit A
PROJECT NAME: UNIVERSITY BUSINESS CENTER
BUILDING NAME: UNIVERSITY BUSINESS CENTER
PREMISES ADDRESS: 130 Cremona Drive
Santa Barbara, CA 93101
USE OF PREMISES: Offices, light assembly and testing
2. LEASED AREA: As depicted on Exhibit A
SQUARE FEET: 12,820 square feet
3. LESSEE'S PERCENTAGES:
BUILDING: 32.8%
COMMON AREA: 5.52%
4. INITIAL MONTHLY RENT: $3,525
During the initial eight (8) months of the
Lease term, the monthly rental installments
shall be $3,525 (i.e., 25% of the regular
amount of monthly rental installments), and
the Lessee shall also be obligated to pay
only twenty-five Percent (25%) of the
Building Operating Expenses or Common Area
Expenses otherwise due during that eight (8)
month period.
RENTAL DEPOSIT: $14,102 (ninth (9th) month's rent)
RENT ADJUSTMENT: Rent to be increased Three Percent (3%) per
annum commencing on the first (1st) day of
the thirteenth (13th) month of this Lease.
5. INITIAL MONTHLY RENTAL
INSTALLMENTS: $14,102
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
6. TERM: Five (5) years. There is one five (5) year
renewal option
7. COMMENCEMENT DATE: March 1, 1994
TERMINATION DATE: February 28, 1999
8. SECURITY DEPOSIT: $14,102.
9. BROKER(S): Blair Hayes - Lessor
Beaver Free - Lessee
10. PARKING SPACES PROVIDED: Thirty-nine (39).
11. TENANT IMPROVEMENTS AND
MOVING ALLOWANCE: As provided in Section 18 of the Lease.
12. CONDITIONS: The obligations of the parties under this
Lease are subject to (I) approval by the
Lessor's Lender, and (ii) cancellation of an
existing Lease with ABC Clio, Inc. as to
approximately 2,300 square feet which is to
be included in the premises, by January 30,
1994.
</TABLE>
13. Submission of this instruments for examination or signature by the
Lessee does not constitute a reservation of or option for space and it
is not effective as a lease or otherwise until execution by both the
Lessee and the Lessor. This document will be deemed withdrawn by the
Lessor if not executed by the Lessee and delivered to the Lessor by
January 20, 1994.
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing Basic Lease Provisions, Articles 1 through 19 which
follow, and any attached Exhibits or Addendums, as of the date first above
written.
LESSOR:
Date: January ____, 1994 UNIVERSITY BUSINESS CENTER ASSOCIATES,
A CALIFORNIA GENERAL PARTNERSHIP
BY:
COPLEY PROPERTIES, INC.
By:________________________________________
Title:_____________________________________
-ii-
<PAGE> 3
Date: January ____, 1994 BY:
JCB LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP
By:________________________________________
Title:_____________________________________
Address:
600 Pine Street, Suite 200
Goleta, CA 93117
LESSEE:
Date: January ____, 1994 COMPUTER MOTION, INC.
By:_______________________________________
ROBERT W. DUGGAN,
CHAIRMAN
Address:
130 Cremona Drive
Santa Barbara, CA
-iii-
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
Basic Lease Provisions ............................................................... i - iii
Table of Contents .................................................................... iv - vi
1. LEASE OF PREMISES..................................................................... 1
2. TERM ................................................................................. 2
2.1 Commencement of Term ........................................................... 1
2.2 Delay in Commencement........................................................... 1
3. RENT ................................................................................. 2
3.1 Initial Annual Rent ........................................................ 2
3.1.1. Rental Deposit ...................................................... 2
3.2 Additional Rent ............................................................ 2
3.3 No Reduction or Offset...................................................... 2
3.4 Definitions ................................................................ 2
3.5 Rent Adjustment ............................................................ 4
3.6 Calculation and Payment .................................................... 4
3.7 End of Term. ............................................................... 5
4. SECURITY DEPOSIT...................................................................... 5
5. USE .................................................................................. 5
5.1 Use ........................................................................ 5
5.2 Compliance with Law......................................................... 6
5.3 Insurance Cancellation ..................................................... 6
5.4 Hazardous Substances . ..................................................... 6
5.5 Environmental Laws ......................................................... 8
(a) Compliance with Environmental Laws ............................... 8
(b) Hazardous Materials Handling ..................................... 8
(c) Notices .......................................................... 9
(d) Indemnification of Lessor ........................................ 9
(e) Indemnification of Lessee ........................................ 9
6. MAINTEANCE, REPAIRS AND ALTERNATIONS.................................................. 10
6.1 Lessor's Obligations ....................................................... 10
6.2 Lessee's Obligations . . ................................................... 10
6.3 Alterations and Additions .................................................. 10
6.4 Surrender .................................................................. 11
6.5 Lessor's Rights ............................................................ 11
</TABLE>
-iv-
<PAGE> 5
<TABLE>
<S> <C>
7. INSURANCE ............................................................................ 11
7.1 Lessee's Liability Insurance................................................ 11
7.2 Lessee's Worker's Compensation Insurance ................................... 11
7.3 Lessee's Fire and Extended Coverage Insurance............................... 11
7.4 Policy Requirements ........................................................ 12
7.5 Lessor's Rights ............................................................ 12
7.6 Lessor's Insurance ......................................................... 12
7.7 Indemnification ............................................................ 12
7.8 Exemption of Lessor from Liability ......................................... 13
8. DAMAGE OR DESTRUCTION ................................................................ 13
8.1 Partial Damage ............................................................. 13
8.2 Damage Near End of Term..................................................... 13
8.3 Abatement of Rent; Lessee's Remedies........................................ 14
8.4 Insurance Proceeds Upon Termination ........................................ 14
8.5 Restoration................................................................. 14
9. PERSONAL PROPERTY TAXES .............................................................. 14
10. UTILITIES ............................................................................ 14
11 ASSIGNMENT AND SUBLETTING ............................................................ 15
12. DEFAULTS, REMEDIES ................................................................... 17
12.1 Default by Lessee .......................................................... 17
12.2 Remedies for Default by Lessee ............................................. 17
12.3 Default by Lessor .......................................................... 18
12.4 Late Charges ............................................................... 19
13. CONDEMNATION OR RESTRICITON OF USE ................................................... 19
13.1 Eminent Domain ............................................................. 19
13.2 Abatement of Rent .......................................................... 19
13.3 Temporary Taking ........................................................... 19
13.4 Voluntary Sale as Taking.................................................... 19
14. BROKERS .............................................................................. 20
15. LESSOR'S LIABILITY ................................................................... 20
16. PARKING .............................................................................. 21
17. GENERAL PROVISIONS ................................................................... 21
17.1 Estoppel Certificate ....................................................... 21
17.2 Severability ............................................................... 22
17.3 Time of Essence ............................................................ 22
17.4 Captions ................................................................... 22
17.5 Notices .................................................................... 22
17.6 Waivers .................................................................... 22
17.7 Holding Over ............................................................... 22
</TABLE>
-v-
<PAGE> 6
<TABLE>
<S> <C>
17.8 Cumulative Remedies ........................................................ 22
17.9 Inurement .................................................................. 22
17.10 Choice of Law ............................................................. 22
17.11 Subordination ............................................................. 23
17.12 Attorneys' Fees ............................................................ 23
17.13 Lessor's Access ............................................................ 23
17.14 Corporate Authority ....................................................... 23
17.15 Surrender or Cancellation ................................................. 23
17.16 Entire Agreement ........................................................... 24
17.17 Signs ...................................................................... 24
17.18 Interest on Past Due Obligations ........................................... 24
17.19 Gender, Number ............................................................. 24
17.20 Recording of Lease.......................................................... 24
17.21 Waiver of Subrogation....................................................... 24
17.22 Confidentiality of Lease .................................................. 25
17.23 Quite Enjoyment ............................................................ 25
17.24 Window Coverage ............................................................ 25
17.25 Materials Storage Restrictions ............................................. 25
17.26 No Agency .................................................................. 25
17.27 Force Majeure .............................................................. 25
17.28 Accord and Satisfaction .................................................... 25
17.29 Financial Statements ...................................................... 26
17.30 Supersedes Proposal to Lease ............................................... 26
17.31 Construction .............................................................. 26
17.32 Non-Disturbance Agreement .................................................. 26
18. CONSTRUCTION ......................................................................... 27
19. RENEWAL OPTION ....................................................................... 28
</TABLE>
EXHIBIT A - PREMISES
EXHIBIT B - CONFIGURATION OF PROJECT, LOCATION OF BUILDING(S), PREMISES AND
ASSOCIATED COMMON AND PARKING AREAS
EXHIBIT C - RULES AND REGULATIONS
EXHIBIT D - NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-vi-
<PAGE> 7
1 LEASE OF PREMISES
The Lessor hereby leases to the Lessee and the Lessee leases from
the Lessor for the term, at the rental, and upon all of the conditions set forth
in this Lease, the Premises identified in Item 1 of the Basic Lease Provisions,
together with the non-exclusive use, in common, with the Lessor and other
tenants of the Building and their respective invitees, of common areas in or
about the Building and the parking garage (if any), or parking areas adjoining
the Building, The Lessee and the Lessor have agreed on the square footage set
forth in Item 2 of the Basic Lease Provisions and each party will be bound by
Item 2 through the term of this Lease or any extension thereof. The approximate
anticipated configuration of the Project and the location of the Building,
Premises and associated common and parking areas is indicated on Exhibit "B".
the size, location and function of the buildings and related structures depicted
here are approximate. The configuration of the development, the design, size,
function and location of all other improvements, and the identify and location
of other tenants to the extent depicted are subject to change without notice for
any reason deemed sufficient by the owner. The Lessor reserves the right to
alter the configuration of the Project to construct additional improvements
thereon, to withdraw areas therefrom from to time and alter the configuration of
the associated common parking areas, provided that the number of parking spaces
intended for the Lessee's use, and the Lessee's general use and enjoyment of the
Premises shall not thereby be materially diminished. The Lessee shall be
allocated the number of parking spaces set forth in item 10 of the Basic Lease
Provisions and the Lessee acknowledges that the Lessor shall have no
responsibility to supervise or police the usage of the parking lot by the
tenants of the Building. Nothing in this Lease shall cause the Lessor in any way
to be construed as an employer, employee, fiduciary, a partner, a joint venturer
or otherwise associated in any way with the Lessee in the operation of the
Premises, or to subject the Lessor to any obligation, loss, charge or expense
connection with or arising from the Lessee's operation or use of the Premises.
Pursuant to Section 1652 of the California Civil Code, it is
understood and agreed that the general intent and purpose of this Lease is that
this Lease shall be an absolute triple net lease with respect to the Lessor. The
Lessee shall pay its pro rata share of all insurance, utilities, all operating
costs for the Premises, the common areas of the Building, the Building and the
land on which it is situated. It is intended that the rental return to the
Lessor shall not be reduced, offset or diminished directly or indirectly by any
cost, charge, or expense due from the Lessee and others in connection with the
Premises, Building, or land upon which it is situated, nor subject to suspension
or termination for any reason. It is acknowledged and agreed that all provisions
of this Lease shall be interpreted in a manner consistent with and subordinate
to such general intent and purpose.
2. TERM
2.1 COMMENCEMENT OF TERM
(A) The term of the Lease shall be as shown in item 6
of the Basic Lease Provisions commencing on the Commencement Date, which the
Lessor and the Lessee expect to be the Commencement Date as shown in item 7 of
the Basic Lease Provisions, but which may be such other date as herein provided,
and ending on the Termination Date, unless sooner terminated pursuant to any
provision hereof.
(B) Notwithstanding the foregoing, the term of this
Lease and the payment of rent shall commence upon the Lessor's completion of
substantially all of the improvements to the Premises and delivery of the
substantially completed Premises.
<PAGE> 8
(C) If delivery of possession occurs prior to the
Commencement Date, the term of this Lease shall commence on such date of
delivery of possession, but the Termination Date shall not be advanced.
2.2 DELAY IN COMMENCEMENT. Not withstanding the Commencement
Date, if for any reason the Lessor cannot deliver possession of the Premises to
the Lessee on or before said date, the Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of the Lessee hereunder or extend the term hereof provided,
however, that if the Lessor shall not have delivered possession of the Premises
within four (4) months after the Commencement Date, the Lessee may, at the
Lessee's option by notice in writing to the Lessor, within ten (10) days,
thereafter, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder. The Lessee shall not be obligated to pay rent
until delivery of possession of the Premises has occurred.
3. RENT
3.1 INITIAL ANNUAL RENT. The Lessee shall pay to the Lessor as
rent for the Premises an Initial Annual Rent in the amount specified in item 4
of the Basic Lease Provisions in equal monthly installments in the amount
specified in item 5 of the Basic Lease Provisions in advance on the first day of
each month.
3.1.1 RENTAL DEPOSIT. Upon Lease execution, the Lessee
shall deposit with the lessor an amount equivalent to the ninth (9th) month's
rent as provided in item 4 of the Basic Lease Provisions.
3.2 ADDITIONAL RENT. The Lessee shall reimburse the Lessor, as
additional rent, in the manner and at the times provided, for the Lessee's
proportionate share of all Building Operating Expenses and Common Area Operating
Expenses (as hereinafter defined) incurred by the Lessor. The Lessee's
proportionate share of such Building Operating Expenses and Common Area
Operating Expenses shall be based upon the Lessee's Building Percentage in the
case of Building Operating Expenses, and upon the Lessee's Common Area
Percentage in t he case of Common Area Operating Expenses, all as defined
herein.
3.3 NO REDUCTION OR OFFSET. All Rent due under this Lease shall
be payable without deduction, abatement or offset.
3.4 DEFINITIONS: For purposes of this Article 3:
(A) The Lessee's Building Percentage is a percentage
calculated by dividing the Leased Area of the Premises, as shown in item 2 of
the Basic Lease Provisions, by the leasable area of the Building, as is
stipulated to be as shown in item 3 of the Basic Lease Provisions.
