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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND SPECIAL REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER: 0-25544
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PDT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0222872
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
7408 HOLLISTER AVENUE, SANTA BARBARA, CALIFORNIA 93117
(Address of principal executive offices, including zip code)
(805) 685-9880
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The approximate aggregate market value of voting stock held by
non-affiliates as of March 14, 1997, based upon the last sale price of the
Common Stock reported on the Nasdaq National Market was approximately
$228,223,000. For purposes of this calculation only, the registrant has
assumed that its directors and executive officers, and any person who has
filed a Schedule 13D or 13G is an affiliate.
The number of shares of Common Stock outstanding as of March 14, 1997
was 12,382,656.
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ITEM 1. BUSINESS
GENERAL
PDT, Inc. (the "Company") is engaged in the development of
pharmaceutical and medical device products for use in photodynamic therapy.
Photodynamic therapy is a medical procedure which uses light-activated
(photoreactive) drugs to achieve selective photochemical destruction of
diseased cells. The Company believes that photodynamic therapy has the
potential to be a safe, cost-effective, minimally invasive primary or
adjunctive treatment for indications in a broad number of disease areas
including oncology, ophthalmology, urology, dermatology, gynecology and
cardiology. The Company is conducting Phase II/III clinical trials for three
indications in the oncology area; has initiated a Phase I/II clinical trial
in ophthalmology, is preparing to initiate additional Phase I/II clinical
trials in the urology, oncology and dermatology areas; and is conducting
preclinical studies in oncology, ophthalmology, urology, dermatology,
gynecology and cardiology. All of the Company's clinical trials are testing
its leading drug candidate: tin ethyl etiopurpurin ("SnET2"). The Company is
developing products in collaboration with its corporate partners, Pharmacia &
Upjohn, Inc. ("Pharmacia & Upjohn"), Boston Scientific Corporation ("Boston
Scientific"), Cordis Corporation, a Johnson & Johnson company ("Cordis"),
Iridex Corporation ("Iridex") and Ramus Medical Technologies ("Ramus").
In April 1996, the Company completed a secondary public offering of
1,500,000 shares of Common Stock which provided net proceeds to the Company
of approximately $65.3 million.
In July 1996, the Company's Board of Directors authorized the purchase
of up to 600,000 shares of the Company's Common Stock. During 1996, the
Company repurchased 138,500 shares at a cost of $3,948,000 under this
repurchase program. As of December 31, 1996, all shares repurchased were
retired.
BACKGROUND
Photodynamic therapy is a minimally invasive medical technology that
uses photoreactive drugs to treat or diagnose disease. The technology
involves three components: photoreactive drugs, light producing devices and
light delivery devices.
Photoreactive drugs transform light energy into chemical energy in a
manner similar to the action of chlorophyll in green plants. Certain
photoreactive drugs accumulate and are retained to a greater degree in
fast-growing (hyperproliferating) cells. Hyperproliferation is a
characteristic of cells associated with a variety of diseases such as cancer,
certain cardiovascular disorders and skin diseases such as psoriasis.
A photoreactive drug is typically administered by intravenous injection
and distributes throughout the body. After several hours, the drug starts to
clear from normal tissues but is selectively retained in hyperproliferating
tissues for up to several days. The drug is inactive until exposed to light
of a specific wavelength, which can vary depending on the drug's molecular
structure. Exposing the target cells to the appropriate light wavelength
permits selective activation of the retained drug and initiates a chemical
reaction that generates a highly reactive form of oxygen. High concentrations
of this form of oxygen lead to destruction of the cellular membrane and,
ultimately, cell death. The response of the target cells depends on, among
other factors, the drug dose, the amount of light energy delivered, the
physiology of the cell and the vasculature in the diseased areas. Neither the
drug nor the light on its own can cause the desired effect. The drug is a
catalyst which transfers energy and is not consumed in the process, thereby
reducing potential side effects. The chemical reaction stops when the light
is turned off. The result of this process is that diseased cells are
destroyed with minimal damage to surrounding normal tissues, offering the
potential for a more selective method of treating disease than chemotherapy,
radiation therapy or surgery, which can damage both normal and abnormal
tissues.
Low-power, non-thermal light can be used to activate photoreactive
drugs. As a result, there is little or no risk of thermal damage to
surrounding tissue, as would be the case if thermal lasers were used. The
light is
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typically generated electronically or by lasers which have been specifically
modified for use in photodynamic therapy. The light is often delivered from
the light source to the patient via specially modified fiber optics. These
fiber optic light delivery devices produce patterns of light for different
disease applications and can be channeled into the body for internal
applications.