-2-
<PAGE> 9
(B) Building Operating Expenses shall mean the sum of all
expenses incurred by the Lessor in connection with the operation, repair and
maintenance of the Building, including, but not limited to, heating and air
conditioning; all real property taxes (as hereinafter defined) imposed upon or
with respect to the Building and related improvements (exclusive of the land
underlying all such improvements); all fire and extended coverage, earthquake,
loss of rents, vandalism, malicious mischief and other insurance covering the
Building and losses suffered which fall below the insurance deductible;
utilities; materials and supplies, salaries, wages and other expenses incurred
with respect to the operation, repair and maintenance of the Building, the cost
of repainting (except for the first repainting after the execution of this
Lease), wall covering or recarpeting Common Areas of the Building; security and
fire protection; amortization of capital investments for improvements which are
designed to reduce operating costs, improve operations or comply with
governmental conservation or safety programs over such reasonable period as the
Lessor shall determine (together with interest at three (3) percentage points
above the discount rate of the Federal Reserve Bank of San Francisco on the
unamortized amount); and an amount equal to fifteen percent (15%) of all such
expenses to cover the Lessor's administrative and overhead expenses. Building
Operating Expenses attributable to the utilities and services furnished pursuant
to Article 10 shall be apportioned among the tenants of the Building receiving
such services (excluding those tenants furnishing or paying for their own
utilities- and janitorial services) based on the respective leased areas
occupied by such tenants.
(C) Lessee's Common Area Percentage is a percentage figure
calculated by the project architect by dividing the Leased Area of the Premises
by the total leasable area in all improvements, including the Building and other
buildings, shown on Exhibit "B", during such year as is initially stipulated to
be as shown in item 3 of the Basic Lease Provisions. Should the Building and/or
landscape area become a separate legal lot, or should additional improvements or
common area be added to or deleted from Exhibit "B", the Lessor may, at its
option, calculate the Lessee's Common Area Percentage by comparing the common
area attributable to the Premises with the common area on such legal lot or
otherwise within Exhibit "B" as so revised.
(D) Common Area Operating Expenses shall mean the sum of
all expenses incurred by the Lessor in connection with the operation and
maintenance of driveways, landscaping, walkways, plazas, parking facilities, and
perimeter property including, but not limited to: all items described in Section
6.1 hereof; all Real Property Taxes (as hereinafter defined) imposed upon or
with respect to the land included within Exhibit "B"; all public liability
insurance covering Exhibit "B", and losses suffered which fall below the
insurance deductible; security and fire protection; salaries, wages and other
expenses incurred with respect to maintenance of the common areas, gardening,
landscaping, repaving, repainting and trash removal (excluding the cost of an on
site manager or officer manager); depreciation of equipment used in such
maintenance; amortization of capital investments for improvements which comply
with governmental conservation or safety programs over such reasonable period as
the Lessor shall determine (together with interest at three (3) percentage
points above the discount rate of the Federal Reserve Bank of San Francisco on
the unamortized amount); and an amount equal to fifteen percent (15%) of all
such expenses to cover the Lessor's administrative and overhead expenses.
General overhead and depreciation of improvements shall not be included in the
expenses except as specifically set forth in the foregoing. Any governmental
surcharge, fee or assessment imposed with respect to the parking facilities
within Exhibit "B" shall, to the extent paid by the Lessor and not passed on to
the users of said parking facilities, be included, in Common Area Operating
Expenses.
-3-
<PAGE> 10
(E) Real Property Taxes shall mean all real and personal
property taxes and assessment incurred during any calendar year, including, but
not limited to: special and extraordinary assessments, meter and sewer rates and
charges, occupancy taxes or similar taxes imposed on or with respect to the real
or personal property, whether or not imposed on or measured by the rent payable
by the Lessee, and other governmental levies and charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind and
nature whatsoever relating to the real or personal property, and any gross
rental, license or business tax measured by or levied on rent payable or space
occupied. If, by law, any property taxes are payable, or may at the option of
the taxpayer be paid, in installments (whether or not interest shall accrue on
the unpaid balance of such property taxes), the Lessor may, at the Lessor's
option, pay the same and, in such event, any accrued interest on the unpaid
balance of such property taxes shall be deemed to be Real Property Taxes as
defined herein. Real Property Taxes shall also include all expenses reasonably
incurred by the Lessor in seeking a reduction by the taxing authorities of Real
Property Taxes applicable to the Project. Real Property Taxes shall not include
any capital levy, franchise, estate, inheritance, succession, gift or transfer
tax of the Lessor, or any income, profits or excess profits tax, assessment,
charge or levy upon the income of the Ussor; provided, however, that if at any
time during the term of this Lease under the laws of the United States or the
State of California, or any political subdivision of either, a tax or excise on
rents, space or other aspects of real property, is levied or assessed against
the Lessor, the same shall be deemed to be Real Property Taxes. If any such
property taxes upon the income of the Lessor shall be imposed on a graduated
scale, based upon the Lessor's aggregate rental income, Real Property Taxes
shall include only such portion of such property taxes as would be payable if
the rent payable with respect to the Building and Common Areas were the only
rental income of the Lessor subject thereto.
3.5 RENT ADJUSTMENT. As specified in Item 4 of the Basic Lease
Provisions, the amount of the monthly rental installment shall be increased, as
of the annual anniversary of the first (1st) day of the Lease term, at a rate
equal to Three Percent (3%) per annum. Therefore, the amount of such monthly
rental installments shall be as follows:
<TABLE>
<CAPTION>
Annual Anniversary of
Calendar Year Commencement of Lease Term Monthly Rental Installment
- ------------- -------------------------- --------------------------
<S> <C> <C>
1995 First $14,525.58
1996 Second $14,961.34
1997 Third $15,410.18
1998 Fourth $15,872.49
</TABLE>
If the annual anniversary of the commencement of the Lease term occurs
on a day other than the first (1st) day of a calendar month, then the amount of
rent due in that calendar month shall be prorated on the basis of thirty (30)
months, to reflect the previous rate and new rate at which monthly rental
installments are due under this Lease.
3.6 CALCULATION AND PAYMENT. Annual rent shall be payable to the
Lessor without deduction or offset, in lawful money of the United States at the
Lessor's address herein or to such other persons or at such other places as the
Lessor designates in writing. Rent payable for any period for less than one (1)
month shall be prorated based upon a thirty (30) day month.
-4-
<PAGE> 11
Prior to the commencement of the lease term and of each December
thereafter, the Lessor shall give the Lessee a written estimate of the Lessee's
share of Building and Common Area Operating Expenses for the ensuing year or
portion thereof. The Lessee shall pay such estimated amount to the Lessor in
equal monthly installments, in advance. Within ninety (90) days after the end of
each calendar year, the Lessor shall furnish to the Lessee a statement showing
in reasonable detail the actual Building and Common Area Operating Expenses
incurred by the Lessor during such period, and the parties shall within thirty
(30) days make any payment or allowance necessary to adjust the Lessee's
estimated payment to the Lessee's actual proportionate share as shown by such
annual statement. Any amount due the Lessee shall be credited against
installments next coming due under this paragraph.
3.7 END OF TERM. Upon the expiration or earlier termination of
this Lease, the Lessee shall pay the Lessor, as additional rent, the aggregate
rental increase which would have been payable by the Lessee pursuant to this
Article 3, except for such expiration or termination, for the portion of the
year in which termination or expiration occurs through the Termination Date. The
amount of such payment shall be calculated by the Lessor based upon Sections
3.2, 3.3 and 3.5 (using the expiration or Termination Date as the Adjustment
Date for Section 3.5) and the best information then available to the Lessor, and
shall give effect to all prior adjustments and payments on account by Lessee
pursuant to this Article 3.
4. SECURITY DEPOSIT
Concurrently with the Lessee's execution of this Lease, the
Lessee shall deposit with the Lessor the sum specified in item 8 of the Basic
Lease Provisions as security for the faithful performance by the Lessee of all
covenants and conditions of this Lease. If the Lessee shall breach or default in
the performance of any covenants or conditions of this Lease, including the
payment of rent, the Lessor may use, apply or retain the whole or any part of
such security deposit for the payment of any rent in default or for any other
sum which the Lessor may spend or be required to spend by reason of the Lessee's
default. If the Lessor so uses or applies all or any portion of said deposit,
the Lessee shall, within ten (10) days after written demand therefor, deposit
cash with the Lessor in an amount sufficient to restore said deposit to the full
amount herein above stated and the Lessee's failure to do so shall be a material
breach of this Lease. Should the Lessee comply with all covenants and conditions
of this Lease, the security deposit or any balance thereof shall be returned to
the Lessee (or at the option of the Lessor, to the last assignee of the Lessee's
interest in this Lease) at the expiration of the term. The Lessee shall not be
entitled to interest on the security deposit and the Lessor shall have the right
to commingle said security deposit with other funds of the Lessor. Should the
Lessor sell its interest in the Premises, the Lessor may transfer to the
purchaser thereof the then unexpended or unappropriated deposit and thereupon
the Lessor shall be discharged from any liability for such funds.
5. USE
5.1 USE. The Premises shall be used and occupied for the
purposes described in item I of the Basic Lease Provisions, permitted under
applicable ordinances and other Governmental requirements, the covenants,
conditions and restrictions affecting the Project, as the same may be amended
from time to time, and the Rules and Regulations as the Lessor may from time to
time reasonably adopt for the safety, care and cleanliness of the Building and
the Project or the preservation of good order. The Rules and Regulations
presently in effect are attached hereto as Exhibit "C". The Lessor shall not be
responsible to the Lessee for the non-performance of any of said Rules and
Regulations, or non-compliance with said covenants, conditions and restrictions,
by any other tenant of the Building.
-5-
<PAGE> 12
5.2 COMPLIANCE WITH LAW; NUISANCE. The Lessee, at the
Lessee's sole cost and expense, shall comply promptly and at all times with all
laws, requirements, ordinances, statutes, and regulations of all municipal,
state or federal authorities, or any board of fire insurance underwriters, or
other similar bodies, now in force or which may hereafter be in force,
pertaining to the Building and the Premises and the occupancy thereof, including
any law that requires alteration, maintenance or restoration of the Premises as
the result of the Lessee's use thereof. The judgment of any court of competent
jurisdiction, or the admission of the Lessee in any action or proceeding against
the Lessee, whether the Lessor is a party thereto or not, that the Lessee
violated any such ordinances or statutes in the use of the Premises share be
conclusive of that fact as between the Lessor and the Lessee. The Lessee, at its
sole expense, shall also comply with all requirements for fire extinguishers or
fire extinguisher systems required in the Premises.
The Lessee shall not commit, or suffer to be committed, any
waste of the Premises, or any nuisance, annoyance or other unreasonable
annoyance which may disturb the quiet enjoyment of adjoining premises or of the
Building by the owners or occupants thereof.
5.3 INSURANCE CANCELLATION. Notwithstanding the provisions of
Paragraph 5.1 above, the Lessee shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein, including all uses
permitted under Section 5.1 above, which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building, or any other
part thereof, or any of its contents, and if the Lessee's use of the Premises
causes an increase in said insurance rates, the Lessee shall pay as additional
rent the amount of such increase. The Lessee shall be in default under this
Lease should the Lessee cause the cancellation of fire or other insurance upon
the Building or Property or should the Lessee fail to pay any increased
insurance rate attributable to the Lessee's use of the Premises. In determining
whether increased premiums are a result of the Lessee's use or occupancy of the
Premises or Building, a schedule issued by the Lessor's insurer computing the
insurance rate on the Premises or Building, or the leasehold improvements
showing the various components of such rate, shall be conclusive evidence of the
several items and charges which make up such rate. The Lessee shall promptly
comply with all reasonable requirements of the insurance authority or of any
insurer now or hereafter in effect relating to the Premises.
5.4 HAZARDOUS SUBSTANCES. Any corrosive, flammable, hazardous or
other special waste or materials shall be handled or disposed of as directed by
applicable state, Federal, County-. and City regulations. The Lessee shall
handle, store or dispose of such materials in a careful and prudent manner. At
the termination of the Lease, or any option period thereof, the Lessee shall
fully clean the Premises in such a manner that no residue of such materials or
waste shall remain on the Premises. The Lessee shall notify the appropriate
governmental authority of the presence and amount of any such material or waste,
and shall comply with all conditions imposed by such authority. The Lessee shall
contact the appropriate governmental authority prior to occupancy to determine
the existence of any records for the Building and/or Premises. To the extent
required by law, specifically thirty (30) days prior to occupancy, the Lessee
shall submit a Hazardous Materials Management Plan (HMMP) and a Hazardous
Materials Floor Plan (HMF) to the Lessor and the appropriate governmental
authority for approval. These plans shall be attached in fall to this Lease.
-6-
<PAGE> 13
The HMMP shall include the following:
(A) The company name, address and contact person.
(B) General facility description with map showing
location of all buildings and structures.
(C) Facility hazardous material storage map showing the
location of each proposed hazardous material storage area and access to such
facilities. The map shall be updated annually by the occupant and submitted by
January I each year.
(D) A floor plan showing the location of each hazardous
material storage area, storage area access, and the location of emergency
equipment.
The HMF shall include the following:
(A) Hazardous Materials Handling Report describing the
safe handling of hazardous materials to prevent accidents.
(B) Separation or Hazardous Material Report outlining
the methods to be utilized to insure separation and protection of hazardous
materials from such factors that could cause fire, explosion, spills, etc.
(C) Inspection and Record Keeping Plan indicating the
procedures for inspecting each storage facility. An authorized record of
inspection shall be maintained by the Lessee.
(D) Employee Training Program to insure that employees
know how to safety handle hazardous materials.
(E) Hazardous Materials Contingency Plan that clearly
describes appropriate response procedures and measures in case of an accident.
(F) A floor plan identifying the location and quantity
of each hazardous material, including the chemical name and quantity limit for
each class.
The Lessee shall pay inspection fees, based on the hourly
inspection rate, for an environmental audit to be conducted by the appropriate
governmental authority, or the Lessor at the termination of the Lease and prior
to reoccupation of the Building and/or the Premises, if hazardous materials were
in use on the Building and/or Premises. The appropriate governmental authority
shall perform or the Lessee shall arrange for such an audit in a timely manner
to prevent economic hardship to the Lessor and shall certify that the Premises
are available for reoccupation, or shall specify clean-up measures that will
render the Premises safe for reoccupation. The Lessee shall be responsible for
any clean-up that may be required as a result of the audit, if such items are
attributable to the Lessee's use of the Premises.
Should the Lessee fail to comply with any duty set forth in this
Section 5.4, the Lessor may, in addition to all other remedies now or hereafter
provided by this Lease, or by law, perform such duty or make good such default,
and any amounts which the Lessor shall advance pursuant thereto shall be repaid
by the Lessee to the Lessor on demand.
-7-
<PAGE> 14
5.5 ENVIRONMENTAL LAWS.
(A) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Lessee, in
its conduct of business on or in any activity, work, thing done, permitted or
suffered by the Lessee, its agents, contractors, employees or invitees on the
Premises, shall at all times and in all respects comply with all federal, state
and county laws, ordinances and regulations (the "Hazardous Materials Laws")
relating to industrial hygiene, environmental protection or the use, analysis,
generation, manufacture, storage, disposal or transportation of any oil,
flammable explosives, asbestos, radioactive materials or waste, or other
hazardous, toxic, contaminated or polluting materials, substances, or wastes,
including, without limitation, any "hazardous substances," "hazardous wastes,"
"hazardous materials," or "toxic substances" under any such laws, ordinances or
regulations (collectively, the "Hazardous Materials"). Such laws, ordinances or
regulations shall include, but not be limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq; the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq; the Resource Conservation and Recovery Act of 1976,
42 U.S. C. Section 6901 et seq; the Clean Water Act, 33 U.S.C. Section 466, et
seq; the Safe Drinking Water Act, 14 U.S.C. Section 1401, et seq, the Superfund
Amendment and Reauthorization Act of 1986; Public Law 99-499, 100 Stat. 1613;
the Toxic Substances Control Act, 15 U.S. C. Section 2601, et seq, as amended;
those substances defined as "hazardous waste", "extremely hazardous waste",
"restricted hazardous waste" or "hazardous substance" in the Hazardous Waste
Control Act, Section 25100 et seq of the California Health & Safety Code; and
those materials and substances similarly described in the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S. C. Section 136, et seq., as amended; the
Atomic Energy Act of 1954, 42 U.S.C. Section 2011, et seq., as amended; the
Porter Cologne Water Quality Control Act, Section 1300 et seq. of the California
Health & Safety Code; and any regulations adopted and publications promulgated
pursuant to said Laws.
(B) HAZARDOUS MATERIALS HANDLING. The Lessee shall, at
its own expense, procure, maintain in effect and comply with all conditions of
any and all permits, licenses and other governmental and regulatory approvals
required for the Lessee's use of the Premises, including, without limitation,
discharge of (appropriately treated) materials or wastes into or through any
sanitary sewer serving the Premises. Except as discharged into the sanitary
sewer in strict accordance and conformity with all applicable Hazardous
Materials Laws, the Lessee shall cause any and all Hazardous Materials removed
from the Premises to be removed and transported solely by duly licensed haulers
to duly licensed facilities for final disposal of such materials and wastes. The
Lessee shall in all respects handle, treat, deal with and manage any and all
Hazardous Materials in, on, under or about the Premises in total conformity with
all applicable Hazardous Materials Laws and prudent industry practices regarding
management of such Hazardous Materials. Upon expiration or earlier termination
of the term of the Lease, the Lessee shall cause all Hazardous Materials to be
removed from the Premises and transported for use, storage or disposal in
accordance and compliance with all applicable Hazardous Materials Laws. The
Lessee shall not take any remedial action in response to the presence of any
Hazardous Materials in or about the Premises or the Building, nor enter into any
settlement agreement, consent, decree or other compromise in respect to any f
claims relating to any Hazardous Materials in any way connected with the
Premises or the Building, without first notifying the Lessor of the Lessee's
intention to do so and affording the Lessor ample opportunity to appear,
intervene or otherwise appropriately assert and protect the Lessor's interest
with respect thereto.
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(C) NOTICES. The Lessee shall immediately notify the
Lessor in writing of any of the following activities relating to the Lessee's
operations on the Premises: (i) any enforcement, clean-up, removal or other
governmental or regulatory action instituted, completed or threatened pursuant
to any Hazardous Materials Laws; (ii) any claim made or threatened by any person
against the Lessee, the Premises or the Building relating to damage,
contribution cost recovery compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials in, on or removed from the
Premises or the Building; and (iii) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials in or removed from
the Premises or the Building, including any complaints, notices, warnings or
asserted violations in connection therewith. The Lessee shall also supply to the
Lessor as promptly as possible, and in any event within five (5) business days
after the Lessee first receives or sends the same, with copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Premises, the Building or the Lessee's use thereof. The Lessee shall
promptly deliver to the Lessor copies of hazardous waste manifests reflecting
the legal and proper disposal of all Hazardous Materials removed from the
Premises.
(D) INDEMNIFICATION OF LESSOR. The Lessee shall
indemnify, defend, protect, and hold the Lessor, and each of the Lessor's
partners, employees, agents, attorneys, successors and assigns, free and
harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever arising from or caused
in whole or in part, directly or indirectly, by (A) the presence in, on, under
or about the Premises or the Building, or discharge in or from the Premises or
the Building of any Hazardous Materials or the Lessee's use, analysis, storage,
transportation, disposal, release, threatened release, discharge or generation
of Hazardous Materials to, in, on, under, about or from the Premises or the
Building, but only to the extent such Hazardous Materials are present as a
result of actions of the Lessee, its officers, employees, invitees, assignees,
contractors, or agents, or (B) the Lessee's failure to comply with any Hazardous
Materials Law. The lessee's obligations hereunder shall include, without
limitation, and whether foreseeable or unforeseeable, all costs of any required
or necessary repair, clean-up or detoxification or decontamination of the
Premises or the Building, and the preparation and implementation of any closure,
remedial action or other required plans in connection therewith, and shall
survive the expiration or earlier termination of the term of the Lease. For
purposes of the release and indemnity provisions hereof, any acts or omissions
of the Lessee, or by officers, invitees, employees, agents, assignees,
contractors or subcontractors of the Lessee or others acting for or on behalf of
the Lessee (to the extent any such individual is acting within the scope of his
relationship with the Lessee), whether or not such acts or omissions are
negligent, intentional, willful or unlawful, shall be strictly attributable to
the Lessee.
(D) INDEMNIFICATION OF LESSEE. The Lessor shall
indemnify, defend, protect, and hold the Lessee, and each of the Lessee's
shareholders, employees, agents, attorneys, successors and assigns, free and
harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever arising from or caused
in whole or in part, directly or indirectly, by (A) the presence in, on, under
or about the Premises or the Building, or discharge in or from the Premises or
the Building of any Hazardous Materials existing as of the execution of this
Lease, or the Lessor's use, analysis, storage, transportation, disposal,
release, threatened release, discharge or generation of Hazardous Materials to,
in, on, under, about or from the Premises or the Building, or the Lessor's
failure to comply include, without limitation, and whether foreseeable or
unforeseeable, all costs of any required or necessary
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<PAGE> 16
repair, clean-up or detoxification or decontamination of the Premises or the
Building, and the preparation and implementation of any closure, remedial action
or other required plans in connection therewith, and shall survive the
expiration or earlier termination of the term of the Lease. For purposes of the
release and indemnity provisions hereof, any acts or omissions of the Lessor, or
by officers, invitees, employees, agents, assignees, contractors or
subcontractors of the Lessor or others acting for or on behalf of the Lessor (to
the extent any such individual is acting within `the scope of his relationship
with the Lessor), whether or not such acts or omissions are negligent,
intentional, willful or unlawful, shall be strictly attributable to : ie Lessor.
6. MAINTENANCE, REPAIRS AND ALTERATIONS
6.1 LESSOR'S OBLIGATIONS. The Lessor shall cause to be
maintained, in good order, condition and repair, the roof structure and
membrane, and exterior walls, common windows and doors of the Building
(excluding the interior surface thereof), heating, venting and air conditioning
systems, and any public and common areas in the Building, as well as all parking
areas, driveways, sidewalks, private roads or streets, landscaping and all other
areas located within the Project other than areas occupied by other buildings
(such non-building areas being herein referred to as "Common Areas"). The costs
of such maintenance are chargeable to the Lessee pursuant to Section 3.2 hereof.
6.2 LESSEE'S OBLIGATIONS. The Lessee shall, during the term of
this Lease, keep in good order, condition and repair, the interior of the
Premises and every part thereof, including, but not limited to, all interior
windows and doors in and to the Premises. The Lessor shall incur no expense nor
have any obligation of any kind whatsoever in connection with the maintenance of
the interior of the Premises and the Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford the Lessee the
right to make repairs at the Lessor's expense or to terminate this Lease because
of any failure to keep the interior of the Premises in good order, condition and
repair. Notwithstanding the foregoing, the Lessor shall be liable for
maintenance or repairs which are caused by the Lessor's gross negligence. The
Lessee shall be responsible for interior janitorial services.
6.3 ALTERATIONS AND ADDITIONS.
(A) The Lessee shall not, without the Lessors prior
written consent, make any alterations, improvements, additions or utility
installations in, on or about the Premises unless such work is non-structural
and does not exceed TEN THOUSAND DOLLARS ($10,000). For all work, the Lessee
will provide the Lessor with as-built drawings reflecting any changes to the
Premises. As used in this Paragraph 6.3, the term "utility installations" shall
include bus dueling, power panels, fluorescent fixtures, space heaters, conduits
and wiring. As a condition to giving such consent, the Lessor may require that
the Lessee (i) agree to remove any such alterations, improvements, additions or
utility installations at the expiration or sooner termination of the term, and
to restore the Premises to their prior condition and/or (ii) provide the Lessor,
at the Lessee's sole cost and expenses, a lien and completion bond in an amount
equal to one and one-half (1 1/2) times the estimated cost of such improvements,
to insure the Lessor against any liability for mechanics' and materialmen's
liens and to insure completion of work.
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<PAGE> 17
(B) All alterations, improvements and additions to the
Premises shall be performed by the Lessor's contractor for the Project or other
licensed contractor approved by the Lessor, which approval shall not be
unreasonably withheld. The Lessee shall pay, when due, all, claims for labor or
materials furnished to or for the Lessee at or for use in the Premises, which
claims are or may be secured by any mechanics' or materialmen's lien against the
Premises or any interest therein, and the Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law.
6.4 SURRENDER. On the last day of the term hereof, or on any
sooner termination, the Lessee shall surrender to the Lessor the Premises and,
subject to the provisions of Paragraph 6.3(a) hereof, all alterations, additions
and improvements thereto, in the same condition as when received or made,
ordinary wear and tear excepted; provided, however, that the Lessee's machinery,
equipment and trade fixtures (including utility installations) which may be
removed without irreparable or material damage to the Premises, shall remain the
property of the Lessee and be removed by the Lessee. The Lessee shall repair any
damage to the Premises occasioned by the removal of the Lessee's furnishings,
machinery, equipment and trade fixtures, which repair shall include the patching
and filing of holes and repair of structural damage.
6.5 LESSOR'S RIGHTS. If the Lessee fails to perform the Lessee's
obligations under this Article 6, the Lessor may, at its option (but shall not
be required to), and with a five (5) day written notice to the Lessee, perform
such obligations on behalf of the Lessee, and the cost thereof, together with
interest thereon at the rate specified in Paragraph 12.2(a) hereof, shall
immediately become due and payable as additional rent to the Lessor.
7. INSURANCE
The Lessee, at its sole cost and expense, shall, commencing on
the date the Lessee is given access to the Premises for any purpose, and during
the entire term hereof, procure, pay for and keep in full force and effect:
7.1 LESSEE'S LIABILITY INSURANCE. Comprehensive general
liability insurance with respect to the Premises and the operations of or on
behalf of the Lessee in, on or about the Premises, including, but not limited
to, personal injury, product liability (if applicable), blanket contractual,
owner's protective, broad form property damage liability coverage, host liquor
liability and owned and non-owned automobile liability in an amount not less
than TWO MILLION DOLLARS ($2,000,000) Combined Single Limit. Such policy shall
contain (i) severability of interest, (ii) cross liability, and (iii) an
endorsement stating in substance that "such insurance as is afforded by this
policy for the benefit of the Lessor shall be primary as respects any liability
or claims arising out of the occupancy of the Premises by the Lessee, or out of
the Lessee's operations, and any insurance carried by the Lessor shall be excess
and noncontributory. "
7.2 LESSEE'S WORKER'S COMPENSATION INSURANCE. Worker's
Compensation coverage as required by law, together with Employer Liability
coverage.
7.3 LESSEE'S FIRE AND EXTENDED COVERAGE INSURANCE. Insurance
against fire, vandalism, malicious mischief and such other additional perils as
now are or hereafter may be included in a standard "All Risks" coverage,
insuring all improvements and betterments made to the Premises, the Lessee's
trade fixtures, furnishings, equipment, stock, loss of income or extra expense,
and other items of personal property in an amount not less than 100% of
replacement value. Such insurance shall contain (i) no coinsurance or
contribution clauses, (ii) a Replacement Cost Endorsement, and (iii) deductible
amounts acceptable to the Lessor.
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<PAGE> 18
7.4 POLICY REQUIREMENTS. All policies of insurance required to
be carried by the lessee pursuant to these requirements shall be written by
responsible insurance companies authorized to do business in the State of
California. Any such insurance required by the Lessee hereunder may be furnished
by the Lessee under any blanket policy carried by it or under a separate policy
therefor. A true and exact copy of each paid up policy evidencing such insurance
or a certificate of the insurer, certifying that such policy has been issued,
providing the coverage required and containing the provisions specified herein,
shall be delivered to the Lessor prior to the date the Lessee is given the right
to possession of the Premises, and upon renewals, not less than thirty (30) days
prior to the expiration of such coverage. The Lessor may, at any time, and from
time to time, inspect and/or copy any and all insurance policies required
hereunder. In no event shall the then limits of any policy be considered as
limiting the liability of the Lessee under this Lease.
Each policy evidencing insurance required to be carried by the
Lessee pursuant to these requirements shall contain, in form and substance
satisfactory to the Lessor: (i) a provision including the Lessor and any other
parties in interest designated by the Lessor as an additional insured; (ii) a
waiver by the Lessee's insurer of any right to subrogation against the Lessor,
its agents, employees and representatives which arise or might arise by reason
of any payment under such policy or by reason of any act or omission of the
Lessor, its agents, employees or representatives, and (iii) a provision that the
insurer will not cancel or materially change the coverage provided by such
policy without first giving the Lessor thirty (30) days' prior written notice.