Photodynamic therapy may be applied in two ways: (i) DRUG SELECTIVITY -
hyperproliferating cells such as in a cancer tumor can be selectively
destroyed by allowing the photoreactive drug to clear from non-target cells
before delivering light to the general area; and (ii) LIGHT SELECTIVITY - in
conditions such as certain eye disorders, tissues can be selectively
destroyed by precisely delivering the light to discrete areas before the drug
has cleared. This flexibility gives photodynamic therapy its potential in
many different medical applications.
While light of a specific wavelength is used to cause a photoreactive
drug to produce chemical reactions leading to cell death, light of a
different wavelength can be used to cause the same drug to fluoresce (glow).
The fluorescent property of photodynamic drugs offers the potential for their
use in diagnostic applications.
INDUSTRY
As early as 1900, scientists observed that certain compounds will
sensitize tissues to light. Since the mid-1970s, various aspects of
photodynamic therapy have been studied and established in humans.
Photodynamic therapy is currently being studied by a variety of companies,
physicians and researchers around the world for the treatment of a broad
range of cancers and non-cancer applications.
Photodynamic therapy has potential advantages over traditional treatment
methods such as chemotherapy, radiation therapy and surgery. Photodynamic
therapy offers the potential for more selective treatment of disease with
fewer side effects. The fact that photoreactive drugs are retained in
hyperproliferating tissues and are non-toxic until activated by light allows
for selective and controlled treatment. Additionally, since the activating
light offers a less invasive and less debilitating alternative to surgery,
the Company believes that photodynamic therapy may result in less trauma to
the patient. Further, the Company believes that photodynamic therapy for many
applications may be performed on an outpatient basis or in an office setting,
reducing if not eliminating the need for hospitalization. These potential
advantages may make photodynamic therapy a less costly alternative to
traditional treatment methods.
The Company believes that, despite the potential benefits of
photodynamic therapy, industry development has been hindered by various
drawbacks. First, certain formulations of photoreactive drugs are complex
mixtures derived from blood or plant sources which, in contrast to synthetic
drugs, vary in both content and concentration and may yield inconsistent
results. Second, photodynamic therapy with some drugs produces a temporary
photosensitivity (sensitivity to light) requiring patients to restrict
exposure to sunlight for up to several weeks following treatment. Third,
light wavelengths used to activate certain other photodynamic drugs require
large, expensive, difficult-to-maintain research or surgical lasers that have
been adapted to produce the low-power activating light.
The Company believes that the lack of an integrated approach to
photodynamic therapy has slowed the development of the technology in clinical
settings. The development of photodynamic therapy has historically been
pursued by companies with either drug or device technology, but not both.
Light systems and light delivery devices were supplied by outside sources;
therefore, developers were often unable to fully coordinate the three
components of drug, light producing devices and light delivery devices.
BUSINESS STRATEGY
The Company's objective is to apply its photodynamic therapy
systems--combining drug, light producing devices and light delivery devices--
as a primary therapy in targeted disease areas and as an adjunct to surgery
or other therapies. The Company believes that its systems have the potential
to offer a safe, cost-effective and
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minimally-invasive alternative therapy for numerous diseases for which
current treatments are either unsatisfactory or do not exist. Key elements of
the Company's strategy to achieve commercialization include:
INTEGRATION OF PHOTOREACTIVE DRUGS, LIGHT PRODUCING DEVICES AND LIGHT
DELIVERY DEVICES. The Company's strategy is to integrate each component of
photodynamic therapy into systems that offer predictable and consistent
results. The Company believes that by being expert in both photodynamic drugs
and devices and by integrating the development of these technologies, the
Company may create competitive advantages over companies that are developing
certain components of photodynamic therapy while outsourcing others. For
example, integration affords the Company the opportunity to pursue regulatory
approval for its drug products together with its devices through unified
clinical trials.
FOCUS ON DISEASE APPLICATIONS WITH UNMET MEDICAL NEEDS. Although the
potential applications for the Company's photodynamic therapy systems are
numerous, the Company is initially targeting high-incidence diseases or
diseases that are serious or life-threatening and for which there is no
satisfactory alternative treatment. By doing so, the Company believes it may
be able to accelerate regulatory processes where appropriate and facilitate
commercial success.