7.5 LESSOR'S RIGHTS. If the Lessee fails to procure, maintain
and/or pay for at the times and for the durations specified in this Lease, the
insurance required hereunder, or fails to carry insurance required by any
governmental requirement, the Lessor may (but without obligation to do so), and
with twenty-four (24) hours advance notice to the Lessee, perform such
obligations on behalf of the Lessee, and the cost thereof, together with
interest thereon at the rate specified in Paragraph 12.2(a) hereof, shall
immediately become due and payable as additional rent to the Lessor.
7.6 LESSOR'S INSURANCE. The Lessor shall maintain during the
term of this Lease such insurance against physical damage to the Building,
comprehensive liability insurance and other insurance as the Lessor may, from
time to time, determine. The Lessor will determine the limits of coverage,
deductibles and specific perils insured against. The Lessor may, but shall not
be obliged to, take out and carry any other form or forms of insurance as it or
the mortgagees of the Lessor may reasonably determine advisable. Notwithstanding
any contributions by the Lessee to the cost of insurance premiums, with respect
to the Building or any alterations of the Premises as may be provided herein,
the Lessee acknowledges that it has no right to receive any proceeds from any
such insurance policies carried by the Lessor.
7.7 INDEMNIFICATION. To the fullest extent permitted by law, the
Lessee shall defend, indemnify and hold harmless the Lessor from and against any
and all claims arising from the Lessee's use of the Premises or the conduct of
its business or from any activity, work or thing done, permitted or suffered by
the Lessee, its agents, contractors, employees or invitees in or about the
Premises or elsewhere, and shall further indemnify and hold harmless the Lessor
from and against any and all claims arising from any breach or default in the
performance of any obligation on the Lessee's part to be performed hereunder, or
arising from any act, neglect, fault or omission of the Lessee, or of its
agents, employees, or invitees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in or
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<PAGE> 19
about such claim or any action or proceeding brought thereon. In case any action
or proceeding be brought against the Lessor by reason of any such claim, the
Lessee, upon notice from the lessor, shall defend the same at the Lessee's
expense by counsel approved in writing by the Lessor. The Lessee, as a material
part of the consideration to the Lessor hereunder, hereby assumes all risk of
damage to property or injury to persons in, upon or about the Premises from any
cause whatsoever, except that which is caused by the failure of the Lessor to
observe any of the terms and conditions of this Lease and such failure has
persisted for an unreasonable period of time after written notice of such
failure, and the Lessee hereby waives all of its claims in respect thereof
against the Lessor.
7.8 EXEMPTION OF LESSOR FROM LIABILITY. The Lessor shall not be
liable for injury to the Lessee's business or any loss of income therefrom or
for damage to the property of the Lessee, the Lessee's employees, invitees,
customers or any other person in or about the Premises, nor shall the Lessor be
liable for injury to the person of the Lessee, the Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from fire,
explosion, failing plaster, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether such damage or injury results form conditions arising upon the
Premises or upon other portions of the Building, or from other sources or places
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible. The Lessor shall not be liable for
incorporeal hereditaments including interference or obstruction of light, air or
view. The Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of the Building or the other portions of the
Project.
8. DAMAGE OR DESTRUCTION
8.1 PARTIAL DAMAGE. If the Premises, or so much of the Building
as to cause the Premises to be uninhabitable, are damaged by any casualty, and
the damage (exclusive of any property or improvements installed by the lessee in
the Premises) can be repaired within one hundred and fifty (150) days without
the payment of overtime, the Lessor shall, at the Lessor's expense, repair such
damage (exclusive of any property of the Lessee or improvements installed by the
Lessee in the Premises) as soon as practicable within said one hundred and fifty
(150) day period, and this Lease shall continue in full force and effect. If the
Premises, or so much of the Building as to cause the Premises to be
uninhabitable, are damaged by any casualty, and the damage (exclusive of any
property of the Lessee or improvements installed by the Lessee in the Premises)
cannot be repaired within one hundred and fifty (150) days without the payment
of overtime or other premiums, and if the Lessor is unable to provide at least
Fifty Percent (50%) of the Premises upon the expiration of the one hundred fifty
(150) day period, the Lessor or the Lessee may, at either party's option, either
(i) repair such damage as soon as practicable at the Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give written
notice to the other party within thirty (30) days after the date of the
occurrence of such damage of the party's intention to terminate this Lease, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
8.2 DAMAGE NEAR END OF TERM. If the Premises, or so much of the
Building as to cause the Premises to be uninhabitable, are damaged during the
last six (6) months of the term of this Lease, or any renewal thereof, the
Lessor may, at the Lessor's option, terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of the Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage; provided, however, that if the term of this Lease has been extended for
any reason whatsoever, the Lessor's right to terminate this Lease shall only
apply during the last six (6) months of the then current term of this Lease.
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<PAGE> 20
8.3 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(A) If the Lessor is obligated or elects to repair the
Premises as provided above, the rent payable for the period during which such
repair continues shall be abated, in proportion to the degree to which the
Lessee's use of the Premises is impaired. Except for such abatement, if any, the
Lessee shall have no claim against the Lessor for any damage suffered by reason
of any such damage, destruction, repair or restoration. In the event that the
Lessor exercises its rights to continue the Lease as provided in Section 8.1
above, and less than one hundred percent (100%) of the Premises is usable by the
Lessee, the rent will continue to be abated to the extent not repaired until the
entire Premises is restored.
(B) If the Lessor is obligated or elects to repair the
Premises as provided above, but does not continence such repair within ninety
(90) days after such obligation shall occur, subject to any extension or up to
another sixty (60) days for delays beyond the reasonable control of the Lessor,
the Lessee may, at the lessee's option, terminate this Lease by giving the
Lessor written notice of the Lessee's election to do so at any time prior to the
commencement of such repair or restoration, in which event this Lease shall
terminate as of the date of such destruction.
8.4 INSURANCE PROCEEDS UPON TERMINATION. If this Lease is
terminated pursuant to any right given the Lessee or the Lessor to do so under
this Article 8, all insurance proceeds payable under Section 7.6 with respect to
the damage giving rise to such right of termination shall be paid to the Lessor
and any encumbrances of the Premises, as their interests may appear.
8.5 RESTORATION. The Lessor's obligation to restore shall not
include the restoration or replacement of the Lessee's furnishings, machinery,
equipment, trade fixtures or other personal property or any improvements or
alterations made by the Lessee to the Premises.
9. PERSONAL PROPERTY TAXES
The Lessee shall pay prior to delinquency all taxes assessed
against, levied upon or attributable to its furnishings, machinery, equipment,
trade fixtures or other personal property contained in the Premises or elsewhere
and, if required, all improvements to the Premises in excess of the Lessor's
"building standard" improvements, provided, however, that nothing contained
herein shall require the Lessor to insure the accuracy of any segregation of the
same for purposes of Section 3.4(b) hereof. When practicable, the Lessee shall
cause said furnishings, machinery, equipment, trade fixtures and all other
personal property to be assessed and billed separately from the real property of
the Lessor.
10. UTILITIES
The Lessee shall pay for all water, gas, heat, light, power,
janitorial services and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately metered
or charged to the Lessee, the Lessee shall pay a pro rata proportion, as part of
operating expenses, based on leasable area, of all charges jointly metered or
charged with other premises. The Lessor shall not be liable in damages or
otherwise unless due to the Lessor's gross negligence for any failure or
interruption of any utility services being furnished to the building and no such
failure or interruption shall entitle the Lessee to terminate this Lease. In no
event shall the Lessor be liable for any such failure or interruption caused by
the exercise of governmental authority, strikes, riots, acts of God, war,
adverse weather conditions, fire, flood or casualties or acts of third parties
beyond the Lessor's control. The operation and control of utilities, air
conditioning and any other energy system is subject to compliance with any
government authority governing the regulation and use of energy systems within
the commercial plumbing, sewer or other utility or service systems or equipment
to exercise or use which causes damage to
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<PAGE> 21
said systems or equipment. Any such damages to equipment caused by the Lessee
overloading such equipment shall be rectified by the Lessee, or may, at the
Lessor's option, be rectified by the Lessor, at the Lessee's sole cost and
expense.
II. ASSIGNMENT AND SUBLETTING
11.1 The Lessee shall not voluntarily or by operation of law
sublet, assign, transfer, mortgage or otherwise encumber, or grant concessions,
licenses or franchises with respect to all or any part of the Lessee's interest
in this Lease or the Premises without the prior written consent of the Lessor,
which shall not be unreasonably withheld. If the Lessee desires at any time to
assign this Lease or to sublet the Premises or any portion thereof, it shall
first notify the Lessor of its desire to do so and shall submit in writing to
the Lessor (i) the name of the proposed sublessee or assignee; (ii) the nature
of the proposed sublessee or assignee; (iii) the nature of the proposed
sublessee's or, assignee's business to be carried on in the Premises; (iv) the
terms and provisions of the proposed sublease or assignment; (v) such reasonable
financial information as the Lessor may request concerning the proposed
sublessee or assignee, including, but not limited to, a balance sheet as of a
date within ninety (90) days of the request for the Lessor's consent, statements
of income or profit and loss for the two (2) year period preceding the request
for the Lessor's consent, and a written statement in reasonable details as to
the business experience of the proposed sublessee or assignee during the five
(5) years preceding the request for the Lessor's consent; and (vi) the name and
address of sublessee's or assignee's present or previous landlord. The Lessor
may, as a condition to granting such consent, require that the obligations of
any assignee which is a subsidiary or affiliate of another corporation be
guaranteed by the parent or controlling corporation. Any sublease, license,
concession, franchise or other permission to use the Premises shall be expressly
subject and subordinate to all applicable terms and conditions of this Lease.
Any purported or attempted assignment, transfer, mortgage, encumbrance,
subletting, license, concession, franchise or other permission to use the
Premises contrary to the provisions of this paragraph shall be void and, at the
option of the Lessor, shall terminate this Lease.
11.2 If the Lessee is a corporation, then a transfer of its
stock, or any dissolution, merger or consolidation, only if such transaction
causes five (5) or fewer persons who are not currently shareholders of the
Lessee to acquire ownership or control of shares of the Lessee's capital stock
representing Fifty Percent (50%) or more of the voting power of all of the
Lessee's outstanding stock, or the sale or other transfer of all or
substantially all of the assets of the Lessee shall constitute an assignment of
the Lessee's interest in this Lease within the meaning of this Article 1 1 and
the provisions requiring consent contained herein.
11.3 No subletting, assignment, license, concession, franchise
or other permission to use the Premises shall relieve the Lessee of its
obligations to pay tile rent or to perform all of the other obligations to be
performed by the Lessee hereunder. The acceptance of rent by the Lessor from any
other person shall not be deemed to be a waiver by the Lessor of any provisions
of this Lease.
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<PAGE> 22
11.4 At any time within ten (10) days after the Lessor's receipt
of the information specified in Section 11.I above, the Lessor may by written
notice to the Lessee elect (a) to sublease the Premises or the portion thereof
so proposed to be subleased by the Lessee, or to take an assignment of the
Lessee's leasehold estate hereunder, upon the same terms as those offered to the
proposed sublessee or assignee, as the case may be; or (b) to terminate this
Lease as to the portion (including all) of the Premises so proposed to be
subleased or assigned, with a proportionate abatement in the rent payable
hereunder; or (c) disapprove such assignment or subletting. If the Lessor does
not act within the ten (10) days, such failure to act is deemed a disapproval of
such request for assignment or subletting.
11.5 Each assignee or transferee, other than the Lessor, shall
assume all obligations of the Lessee under this Lease and shall be and remain
liable jointly and severally with the Lessee for the payment of the rent, and
for the due performance of at tie terms, covenants, conditions and agreements to
be performed by the Lessee hereunder; provided, however, that a transferee other
than an assignee shall be liable to the lessor for rent only in the amount set
forth in the assignment or transfer. No assignment shall be binding on the
Lessor unless such assignee or Lessee shall deliver to the Lessor a counterpart
of such assignment and an instrument in recordable form which contains a
covenant of assumption by such assignee satisfactory in substance and form to
the lessor, consistent with the requirements of this Section 11.5, but the
failure or refusal of such assignee to execute such instrument of assumption
shall not release or discharge such assignee from its liability as set forth
above.
11.6 Consent by the lessor to any subletting or assignment shall
be conditioned upon payment by the lessee to the lessor of all "Transfer
Consideration" (as hereafter defined) received or to be received, directly or
indirectly, by the lessee on account of such assignment or subletting. Transfer
Consideration shall be paid to the lessor at the same time or times as the same
is due to the Lessee. Failure to pay the lessor the Transfer Consideration, or
any portion or installment thereof, shall be deemed a default under this Lease,
entitling the Lessor to exercise all remedies available to it under law
including, but not limited to, those specified in Article 12 of this Lease.
"Transfer Consideration" shall only mean a) in the case of a subletting any
consideration paid or given, directly or indirectly, by the sublessee to the
lessee pursuant to the sublease for the use of the Premises, or any portion
thereof, over and above the rent and any additional rent, however denominated,
in this Lease, payable by the lessee to tile lessor for the use of the Premises
(or portion thereof), prorating as appropriate the amount payable by the Lessee
to the lessor under this Lease, if less than all of the Premises is sublet, net
of broker's fees and commissions, and (b) in the case of an assignment only, any
consideration paid or given, directly or indirectly, by the sublessee or
assignee to the Lessee in exchange for entering into the sublease or assignment,
but shall not include reimbursement for any security deposit, reimbursement of
any improvements, fixtures or furnishings installed in the Premises by the
Lessee or any payment for personal property of the Lessee not in excess of the
Lessee's book value thereof net of broker's fees and commissions. As used
herein, consideration shall include consideration in any form, including, but
not limited to, money, property, assumption of liabilities other than those
arising under this Lease, discounts, services, credits or any other item or
thing of value. Irrespective of the form of such consideration, the Lessor shall
be entitled to be paid in cash in an amount equivalent to the aggregate of the
cash portion of the Transfer Consideration and the value of any non-cash portion
of the Transfer Consideration. If any Transfer Consideration is to be paid or
given in installments, the Lessee shall pay each such installment at the time
the same is to be paid or given. Notwithstanding the foregoing, Transfer
Consideration shall not include the proceeds from the sales of stock by the
Lessee or its shareholders, and the Lessor and the Lessee agree that this
provision is only intended to apply to any profit realized by the Lessee from
the increased rental value of the office space which constitutes the Premises,
and not from any profit realized in any kind of sale or merger or stock or debt
offering, or any similar corporate transaction by the Lessee.