EXCLUSIVE COLLABORATIONS WITH INDUSTRY-LEADING PHARMACEUTICAL AND
MEDICAL DEVICE COMPANIES. To facilitate development, regulatory approval,
manufacturing, marketing and distribution of its products, the Company seeks
to form strategic collaborations with partners who are leaders in the
Company's targeted disease areas. To date, the Company has established
collaborative arrangements with Pharmacia & Upjohn related to SnET2, with
Boston Scientific and Cordis related to the development of medical catheters
for the delivery of light, with Iridex related to the development of diode
light devices in the field of ophthalmology and with Ramus related to the
development of the Company's and Ramus' technology for use in photodynamic
therapy in the field of cardiovascular disease. The Company seeks to obtain
from its collaborative partners exclusivity in the field of photodynamic
therapy and to retain certain manufacturing and co-development rights. See
"--Strategic Collaborations."
There can be no assurance that the Company will be successful in
pursuing its strategy or that its goals will be achieved. See "--Risk
Factors" generally for a discussion of certain risks, including those
relating to forward-looking statements.
TECHNOLOGY AND PRODUCTS
The Company is developing synthetic photoreactive drugs together with
software-controlled desktop light producing devices and fiber optic light
delivery and measurement devices for the application of photodynamic therapy
to a broad range of disease indications. The Company believes that by being
expert in both photodynamic drugs and devices, and by integrating the
development of these technologies, it can produce easy-to-use photodynamic
therapy systems which offer the potential for predictable and consistent
results.
DRUG TECHNOLOGY. The Company holds exclusive license rights under
certain U.S. patents and three foreign patents to several classes of
synthetic, photoreactive compounds, subject to certain governmental rights.
See "--Patents and Proprietary Technology." From its classes of compounds,
the Company has selected SnET2 as its leading drug candidate and has used
SnET2 in each of its clinical trials to date. The Company has granted to
Pharmacia & Upjohn an exclusive, worldwide license to use SnET2 in the field
of photodynamic therapy. See "--Strategic Collaborations" and "--Risk
Factors, Uncertainty Regarding Patents and Proprietary Technology." The
Company is developing other potential photoreactive drugs for additional
disease applications and future partnering opportunities.
The Company believes that its synthetic photoreactive drugs may provide
the following benefits:
- PREDICTABLE. The synthetic nature of the Company's photoreactive
compounds permits the Company to design drugs with a single molecular
structure. The Company believes that this characteristic may
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facilitate consistency in clinical treatment settings, as well as
predictability in manufacturing and quality control.
- MINIMAL SIDE EFFECTS. Phase I/II clinical trials with SnET2 have
demonstrated therapeutic response with minimal side effects. Treatments to
date have been well-tolerated, with SnET2 producing only a mild, transient
skin photosensitivity in some patients as compared to the relatively severe
and long-lasting photosensitivity produced by certain other photoreactive
drugs.
- VERSATILE. The Company can design drugs with specific
characteristics, such as activation by a particular wavelength of light. This
versatility provides the Company with the potential to customize its drugs
for particular uses and to take advantage of semiconductor light technology.
See "--Risk Factors" for a discussion of certain risks, including those
relating to forward-looking statements.
LIGHT PRODUCING DEVICES. Because the Company's photoreactive drugs are
synthetic, the Company has been able to design its drugs to be activated by
light produced by readily available, reliable and relatively inexpensive
light sources. The Company's light technologies include software-controlled
microchip diodes, LED arrays and non-thermal lasers. The Company's desktop
diode light was introduced into the Company's clinical trials in 1995. The
Company has also developed LED arrays for use in dermatological and other
applications of photodynamic therapy. The Company and Iridex are
collaborating on the development of light-producing devices for photodynamic
therapy in the field of ophthalmology and have introduced a portable, solid
state diode light device which is currently being used in clinical trials.
See "--Strategic Collaborations."
The Company believes that its diode and LED array devices offer
advantages over laser technology historically used in photodynamic therapy.
For example, the Company's software-controlled designs offer reliability and
built-in control and measuring features. In addition, the Company's diode
systems, which are roughly the size of a desktop computer, are smaller and
more portable than traditional laser systems. The Company believes that it
has the potential to offer light producing devices that will be more
affordable than surgical laser systems used in photodynamic therapy. See
"--Risk Factors" for a discussion of certain risks, including those relating
to forward-looking statements.
LIGHT DELIVERY AND MEASUREMENT DEVICES. The Company is developing and
manufacturing photodynamic light delivery and measurement devices including a
wide variety of fiber optic light delivery devices with specialized tips for
use in photodynamic therapy. These devices must be highly flexible and
appropriate for endoscopic use, and must be able to deliver unique patterns
of uniform, diffuse light for different disease applications. The Company's
products include microlenses that produce a tiny flashlight beam for discrete
surface lesions, the Flex-Registered Trademark- cylinder diffuser which
delivers light in a radial pattern along a flexible tip for sites such as the
esophagus and spherical diffusers which emit a diffuse ball of light for
sites such as the bladder or nasopharynx. The Company has also developed
light measurement devices for photodynamic therapy including devices that
detect wavelength and fluorescence to facilitate the measurement of light or
drug dose.