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11.7 The Lessee shall reimburse the Lessor for the Lessor's
reasonable costs and attorneys' fees incurred in conjunction with the processing
and documentation of any assignment, subletting, transfer, change of ownership
or hypothecation of this Lease or the Lessee's interest in the Premises.
12. DEFAULTS; REMEDIES
12.1 DEFAULT BY LESSEE. The occurrence of any one or more of the
following events shall constitute a default of this Lease by the Lessee:
(A) The vacating or abandonment of the Premises by the
Lessee combined with the failure to pay rent;
(B) The failure of the Lessee to make any payment of
rent or any other payment required to be made by the Lessee hereunder, as and
when due, where such failure shall continue for a period of three (3) days after
written notice thereof from the Lessor to the Lessee; provided, however, that
any such notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure Section 1161;
(C) The failure by the Lessee to observe or perform any
of the covenants, conditions or provisions of this Lease (or the covenants,
conditions and restrictions governing the Project) to be observed or performed
by the Lessee, other than described in Paragraph 12.1 (b) hereof, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from the Lessor to the Lessee; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161; provided, further, that if the
nature of the Lessee's default is such that more than thirty (30) days are
reasonably required for its cure, then the Lessee shall not be deemed to be in
default if the Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion; or
(D) The making by the Lessee of any general assignment
or general arrangement for the benefit of creditors; the filing by or against
the Lessee of a petition to have the Lessee adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy (unless,
in the case of a petition filed against the Lessee, the same is dismissed within
sixty (60) days); the appointment of a trustee or receiver to take possession of
substantially all of the Lessee's assets located at the Premises, or of the
Lessee's interest in this Lease, where possession is not restored to the Lessee
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of the Lessee's assets located at the Premises or of the
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days.
12.2 REMEDIES FOR DEFAULT BY LESSEE. In the event of any such
default, the Lessor may at any time thereafter, upon notice and demand and
without limiting the Lessor in the exercise of any other right or remedy which
the Lessor may have by reason of such default or breach:
(A) Terminate the Lessee's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and the
Lessee shall immediately surrender possession of the Premises to the Lessor. In
such event, the Lessor shall be entitled to recover from the Lessee:
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(1) The worth at the time of award of the unpaid
rent which has been earned at the time of termination;
(2) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the lessee proves
could have been reasonably avoided;
(3) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and
(4) Any other amount necessary to compensate the
Lessor for all the detriment proximately caused by the Lessee's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to: the
cost of recovering possession of the Premises, expenses of releasing including
necessary renovation and alteration of the Premises, reasonable attorneys' fees
and any other reasonable cost, the "worth at the time of award" of the amounts
referred to in subparagraphs (1) and (2) above shall be computed by allowing
interest at three (3) percentage points above the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award. The "worth at the time
of award" of the amount referred to in subparagraph (3) above shall be computed
by discounting such amount at three (3) percentage points above such discount
rate.
(B) Suspend or discontinue the services specified in
Article 10 above, or any thereof, during the continuance of any such default and
any such suspension or discontinuance shall not be deemed or construed to be an
eviction or ejection of the Lessee.
(C) Require the Lessee to make payment of all rental
obligations in cash or by certified cashier's check.
(D) Pursue any other remedy now or hereafter available
to the Lessor under the laws or judicial decisions of the Sate of California,
including, but not limited to, the remedy provided in California Civil Code
Section 1951.4 to continue this Lease in effect.
(E) The Lessor, in addition to the rights herein before
given in the case of the Lessee's breach or default, may pursue any other remedy
available to the Lessor at law or in equity.
12.3 DEFAULT BY LESSOR. The Lessor shall not be in default of
any of the obligations of the Lessor under the Lease, unless the Lessor fails to
perform such obligations within a reasonable time, but in no event more than
thirty (30) days after written notice by the Lessee to the Lessor specifying
wherein the Lessor has failed to perform such obligations; provided, however,
that if the nature of the Lessor's default is such that more than thirty (30)
days are required for its cure, the Lessor shall not be in default if the Lessor
commences such cure within such thirty (30) day period and thereafter diligently
prosecutes the same to completion. In the event of any such default by the
Lessor, the Lessee may pursue any remedy now or hereafter available to the
Lessee under the laws of judicial decisions of the State of California, except
that the Lessee shall not have the right to terminate this Lease except as
expressly provided herein nor to set off against any payments due under this
Lease. The Lessee waives any right to deduct the expenses of repairs done by the
Lessor on the Lessor's behalf from the rent and waives, except as herein
provided, any of the Lessor's obligations for tenantability of the Building or
the Premises.
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12.4 LATE CHARGES. The Lessee acknowledges that the late payment
by the Lessee to the Lessor of rent and other sums due hereunder will cause the
Lessor to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on the Lessor by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from the
Lessee shall not be received by the Lessor, or the Lessor's designee, within ten
(10) days after the same is due, the Lessee shall pay to the Lessor a late
charge equal to five percent (5%) of such overdue amount, monthly, until such
overdue amount is paid. The Lessee acknowledges that such late charge represents
a fair and reasonable estimate of the cost that the Lessor will incur by reason
of a late payment by the Lessee. Acceptance of such late charge by the Lessor
shall in no event constitute a waiver of the Lessee's default with respect to
such overdue amounts nor prevent the Lessor from exercising any of the other
rights and remedies granted hereunder.
13. CONDEMNATION OR RESTRICTION ON USE
13.1 EMINENT DOMAIN. If the whole of the Premises, or so much
thereof as to render the balance unusable by the Lessee, shall be taken under
power of eminent domain, this Lease shall automatically terminate as of the date
of such condemnation, or as of the date possession is taken by the condemning
authority, whichever is earlier. No award for any partial or entire taking shall
be apportioned, and the Lessee hereby assigns to the Lessor any award which may
be made in such taking or condemnation, together with any and all rights of the
Lessee now or hereafter arising in or to the same or any part thereof, provided,
however, that nothing contained herein shall be deemed to give the Lessor any
interest in or to require the Lessee to assign to the Lessor any award made to
the Lessee for its relocation expenses, the taking of personal property and
fixtures belonging to the Lessee, the interruption of or damage to the Lessee's
business and/or for the Lessee's unamortized cost of leasehold improvements. The
unamortized portion of the Lessee's expenditures for improving the Premises
shall be determined by multiplying such expenditures by a fraction, the
numerator of which shall be the number of years of the term of this Lease which
shall not have expired at the time of such appropriation or taking and the
denominator of which shall be the number of years of the term of this Lease
which shall not have expired at the time of improving the Premises. In no event
shall options to renew or extend be taken into consideration in determining the
payment to be made to the Lessee. The Lessee's right to receive compensation or
damages for its fixtures and personal property shall not be affected in any
manner thereby.
13.2 ABATEMENT OF RENT. In the event of a partial taking which
does not result in a termination of this Lease, rent shall be abated in
proportion to that part of the Premises so made unusable by the Lessee.
13.3 TEMPORARY TAKING. No temporary taking of the Premises
and/or of the Lessee's rights therein or under this Lease shall terminate this
Lease or give the Lessee any right to any abatement of rent hereunder; and any
award made to the Lessee by reason of any such temporary taking shall belong
entirely to the Lessee and the Lessor shall not be entitled to share therein.
13.4 VOLUNTARY SALE AS TAKING. A voluntary sale by the Lessor to
any public body or agency having the power of eminent domain, either under
threat of condemnation while condemnation proceedings are pending, shall be
deemed to be a taking under the power of eminent domain for the purpose of this
Article 13.
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14. BROKERS
The Lessor acknowledges its obligation to pay a single
commission to the broker(s) specified in item 9 of the Basic Lease Provisions,
if any, which will be payable by the lessor pursuant to a separate written
agreement with the brokers. The Lessee represents and warrants that it has
neither incurred nor is aware of any other broker's, finder's, or similar fee in
connection with the origin, negotiation, execution or performance of this Lease
and agrees to indemnify and hold harmless the Lessor from any loss, liability,
damage, cost or expense incurred by reason of a breach of this representation.
15. LESSOR'S LIABILITY
15.1 The term "Lessor" as used herein shall mean only the owner
or owners at the time in question of the fee title or a Lessee's interest in a
ground lease of the Building. In the event of any transfer of such title or
interest, the Lessor herein named (and in case of any subsequent transfers, the
then grantor) shall be relieved from, and after the date of such transfers of
all liability for the Lessor's obligations thereafter to be performed; provided,
however, that any funds in the hands of the Lessor or the then grantor at the
time of such transfer in which the Lessee has an interest shall be delivered to
the grantee. The obligations contained in this Lease to be performed by the
Lessor shall, subject as aforesaid, be binding on the Lessor's successors and
assigns only during their respective periods of ownership.
15.2 The initial Lessor hereunder is a joint venture operating
as a California partnership. In consideration of the benefits accruing
hereunder, the Lessee, its successors and assigns, agree that, in the event of
any actual or alleged failure, breach or default hereunder by the initial
Lessor:
(A) The sole. and exclusive remedy shall be against the
assets of the joint venture;
(B) No joint venturer shall be sued or named a party in
any suit or action (except as may be necessary to secure jurisdiction of the
joint venture);
(C) No service of process shall be made against any
joint venturer (except as may be necessary to secure jurisdiction of the joint
venture);
(D) No joint venturer shall be required to answer or
otherwise plead to any service of process;
(E) No judgment will be taken against any joint
venturer;
(F) Any judgment taken against any joint venturer may be
vacated and set aside at any time nunc pro tunc;
(G) No writ of execution will ever be levied against the
assets of any joint venturer; and
(H) These covenants and agreements are enforceable by
the Lessor and also by any joint venturer thereof.
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16. PARKING
During the term of this Lease, the Lessee shall have the right
in common with other tenants of the Building (if any) and any adjacent
buildings, to use the parking area available to tenants of the Building. The
Lessee's use of such parking facilities or that of its invitees shall be limited
to a maximum of the number of parking spaces shown in item 10 of the Basic Lease
Provisions (but such space will not be separately identified and the Lessor
shall have no obligation to monitor the use of such parking facility), and shall
be subject to such rules and regulations as may be established, from time to
time, by the Lessor for the effective use of such parking facilities. Such rules
and regulations may include, but shall not be limited to, designation of
specific areas for use by invitees of the Lessee and the Lessor; hours during
which parking shall be available for use; parking attendants; a parking
validation or other control system to prevent parking abuse; and such other
matters affecting the parking operation to the end that said facilities shall be
utilized to maximum efficiency and in the best interest of the Lessor, the
Lessee and their respective invitees. The Lessor may temporarily close any part
of the Common Area for such periods of time as may be necessary to prevent the
public from obtaining prescriptive rights or to make repair or alterations. The
Lessor shall not have any express or implied obligation to enforce or police the
parking lot usage. The Lessee's right to use any area for parking purposes shall
be subject to restrictions or other limitations resulting from any laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force, and no such event shall in any way
affect this Lease, abate rent, relieve the Lessee of any liabilities or
obligations under this Lease, or give rise to any claim whatsoever against the
Lessor; specifically, the Lessee's right to use any area for parking purposes
shall be subject to any preferential parking program for participants in any
ridesharing program established by the Lessor. If the Lessor reasonably
determines that the Lessee is regularly using in excess of the number of parking
spaces specified in item 10 of the Basic Lease Provisions, the Lessor may, in
addition to any other remedy, impose a reasonable charge for such excess usage,
payable by the Lessee upon demand.
17. GENERAL PROVISIONS
17.1 ESTOPPEL CERTIFICATE
(A) The Lessee shall at any time, and from time to time,
upon not less than ten (10) days' prior written notice from the Lessor, execute,
acknowledge and deliver to the Lessor a statement in writing (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent and other charges
are paid in advance, if any, and (ii) acknowledging that there are no, to the
Lessee's knowledge, uncured defaults on the part of the Lessor hereunder, or
specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
(B) The Lessee's failure to deliver such statement
within such time shall be conclusive upon the Lessee that (i) this Lease is in
full force and effect without modification except as may be represented by the
Lessor, (ii) there are no uncured defaults in the Lessor's performance, and
(iii) not more than one (1) month's rent has been paid in advance.
(C) If the Lessor desires to finance or refinance the
Premises, or any part thereof, the Lessee shall deliver to any lender designated
by the Lessor such financial statements of the Lessee as may be reasonably
required by such lender. All such financial statements shall be received by the
Lessor in confidence and shall be used only for the purposes herein set forth.
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17.2 SEVERABILITY. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
17.3 TIME OF ESSENCE. Time is of the essence in the performance
of all terms and conditions of this Lease in which time is an element.
17.4 CAPTIONS. Article and paragraph captions have been inserted
solely as a matter of convenience and such captions in no way define or limit
the scope or intent of any provision of this Lease.
17.5 NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to be delivered and received
(a) when personally delivered, or (b) on the second business day after the date
on which deposited in the United States mails, certified or registered mail,
postage prepaid, return receipt requested, addressed to the Lessor and the
Lessee respectively at the addresses set forth before their signatures to the
Basic Lease Provisions, or to such other or additional persons or at such other
addresses as may, from time to time, be designated in writing by the Lessor or
the Lessee by notice pursuant hereto.
17.6 WAIVERS. No waiver of any provision hereof shall be deemed
a waiver of any other provision hereof. Consent to or approval of any act by one
of the parties hereto shall not be deemed to render unnecessary the obtaining of
such party's consent to or approval of any subsequent act: The acceptance of
rent hereunder by the Lessor shall not be a waiver of any preceding breach by
the Lessee of any provision hereof, other than the failure of the Lessee to pay
the particular rent so accepted, regardless of the Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
17.7 HOLDING OVER. If the Lessee holds over after the expiration
or earlier termination of the term hereof without the express written consent of
the Lessor, the Lessee shall become a tenant at sufferance only at One Hundred
and Twenty-Five Percent (125%) of the monthly rent for the Premises then in
effect for the space, in effect upon the date of such expiration or earlier
termination (subject to adjustment as provided in Article 3 hereof and prorated
on a daily basis), and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by the lessor of rent after such
expiration or earlier termination shall not constitute a consent to a holdover
hereunder or result in a renewal. The foregoing provisions of this paragraph are
in addition to and do not affect the Lessor's right of re-entry or any other
rights of the Lessor hereunder or as otherwise provided by law.
17.8 CUMULATIVE REMEDIES. No remedy or election hereunder shall
be deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
17.9 INUREMENT. Subject to any provisions hereof restricting
assignment or subletting by the Lessee and subject to the provisions of Article
15 hereof, the terms and conditions contained in this Lease shall bind the
parties, their personal representatives, successors and assigns.
17.10 CHOICE OF LAW. This Lease shall be governed by the laws
of the State of California.
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17.11 SUBORDINATION. This Lease shall, at the Lessor's. option,
be either superior or subordinate to mortgages or deeds of trust on the
Premises, whether now existing or hereinafter created and subject to receipt by
the Lessee of a non-disturbance agreement from such lender(s). The Lessee shall,
upon written demand by the Lessor, execute such instruments as may be required,
from time to time, to subordinate the rights and interest of the Lessee under
this Lease to the lien of any mortgage or deed of trust on the Building.
Notwithstanding any such subordination, so long as the Lessee is not in default
hereunder, this Lease shall not be terminated or the Lessee's quiet enjoyment of
the Premises disturbed in the event such mortgage or deed of trust is
foreclosed. In the event of such foreclosure, the Lessee shall thereupon become
a Lessee of, and attorn to, the successor in interest to the Lessor on the same
terms and conditions as are contained in this Lease.
17.12 ATTORNEYS' FEES. If any action at law or equity, including
an action for declaratory relief, is brought to enforce the provisions of this
Lease, the prevailing party shall be entitled to recover actual attorneys' fees
incurred in bringing such action and/or enforcing any judgment granted therein,
all of which shall be deemed to have accrued upon the commencement of the action
and shall be paid whether or not such action is prosecuted to judgment. The
attorneys' fees to be awarded the prevailing party may be determined by the
court in the same action or in a separate action brought for that purpose. Any
judgment or order entered in such action shall contain a specific provision
providing for the recovery of actual attorneys' fees and costs incurred in
enforcing such judgment. The award of attorneys' fees shall not be computed in
accordance with any court schedule, but shall be made so as to fully reimburse
the prevailing party for all attorneys' fees, paralegal fees, costs and expenses
actually incurred in good faith, regardless of the size of the judgment, it
being the intention of the parties to fully compensate the prevailing party for
all attorneys' fees, paralegal fees, costs and expenses paid or incurred in good
faith. For purposes of this section, attorneys' fees shall include, without
limitation, attorneys' fees, paralegal fees, costs and expenses incurred in
relation to any of the following: post-judgment motions; contempt proceedings,
garnishment, levy and debtor or third party examinations; discovery; and
bankruptcy litigation.
17.13 LESSOR'S ACCESS. The Lessor and the Lessor's agents shall
have the right to enter the Premises at reasonable times for the purpose of
inspecting the same, showing the same to prospective purchasers, lessees, or
lenders, and making such alterations, repairs, improvements or additions to the
Premises or to the Building as the Lessor may deem necessary or desirable. The
Lessor may at any time place on or about the Building any ordinary "For Sale"
signs and the Lessor may, at any time during the last one hundred eighty (180)
days of the term hereof (or during any period in which the Lessee is in default
under this Lease), place on or about the Building any ordinary "For Sale", "For
Lease" or similar signs, all without rebate of rent or liability to the Lessee.
17.14 CORPORATE AUTHORITY. If the Lessee is a corporation, the
Lessee shall, at the Lessor's request, require that each individual executing
this Lease on behalf of said corporation represent and warrant that he is duly
authorized to execute and deliver this Lease on behalf of said corporation in
accordance with a duly adopted resolution of the Board of Directors of said
corporation or in accordance with the Bylaws of said corporation, and that this
Lease is binding upon said corporation in accordance with its terms. The Lessee
shall also, at the Lessor's request, within thirty (30) days after execution of
this Lease, deliver to the Lessor a certified copy of a resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.
17.15 SURRENDER OR CANCELLATION. The voluntary or other
surrender of this Lease by the Lessee, or a mutual cancellation thereof, shall
not work a merger, and shall terminate all or any existing subleases, unless the
Lessor elects to treat such surrender or cancellation as an assignment to the
Lessor of any or all of such subleases.
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17.16 ENTIRE AGREEMENT. This Lease, the exhibits hereto which by
this reference are incorporated herein as though set forth in full herein,
covers in full each and every agreement of every kind or nature whatsoever
between the parties hereto concerning the Premises and the Building, and all
preliminary negotiations and agreements of whatsoever kind or nature are merged
herein. The Lessor has made no representations or promises whatsoever with
respect to the Premises or the Building, or the design configuration of the
Project, except those contained herein, and no other person, form or corporation
has at any time had any authority from the Lessor to make nay representations or
promises on behalf of the Lessor. If any such representations or promises have
been made by others, the Lessee hereby waives all right to rely thereon. No
verbal agreement or implied covenant shall be held to vary the provisions
hereof, any statute, law or custom to the contrary notwithstanding.
Except as otherwise provided herein, nothing expressed or
implied herein is intended or shall be construed to confer upon or grant any
person any rights or remedies under or by reason of any term or condition
contained in this Lease.
17.17 SIGNS. No sign, placard, picture, advertisement, name or
notice shall be inscribed, displayed, printed or affixed to or near any part of
the outside or inside of the Building without the written consent of the Lessor
first had and obtained and without full compliance with all governmental
requirements and with the Project Signage Plan and any other required consents.
The Lessor shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to the Lessee and at the expense of
the Lessor. The Lessor will provide the signs described in Section 18.6 hereof
which shall be installed at the Lessor's sole cost and expense. All other signs
will be at the Lessee's expense. The Lesse6 further agrees to maintain any such
approved signs, as may be approved by the Lessor, in good condition and repair
at all times. The Lessee shall not place any sign on a vehicle or movable or
non-movable object in or on the street adjacent to the Project.
17.18 INTEREST ON PAST DUE OBLIGATIONS. Any amount due from the
Lessee to the Lessor hereunder which is not paid when due shall bear interest at
three (3) percentage points above the discount rate of the Federal Reserve Bank
of San Francisco at the time of the award from the date due until paid, but the
payment of such interest shall not excuse or cure any default by the Lessee.
17.19 GENDER; NUMBER. Whenever the context of this Lease
requires, the masculine gender includes the feminine or neuter, and the singular
number includes the plural.
17.20 RECORDING OF LEASE. The Lessee shall not record this Lease
without the express written consent of the Lessor. If such permission is
granted, at the expiration or sooner termination of this Lease, the Lessee shall
execute, acknowledge and deliver to the Lessor, within ten (10) days after
written demand from the Lessor, any quitclaim deed or other document reasonably
required by any reputable title company to remove the cloud of this Lease from
the title of the real property subject to the Lease.
17.21 WAIVER OF SUBROGATION. The Lessor and the Lessee each
hereby waive any and all rights of recovery against the other, or against the
officers, employees and agents and representatives of the other, for loss of or
any damage to such waiving party or its property, or the property of others
under its control, to the extent that such loss or damage is insured against
under any valid and collectible insurance policy in force at the time of such
loss or damages. The Lessee shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
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17.22 CONFIDENTIALITY OF LEASE. The Lessee acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of the Lessor. Disclosure of the terms hereof could adversely affect
the ability of the Lessor to negotiate other leases with respect to the Building
and impair the Lessor's relationship with other tenants of the Building. The
Lessee agrees that it, its partners, officers, directors, employees and
attorneys, shall not disclose the terms and conditions of this Lease to any
other person without the prior written consent of the Lessor. It is understood
and agreed that damages would be an inadequate remedy for the breach of this
provision by the Lessee, and the Lessor shall have the right to specific
performance of this provision and to injunctive relief to prevent its breach or
continued breach. There shall be excluded from this obligation any filing
required by the Securities and Exchange Commission or any other disclosure
required by law.
17.23 QUIET ENJOYMENT. Provided the Lessee has performed all of
the terms, covenants, agreements and conditions of this Lease, including the
payment for rent and all other sums due hereunder, the Lessee shall peaceably
and quietly hold and enjoy the Premises for the term hereof, but subject to the
provisions and conditions of this Lease against the Lessor and all persons
claiming by, through or under the Lessor. The Lessee's right to use the Premises
and the Common Area as herein provided shall be subject to restrictions or other
limitations or prohibitions resulting from any laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and no such event shall in any way affect this Lease,
abate rent, relieve the Lessee of any liabilities or obligations under this
Lease.
17.24 WINDOW COVERAGE. The Lessor shall select a standard
mini-blind type and color for all windows to be covered by the Lessee. No window
covering, including, but not limited to, coatings or draperies, shall be used by
the Lessee without the Lessor's written approval.
17.25 MATERIALS STORAGE RESTRICTIONS. The Lessee agrees to
conduct its business so as not to violate or exceed the design standards of the
fire protection system or any insurance policies maintained by the Lessor
pursuant to Article 7.
17.26 NO AGENCY. Neither party is the agent or partner of the
other, and the legal relationship between the parties hereto shall be governed
solely by the terms of this Lease when duty executed by both parties with
respect to the transactions contemplated hereby.
17.27 FORCE MAJEURE. Notwithstanding any of the items set forth
above, the Lessor shall bear no liability of whatever kind to the Lessee if,
despite the Lessor's exercise of due diligence, the Lessor's carrying out of its
obligations, as defined herein, prevented or delayed by legal action, nor by the
exercise of governmental authority, whether Federal, State of County, or other
or by force majeure, strikes, riots, acts of God, war, adverse weather
conditions, fire, unavoidable casualties, or acts of third parties beyond the
Lessor's control.
17.28 ACCORD AND SATISFACTION. No payment by the Lessee or
receipt by the Lessor of a lesser amount than the rent herein stipulated shall
be deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and the Lessor may
accept such check or payment without prejudice to the Lessor's right to recover
the balance of such rent or pursue any other remedy provided in this Lease.
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<PAGE> 32
17.29 FINANCIAL STATEMENTS. The Lessee shall deliver to the
Lessor, prior to the execution of this Lease, its financial statement, and the
annual financial statements of the Lessee within ninety (90) days after the end
of the Lessee's fiscal year, which shall be certified by the Lessee as true and
correct. The Lessee shall also provide financial statements of any guarantor of
this Lease, which shall be certified as true and correct by such guarantor. Such
financial statements shall be based upon generally accepted accounting
principles applied on a consistent basis. The financial statements shall clearly
show sufficient information to accurately depict the financial condition of the
Lessee as of the date thereof. Any misrepresentations in the Lessee's financial
statements will be considered, at the Lessor's option, as a breach of a material
provision of this Lease. If the Lessee is a partnership or joint venture, such
financial statements shall, upon the Lessor's request, be accompanied by similar
financial statements of each general partner or joint venture of the Lessee.
Such similar statements shall be certified to be true and correct by the subject
thereof. Within five (5) days following written request by the Lessor delivered
after any default by the Lessee in the payment of any sums owing under this
Lease, whether or not any time period allowed for the cure of such default has
expired, the Lessee shall provide the Lessor with copies of the Lessee's
financial statement for the end of the most recent quarter of the Lessee's
fiscal year, and the Lessee's financial statement (including year to date
information) for the end of the month preceding such default. In each case, such
financial statement shall meet all of the preceding requirements for annual
financial statements. The Lessee's failure to deliver the financial statements
contemplated hereby within the time specified shall constitute a material
default by the Lessee under this Lease.
17.30 SUPERSEDES PROPOSAL TO LEASE. This Lease supersedes any
proposals regarding the leasing of the Premises, whether written or oral, and
any such proposals will be terminated, and of no force or effect, effective upon
the execution of this Lease.
17.31 CONSTRUCTION. The provisions of this Lease should be
liberally construed to effectuate its purposes. The language of all parts of
this Lease shall be construed simply according to its plain meaning and shall
not be construed for or against either party, as each party has participated in
the drafting of this Lease and had the opportunity to have their counsel review
it. Whenever the context and construction so requires, all words used in the
singular shall be deemed to be used in the plural, all masculine shall include
the feminine and neuter, and vice versa.
17.32 NON-DISTURBANCE AGREEMENT. The parties shall execute,
concurrently with the execution of this Lease, the Non-Disturbance and
Attornment Agreement attached as Exhibit "D", which is incorporated by this
reference. The Lessor shall obtain its lender's execution of said agreement as
soon as reasonably practical after execution by the parties, and furnish the
Lessee with a fully executed copy.
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<PAGE> 33
18. CONSTRUCTION
18.1 The Lessor shall cause the construction of the Lessee's
improvements in the Premises in accordance with mutually approved Lessee
improvement plans and outline specifications, which will be prepared at the
Lessee's expense (as part of the costs provided in Section 18.4 below), and
which will be initialed by the Lessor and the Lessee before the execution of
this Lease. No changes shall be made in the initially approved plans and
specifications without the prior written approval of the Lessor and the lessee.
Any such changes or additions caused by the Lessee or any Governmental authority
shall be made at the sole cost of the Lessee and all additional expenses
incurred by the Lessor with respect to these changes (except changes requested
by the Lessor) shall be reimbursed to the Lessor by the Lessee upon demand. The
Lessor will not provide any modifications to initially approved Plans and
Specifications, unless the Lessee has deposited with the Lessor the additional
cost to be incurred for all such alterations or modifications. Any such changes
which cause a delay or any other delays caused by the Lessee or the Lessee's
agents may postpone occupancy of the Premises beyond the Commencement Date (in
which case the same shall be adjusted to the aggregate delays), but there shall
be no abatement of the Lessee's rent as a result of any such delay. Failure by
the Lessee to accomplish, complete and approve plans and specifications for the
Lessee's improvements in a timely fashion shall be a material breach of this
Lease and, at the Lessor's option, this Lease may be canceled or the monthly
rent shall begin on the date indicated in item 7 of the Basic Lease Provisions.
Under no circumstances shall the Lessor be charged with any delay whatsoever as
a result of non-standard improvement work. The Lessee acknowledges that the
Lessor's affiliated entity will complete the construction. The Lessee will
cooperate and execute any documents required by the Lessor's lender in
connection with all such improvements and will agree if required by the Lessor's
lender to make a portion of the rental payments due the Lessor hereunder
directly to such Lender as specified by the Lessor, provided that the Lessee
will not be required to pay any additional rent than that otherwise specified in
this Lease.
18.2 The Lessor shall, at its expense, promptly correct all
items not conforming with the plans and specifications of which the Lessor is
notified by the Lessee in writing within thirty (30) days after the Lessee takes
possession of the Premises.
18.3 The Lessor warrants the Building and the Lessee's
improvements installed in the Premises by the Lessor against any defects in
materials and workmanship of which the Lessor is notified by the Lessee in
writing within one (1) year after the date of completion of the work in
question. The Lessor further warrants that the construction of the Building and
such tenant improvements will upon completion comply with all applicable
statutes, ordinances, rules, regulations, orders and requirements of
Governmental authorities in effect as of the commencement of the lease term.
18.4 The Lessor shall construct, at the Lessor's cost, not to
exceed ONE HUNDRED TEN THOUSAND DOLLARS ($110,000) (the "Improvement Allowance")
, as shown on Exhibit A hereto which shall include all architect fees, permits,
other soft costs and the costs of the improvements. The Lessee shall be the
owner of any improvements in excess of the allowance during the term of this
Lease, but the ownership of such improvements shall revert to the Lessor upon
the expiration of this Lease. Any change orders to the originally approved
contract which are requested by the Lessee shall be forwarded to the Lessor or
the Lessor's designated contractor for costing and approval. The Lessee shall be
given a written cost estimate for the completion of said change order which must
be approved and paid for by the Lessee prior to the commencement of work. To the
extent that the Improvement Allowance is not expended as provided herein, the
Lessor will provide up to TWENTY THOUSAND DOLLARS ($20,000) in modular office
partitions and modular furniture, which will remain in the Premises upon
termination of this Lease. For example, if TEN THOUSAND DOLLARS ($10,000) of the
Improvement Allowance is not expended, then TEN THOUSAND DOLLARS ($10,000) would
be used for such partitions or furniture.
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<PAGE> 34
18.5 Tender of possession of the Premises by the Lessor to the
Lessee may not take place prior to the time the Premises have been completed.
The Premises shall be deemed completed when construction has been substantially
completed in accordance with the plans and specifications as set forth in this
Article 18. Taking of possession by the Lessee of the Premises shall constitute
an acknowledgment that the Premises have been satisfactorily completed and the
Lessor shall have no further responsibility with respect to conclusion, except
as expressly set forth in Section 18.3 and 18.4 hereof.
18.6 The Lessor shall pay for a sign to be placed on the facade
of the Building in which the premises is located, and a directory sign, which
shall be approved by the Lessor and shall be similar in size, nature and style
to existing signage. This provision shall supersede any provision to the
contrary set forth in the Rules and Regulations attached hereto as Exhibit C.
18.7 Within ten (10) days of occupancy of the Premises by the
Lessee, the Lessor will pay the Lessee a TWELVE THOUSAND DOLLAR ($12,000) moving
allowance.
18.8 Except as provided herein, the Premises will be delivered
in "as is" condition.
19. RENEWAL OPTION.
19.1 The Lessor hereby grants to the Lessee the right to renew
this Lease for one (1) period of five (5) years (the "Option Period"), upon the
same terms, covenants and conditions as are provided in this Lease, except that
Initial Annual Rent for the Option Period will be the Initial Annual Rent in
effect at the termination of the Initial Term of the Lease, as increased on the
first day of the Option Period and each year thereafter as provided in Section
19.2 below.
The Lessee shall give notice to the Lessor in writing of the
Lessee's election to exercise such option no less than six (6) months prior to
the expiration of the Term or of any previously exercised option. The Lessee
shall not be entitled to exercise the five (5) year option if, at the time of
such exercise, the Lessee is in default of any provision of this Lease as
defined in Section 12.1 and such default is not cured by the Lessee, either
before or after exercise of the option, within thirty (30) days after written
notice of said default from the lessor to the Lessee, or if the Lessor has in
good faith delivered to the Lessee more than two (2) notices of default under
the Lease.
19.2 The annual rent shall be increased as of the start of each
year of the Option Period commencing with the first day of the Option Period
(the "Adjustment Date") to reflect any increase in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index, "Urban Wage Earners
and Clerical Workers (Revised) Series) All Items Los Angeles-Anaheim-Riverside
Average(1982-1984=100)". The index for said subgroup applicable for the month of
December, 1993 shall be considered the "base", and the annual rent following
each Adjustment Date shall be computed by adjusting the annual rent payable for
the preceding calendar year thereof by the percentage change in the index as of
the Adjustment Date over the "base". If as of any Adjustment Date there shall
not exist the Consumer Price Index in the same format as set forth above, the
parties shall substitute any official index as may then be in existence and
shall be most nearly equivalent thereto. If the parties shall be unable to agree
upon a successor index, the parties shall refer the choice to arbitration in
accordance with the rules of the American Arbitration Association.
Notwithstanding the foregoing, the annual increase will not be less than Two
Percent (2%) nor more than Eight Percent (8%) per year. This provision shall not
apply to the Building Operating Expenses or Common Area Operating Expenses.
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<PAGE> 35
Within ninety (90) days after each Adjustment Date, the Lessor
shall furnish the Lessee with a written statement showing the percentage change
in the index for the period ending on the Adjustment Date and specifying the
increase, if any, in the annual rent subsequent to the Adjustment Date, taking
into account all prior adjustments to annual rent for the period preceding the
Adjustment Date pursuant to this paragraph above and applying any percentage
increase in the index to the annual rent as previously adjusted. At the rental
payment date next following the Lessee's receipt of such statement, the Lessee
shall pay to the Lessor an amount equal to one-twelfth (1/12th) of the
adjustment pursuant to this Paragraph (b) multiplied by the number of rent
payment dates (including the current one) since the relevant Adjustment Date.
Subsequent rental payments shall be increased by one-twelfth (1/12th) of the
adjustment pursuant to this Paragraph (b).
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<PAGE> 36
EXHIBIT C
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building without the written consent of Lessor first had and obtained and
Lessor shall have the right to remove any such sign, placard, picture,
advertisement, name or notice to and at the expense of Lessee.
All approved signs or lettering on doors shall be printed,
painted, affixed or inscribed at the expense of Lessee by a person approved of
by the Lessor.
Lessee shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises.
2. The directory or name identification of the Building, if any, will
be provided exclusively for the display of the names and location of Lessee
and other Lessees in the Building, and Lessor reserves the right to exclude
any other names therefrom.
3. All sidewalks, halls, passages, exits, entrances of the Building, if
any, shall not be obstructed by any Lessee or used by him for any purpose
other than for ingress to and egress from his respective Premises. The halls,
passages, exits, entrances, elevators, stairways, balconies and roof are not
for the use of the general public and the Lessor shall in all cases retain the
right to control and prevent access thereto by all persons whose presence in
the judgment of the Lessor shall be prejudicial to the safety, character,
reputation and interests of the Building and its Lessees, provided that
nothing herein contained shall be construed to prevent such access to persons
with whom the Lessee normally deals in the ordinary course of Lessee's
business unless such persons are engaged in illegal activities. No Lessee and
no employee or invites of any Lessee shall go upon the roof of the Building
without the prior consent of Lessor. For purposes of Lessee's obligations, if
any, of repair and maintenance of the heating, ventilating and air
conditioning systems of the Premises, Lessee shall use a maintenance firm
selected or designated by Lessor unless Lessee demonstrates by written
evidence reasonably satisfactory, to Lessor that the rates quoted by such firm
for such work are not competitive with rates quoted by one or more other firms
which Lessee proposes to use.
4. Lessee may install new or additional locks or any bolts on any door
of the premises; however, Lessee shall provide Lessor with access to the
premises in the event of an emergency access requirement upon one hour notice.
5. Lessee shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants or the Building by reason of noise, odors and/or vibrations,
or interfere in any way with other Lessees or those having business therein,
nor shall any animals or birds be brought in or kept in or about the Premises
of the Building.
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<PAGE> 37
7. Any cooking shall be limited to the use of microwave ovens for the
preparation of food items, tea, hot chocolate and similar items by Lessee for
its employees and business visitors shall be permitted. Nor shall the Premises
be used for washing clothes, for lodging, or for any improper, objectionable
or immoral purposes.
8. Other than stored in a proper manner allowed for by County
ordinances and in a manner consistent with Exhibit DI of this Lease, Lessee
shall not use or keep in the Premises or the Building any kerosene, gasoline
or inflammable or combustible fluid or material, or use any method of heating
or air conditioning other than that supplied by Lessor. Any permitted
corrosive, flammable or other special wastes shall be handled for disposal as
directed by Lessor.
9. Each Lessee, upon the termination of his tenancy, shall deliver to
the Lessor the keys of offices, rooms and toilet rooms, if any, which shall
have been furnished the Lessee or which the Lessee shall have had made, and in
the event of loss of any keys so furnished, shall pay the Lessor therefor.
10. No Lessee shall lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Lessor. The expense of repairing any damage
resulting from a violation of this rule or removal of any floor covering shall
be borne by the Lessee by whom, or by whose contractors, employees or
invitees, the damage shall have been caused.
11. Lessee shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Lessee or Lessee's employees leave the Building, and that all electricity
shall likewise be carefully shut off, so as to prevent waste or damage, and
for any default or carelessness Lessee shall make good all injuries sustained
by other tenants or occupants of the Building or Lessor.
12. Lessor reserves the right to exclude or expel from the Building any
person who, in the judgment of Lessor, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the Rules and Regulations of the Building.
13. Requirements of Lessee as to any matters within Lessor's
obligations pursuant to its Lease will be attended to only upon application at
the Lessee's address for notices. Employees of Lessor shall not perform any
work or do anything outside of their regular duties unless under special
instructions from the Lessor, and no employee will admit any person (Lessee or
otherwise) to any office without specific instructions from the Lessor.
14. Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and street address of the Building of
which the Premises are a part.
15. Lessee shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent same.
16. Without the written consent of Lessor, Lessee shall not use the
name of the Building in connection with or in promoting or advertising the
business of Lessee except as Lessee's address.
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<PAGE> 38
17. Lessee's use of the common areas shall be limited to access and
parking purposes and under no circumstances shall Lessee be permitted to store
any goods or equipment, conduct any operations, or construct or place any
improvements, barriers or obstructions in the common areas, or otherwise
adversely affect the appearance thereof.
18. Canvassing, soliciting and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
19. Lessee shall not install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of its premises.
20. Lessor reserves the right to make such other and further
nondiscriminatory Rules and Regulations as in its reasonable judgment may be
necessary for the safety, care and cleanliness of the Premises and the
Building and for the preservation of good order therein. Lessee agrees to
abide by all such Rules and Regulations which are adopted.
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<PAGE> 39
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE (this "Amendment") is dated as of October
__, 1996, between Computer Motion, Inc., as Lessee ("Lessee"), and University
Business Center Associates, as Lessor ("Lessor").
R E C I T A L S:
WHEREAS, Lessee and Lessor entered into that certain Lease dated
January 19, 1994, pursuant to the terms of which Lessee leases 12,820 square
feet of the property commonly known as the University Business Center located at
130 Cremona Drive in Goleta, California (the "Building"), as more particularly
set forth therein. All terms not otherwise defined herein shall have the meaning
given to such terms in the Lease;
WHEREAS, Lessor and Lessee hereby desire to expand the space
covered by the Lease to include additional space in the Premises containing
2,360 rentable square feet on the ground floor of the Building, as depicted on
Exhibit A attached hereto and made a part hereof (The "Storz Space") commencing
on the Storz Effective Date (as defined below). The leasing of the Storz Space
shall increase the total area leased to Lessee under the Lease to 15,180 square
feet;
WHEREAS, Lessor and Lessee hereby desire to further expand the
space covered by the Lease to include additional space in the Premises
containing 2,325 rentable square feet on the second floor of the Building, as
depicted on Exhibit B attached hereto and made a part hereof (the "BDC Space")
commencing on the BDC Effective Date (as defined below). The leasing of the BDC
Space shall increase the total area leased to Lessee under the Lease to 17,505
square feet; and
WHEREAS, Lessee and Lessor desire to amend the Lease as set forth
herein.
NOW THEREFORE, in consideration of the foregoing, the benefits
to be derived by both parties hereto and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties
hereto, intending to be legally bound hereby, Lessee and Lessor hereby agree as
follows:
1. Additional Storz Space. From and after the Storz Effective Date, the
description of the Premises set forth in the Lease shall, without further
act on the part of Lessor or Lessee, be deemed amended so that the Storz
Space shall be deemed to be and shall be referred to as the Premises under
the Lease and the rentable square feet constituting the Premises shall be
deemed to be 15,180 rentable square feet.
2. Storz Effective Date. Except for Sections 13 through 15 hereof, this
Amendment shall be effective on November 25, 1996 (the "Storz Effective
Date"), provided that Lessor gives Lessee five (5) business days' written
notice thereof, which notice may be given at any time on or after the date
hereof. If such notice is not given as set forth herein, the Storz Effective
Date shall be deemed to be November 30, 1996.
3. Rent. The monthly rental installment set forth in Item 5 of the Basic Lease
Provisions of the Lease shall be amended so that the monthly rental
installments for the Premises shall be $17,927.68 per month (i.e. $1.18 per
square foot).
<PAGE> 40
4. Reimbursements. The percentages set forth in Item 3 of the Basic Lease
Provisions of the Lease shall be amended to read as follows:
<TABLE>
<CAPTION>
"LESSEE'S PERCENTAGES:
<S> <C>
BUILDING: 38.22%
COMMON AREA: 6.53%"
</TABLE>
5. Rental Deposit. The amount set forth as the "Rental Deposit" in Item 4 of
the Basic Lease Provisions of the Lease shall be increased by #,825.68 to
$17,927.68. On or before the Storz Effective Date, Lessee shall deposit such
additional amount with Lessor pursuant and subject to Section 4 of the
Lease.
6. Tenant Improvement Allowance. Lessor shall provide Lessee with an additional
Tenant Improvement Allowance of $97,593.14 for the purposes of constructing
Lessee's improvements in the Storz Space as shown on Exhibit C hereto.
Section 18 of the Lease is hereby amended by adding the following
subsections to the end of such Section 18:
"18.9 The Lessor shall cause the construction of the Lessee's
improvements in the Storz Space in accordance with mutually approved
Lessee improvement plans and outline specifications, which will be
prepared at the Lessee's expense (as part of the costs provided in
Section 18.12 below), and which will be initialed by the Lessor and the
Lessee before the Storz Effective Date (the "Storz Plans"). No changes
shall be made in the Storz Plans without the prior written approval of
the Lessor and the Lessee. Any such changes or additions caused by the
Lessee or any Governmental authority shall be made at the sole cost of
the Lessee and all additional expenses incurred by the Lessor with
respect to these changes (except changes requested by the Lessor) shall
be reimbursed to the Lessor by the Lessee upon demand. The Lessor will
not provide any modifications to the Storz Plans, unless the Lessee has
deposited with the Lessor the additional cost to be incurred for all
such alterations or modifications. Any such changes which cause a delay
or any other delays caused by the Lessee or the Lessee's agents may
postpone occupancy of the Storz Space beyond the Storz Effective Date
(in which case the same shall be adjusted to the aggregate delays), but
there shall be no abatement of the Lessee's rent as a result of any such
delay. Failure by the Lessee to accomplish, complete and approve plans
and specifications for the Lessee's improvements in a timely fashion
shall be a material breach of this Lessee. Under no circumstances shall
the Lessor be charged with any delay whatsoever as a result of
non-standard improvement work. The Lessee acknowledges that the Lessor's
affiliated entity will complete the construction. The Lessee will
cooperate and execute any documents required by the Lessor's lender in
connection with all such improvements and will agree if required by the
Lessor's lender to make a portion of the rental payments due the Lessor
hereunder directly to such Lender as specified by the Lessor, provided
that the Lessee will not be required to pay any additional rent than
that otherwise specific in this Lease.
18.10 The Lessor shall, at its expense, promptly correct all items not
conforming with the Storz Plans of which the Lessor is notified by the
Lessee in writing within thirty (30) days after the Storz Effective
Date.
18.11 The Lessor warrants the Storz Space and the Lessee's improvements
installed in the Premises by the Lessor against any defects in materials
and workmanship of which he Lessor is notified by the Lessee in writing
within one (1) year after the date of completion of the work in
question. The Lessor further warrants that the Storz Space and such
tenant improvements will upon completion comply with all applicable
statutes,
<PAGE> 41
ordinances, rules, regulations, orders and requirements of Governmental
authorities in effect as of the Storz Effective Date.
18.12 The Lessor shall construct improvements, at the Lessor's cost, not
to exceed NINETY-SEVEN THOUSAND FIVE HUNDRED NINETY-THREE AND FOURTEEN
ONE HUNDREDTHS DOLLARS ($97,593.14) (the "Storz Improvement Allowance"),
which shall include all architect fees, permits, other soft costs and
the costs of the improvements. The Lessee shall be the owner of any
improvements in excess of the allowance during the term of this Lease,
but the ownership of such improvements shall revert to the Lessor upon
the expiration of this Lease. Any change orders to the originally
approved contract which are requested by the Lessee shall be forwarded
to the Lessor or the Lessor's designated contractor for costing and
approval. The Lessee shall be given a written cost estimate for the
completion of said change order which must be approved and paid for by
the Lessee prior to the commencement of work. To the extent that the
Storz Improvement Allowance is not expended as provided herein, the
Lessor shall retain any funds not so expended and shall be under no
obligation to provide any further improvements or allowances on Lessee's
behalf).
18.13 Tender of possession of the Storz Space by the Lessor to the
Lessee may not take place prior to the time the Storz Space has been
completed. The Storz Space shall be deemed completed when construction
has been substantially completed in accordance with the plans and
specifications as set forth in this Article 18. Taking possession by the
Lessee of the Storz Space shall constitute an acknowledgment that the
Storz Space has been satisfactorily completed and the Lessor shall have
no further responsibility with respect to conclusion, except as
expressly set forth in Section 18.11 and 18.12 hereof.
18.14 Except as provided herein, the Storz Space will be delivered in
"as is" condition.
<PAGE> 42
7. Parking Spaces. The maximum number of parking spaces provided to Lessee as
set forth in Item 10 of the Basic Lease Provisions of the Lease shall be
amended to be fifty-three (53). The rights and conditions with respect to
Lessee's parking privileges as set forth in Section 16 of the Lease shall
also apply to the Storz Space and the BDC Space.
8. Term. The Term of the lease set forth in Item 6 of the Basic Lease
Provisions of the Lease shall be amended to be seven (7) years, nine (9)
months, expiring on November 30, 2001.
9. Option to Extend. Lessee's option to extend the Lease as set forth in Item 6
of the Basic Lease Provisions and Section 19 of the Lease shall apply to the
Storz Space and BDC Space.
10. Additional BDC Space. From and after the BDC Effective Date, the description
of the Premises set forth in the Lease shall, without further act on the
part of Lessor or Lessee, be deemed amended so that the BDC Space shall be
deemed to be and shall be referred to as the Premises under the Lease and
the rentable square feet constituting the Premises shall be deemed to be
17,505 rentable square feet.
11. BDC Effective Date. Sections 13 through 15 only of the Amendment shall be
effective on January 15, 1997 (the "BDC Effective Date"), provided that
Lessor gives Lessee five (5) business days' written notice thereof, which
notice may be given at any time on or after the date hereof. If each notice
is not given as set forth herein, the BDC Effective Date shall be deemed to
be February 1, 1997.
12. Rent. The monthly rental installment set forth in Item 5 of the Basic Lease
Provisions of the Lease shall be amended so that the monthly rental
installments for the Premises shall be $20,648.53 per month (i.e. $1.18 per
square foot). Such monthly rental installments shall increase annually on
the dates set forth and as more particularly set forth on Schedule 12
attached hereto and made a part hereof.
13. Reimbursements. The percentages set forth in item 3 of the Basic Lease
Provisions of the Lease shall be amended to read as follows:
<TABLE>
<CAPTION>
"LESSEE'S PERCENTAGES:
<S> <C>
BUILDING: 44.07%
COMMON AREA: 7.53%"
</TABLE>
14. Rental Deposit. The amount set forth as the "Rental Deposit" in Item 4 of
the Basic Lease Provisions of the Lease shall be increased by $2,887.93 to
$20,648.53. on or before the BDC Effective Date, Lessee shall deposit such
additional amount with Lessor pursuant and subject to Section 4 of the
Lease.
15. Condition of BDC Space. Lessee shall accept the BDC Space in its "as is"
condition as of the BDC Effective Date. Lessee hereby agrees that no
improvement allowance will be given to Lessee with respect to the BDC Space,
and the terms and conditions of the Lease relating to tenant improvements
and construction shall not apply to the BDC Space.
16. No Brokers. Lessee represents and warrants to Lessor that it has not
retained the services of any real estate broker in connection with the Storz
Space or the BDC Space and hereby agrees to indemnify and hold Lessor
harmless from and against any claims by any real estate broker or other
person claiming to represent Lessee with respect to the Storz Space or the
BDC Space.
17. Conflicting Terms: Reifications. Except as clarified and modified herein,
the Lease shall remain in full force and effect, and the parties hereto
hereby ratify and affirm the Lease as so amended. In the event a conflict
exists between the terms and conditions of this Amendment and the terms and
conditions of the Lease, the terms and conditions of this Amendment shall
control.
<PAGE> 43
IN WITNESS WHEREOF, the Lessor and Lessee and have executed this
Amendment as of the date first written above.
LESSOR:
UNIVERSITY BUSINESS CENTER ASSOCIATES,
a California general partnership
By: Eastgroup Properties, a Maryland real
estate investment trust
By: ________________________________
Name:
Title:
By: JCB Limited, a California limited
partnership
By: ________________________________
Name:
Title:
LESSEE:
COMPUTER MOTION, INC.,
a California corporation
By: _______________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made on ________, 1997,
between COMPUTER MOTION, INC., a Delaware corporation (the "Company"), and
_________________ ("Indemnitee"), an officer and/or member of the Board of
Directors of the Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that expenses, liabilities and
losses incurred by him in his good faith service to the Company will be borne by
the Company or its successors and assigns in accordance with applicable law; and
WHEREAS, the Company desires that Indemnitee resist and defend against
what Indemnitee may consider to be unjustified investigations, claims, actions,
suits and proceedings which have arisen or may arise in the future as a result
of Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm
the Company's indemnification obligations to Indemnitee and, in addition, set
forth the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. INDEMNIFICATION. Indemnitee shall be indemnified and held harmless by
the Company to the fullest extent permitted by its Certificate of Incorporation,
Bylaws and applicable law, as the same exists or may hereafter be amended,
against all expenses, liabilities and loss (including attorneys' fees,
judgments, fines, and amounts paid or to be paid in any settlement approved in
advance by the Company, such approval not to be unreasonably withheld)
(collectively, "Indemnifiable Expenses") actually reasonably incurred or
suffered by Indemnitee in connection with any present or future threatened,
pending or contemplated investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (collectively,
"Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is
threatened to be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the Company, or (ii) with
respect to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Notwithstanding the
foregoing, Indemnitee shall have no right to indemnification for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended.
<PAGE> 2
2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable Expenses
incurred by Indemnitee in connection with any Indemnifiable Litigation in
advance of the final disposition thereof, provided that the Company has received
an undertaking by or on behalf of Indemnitee, substantially in the form attached
hereto as Exhibit A, to repay the amount so advanced to the extent that it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company under this Agreement or otherwise. The advances to be made hereunder
shall be paid by the Company to Indemnitee within twenty (20) days following
delivery of a written request therefor by Indemnitee to the Company.
3. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition precedent
to his right to be indemnified under this Agreement, give the Company notice in
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address set forth in Section 11 hereof (or such other address as the Company
shall designate in writing to Indemnitee). Notice shall be deemed received three
business days after the date postmarked and sent by certified or registered
mail, properly addressed; otherwise notice shall be deemed received when such
notice shall actually be received by the Company. In addition, Indemnitee shall
give the Company such information and cooperation as it may reasonably require
and as shall be within Indemnitee's power. Any indemnification provided for in
Section 1 shall be made no later than forty-five (45) days after receipt of the
written request of Indemnitee.
4. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement, or any statute, or under any
provision of the Company's Amended and Restated Certificate of Incorporation or
Bylaws providing for indemnif ication, is not paid in full by the Company,
within forty-five (45) days after a written request for payment thereof has been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 12 of this Agreement, if successful in whole or in part,
Indemnitee shall also be entitled to be paid for the expense (including
attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an action brought
to enforce a claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met the
standard of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of interim expenses pursuant to Section 2 hereof unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its board of
directors, any committee or subgroup of the board of directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that
2
<PAGE> 3
Indemnitee has or has not met the applicable standard of conduct.
5. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3 thereof, the Company has director and/or officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
6. RETENTION OF COUNSEL. In the event that the Company shall be obligated
to pay Indemnifiable Expenses as a result of any proceeding against Indemnitee,
the Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, which approval shall not be
unreasonably withheld, upon the delivery to Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by that Indemnitee with respect to that same proceeding,
provided that (i) Indemnitee shall have the right to employ his or her counsel
in any such proceeding at Indemnitee's expense, and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not, in fact, have employed counsel to assume defense
of such proceeding, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company.
7. SUCCESSORS. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee, and, in that event, the Indemnitee's rights and the Company's
obligations hereunder shall be subject to that determination.
9. CONTRACT RIGHTS NOT EXCLUSIVE. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
10. ASSUMPTION OF INDEMNIFICATION OBLIGATION. The Company hereby assumes
the obligation to indemnify Indemnitee of the Company's corporate parent,
Computer Motion, Inc., a California corporation ("CMI California"), provided
however, that at all times prior to the effective time of the merger between the
Company and CMI California, CMI California shall continue to
3
<PAGE> 4
indemnify Indemnitee to the fullest extent permitted under its Articles of
Incorporation, its Bylaws and the General Corporation Law of the State of
California.
11. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise the
Company in writing of the institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this Agreement and keep the Company
generally informed of, and consult with the Company with respect to, the status
of any such investigation, claim, action, suit or proceeding. Notices to the
Company shall be directed to Computer Motion, Inc., 130-B Cremona, Goleta,
California 93117, Attn: Chief Executive Officer (or other such address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three days after the date postmarked if sent by certified or registered
mail, properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. SEVERABILITY. Should any provision of this Agreement, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
14. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether of
not similar) nor shall such waiver constitute a continuing waiver.
15. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
COMPUTER MOTION, INC.:
By: ____________________________________
4
<PAGE> 5
Gene Wang, Chief Executive Officer
and President
INDEMNITEE:
_________________________________________
Name:
5
<PAGE> 6
EXHIBIT A
UNDERTAKING AGREEMENT
This UNDERTAKING AGREEMENT is made on _______________, 19__, between
COMPUTER MOTION, INC., a Delaware corporation (the "Company") and
__________________, an officer and/or member of the board of directors of the
Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims,
actions, suits or proceedings which have arisen or may arise in the future as a
result of Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 145 of the General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an undertaking to repay from
Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee pursuant to
the terms of the Indemnification Agreement dated __________, 19__, between the
Company and Indemnitee, Indemnitee hereby undertakes and agrees to repay to the
Company any and all amounts so paid promptly and in any event within thirty (30)
days after the disposition, including any appeals, of any litigation or
threatened litigation on account of which payments were made, but only to the
extent that Indemnitee is ultimately found not entitled to be indemnified by the
Company under the Bylaws of the Company and Section 145 of the General
Corporation Law of the State of Delaware, or other applicable law.
2. This Agreement shall not affect in any manner rights which Indemnitee
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
A-1
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
COMPUTER MOTION, INC.:
By:________________________________________
Gene Wang, Chief Executive Officer and
President
INDEMNITEE:
___________________________________________
___________________________________________
(Print Name)
A-2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
None.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
Registration Statement on Form S-1.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 3,986,339 432,518
<SECURITIES> 0 0
<RECEIVABLES> 939,102 1,151,733
<ALLOWANCES> 0 0
<INVENTORY> 683,441 645,311
<CURRENT-ASSETS> 5,796,361 2,318,055
<PP&E> 1,526,136 1,423,145
<DEPRECIATION> 904,629 814,378
<TOTAL-ASSETS> 6,673,219 3,114,616
<CURRENT-LIABILITIES> 4,695,780 2,983,451
<BONDS> 0 0
0 0
11,932,388 9,597,388
<COMMON> 431,254 24,468
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 6,673,219 3,114,616
<SALES> 676,042 4,056,891
<TOTAL-REVENUES> 676,042 4,056,891
<CGS> 443,842 2,627,278
<TOTAL-COSTS> 1,525,021 8,129,792
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 39,585 475,420
<INCOME-PRETAX> (889,705) (4,557,617)
<INCOME-TAX> 300 1,200
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (890,005) (4,558,817)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