Through collaborative arrangements with Boston Scientific and Cordis,
the Company is co-developing medical catheters for use in photodynamic
therapy. The Company and Boston Scientific are collaborating in the fields of
urology, pulmonology and gastroenterology. The Company plans to introduce
certain of these catheters into its clinical studies of benign prostatic
hyperplasia ("BPH") subject to U.S. Food and Drug Administration ("FDA")
concurrence. The Company and Cordis are co-developing, and currently testing
in preclinical studies, catheters for use in photodynamic therapy of
cardiovascular conditions such as the prevention of restenosis. The Company
has secured or applied for patent protection relating to its light delivery
and measurement devices. Certain of these patents or patent applications are
subject to certain governmental rights. See "--Patents and Proprietary
Technology" and "--Risk Factors" generally for a discussion of certain risks,
including those relating to forward-looking statements.
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TARGETED DISEASES AND CLINICAL TRIALS
The Company believes that photodynamic therapy has potential in a wide
range of applications. The Company has selected, based upon regulatory,
clinical and market considerations, a number of disease applications,
discussed below, on which to focus initially. In all of its clinical trials,
the Company is using SnET2 together with light producing devices and light
delivery devices either developed on its own or in collaboration with its
partners.
All drug and device products currently under development by the Company
will require extensive preclinical and clinical testing prior to regulatory
approval for commercial use. None of the Company's products have completed
such testing for efficacy and safety in humans. There can be no assurance
that such testing for any of the Company's products under development now or
in the future, will be commenced or successfully completed within any period
of time, if at all, or that such testing, if completed, will demonstrate that
SnET2 or any other of the Company's products is safe or efficacious.
Specifically with respect to the indications discussed below, it is
uncertain that the application of the Company's products in any of such
indications will progress beyond its current state of development, receive
regulatory approval, be successfully marketed and distributed, or that the
Company will have the financial resources to pursue any such application or
indication. Any clinical data reported by the Company from time to time may
change as a result of the continuing evaluation of patients. Moreover, as a
result of changing market, clinical or regulatory conditions, or clinical
trial results, the Company's focus may shift to other indications, or it may
be determined not to further pursue one or more of the indications discussed
below. See "--Risk Factors--Unproven Safety and Efficacy; Clinical Trials";
and "--Early Stage of the Company and its Products." See "--Risk Factors"
generally for a discussion of certain other risks, including those relating
to forward-looking statements.
ONCOLOGY
Cancer is a large group of diseases characterized by uncontrolled growth
and spread of hyperproliferating cells. The Company targeted this area for
its initial products both because of the large potential market size as well
as the potential for expedited review by governmental regulatory bodies. The
Company is collaborating with Pharmacia & Upjohn on the co-development of
SnET2 in the field of oncology.
BASAL CELL CARCINOMA AND METASTATIC BREAST CANCER. The Company is
conducting clinical trials using SnET2 for the local treatment of certain
nonmelanoma cutaneous (skin) carcinomas. The skin cancer trial includes basal
cell carcinomas (skin cancers caused primarily by sun exposure), basal cell
nevus syndrome (a genetic disease which causes multiple, recurrent basal cell
carcinomas), and metastatic adenocarcinomas (cancers which originate in
glands, such as breast cancer, and in this trial have metastasized or spread
to the skin). The Company began Phase II/III clinical trials for metastatic
breast cancer involving the skin in the United States in March 1996 and
Pharmacia & Upjohn began Phase II clinical trials in Europe in January
1997. The Company also began Phase II/III clinical trials for basal cell
carcinoma in the United States and Pharmacia & Upjohn began Phase II/III
clinical trials in Australia in 1996. There can be no assurance that
successful completion of Phase II/III clinical trials will occur within any
specified period of time, if at all.
AIDS-RELATED KAPOSI'S SARCOMA. Kaposi's sarcoma ("KS") is a form of
skin cancer, usually involving multiple tumors. The most aggressive and
prevalent type of KS is the variety usually associated with AIDS. The Company
is conducting clinical trials using SnET2 for the local treatment of
AIDS-related KS. The Company began Phase II/III clinical trials for
AIDS-related KS in March 1996.
OTHER CANCERS. The Company is conducting preclinical studies for the
treatment of a variety of other cancers including prostate cancer, lung
cancer, brain tumors and head and neck cancers. The Company has an existing
oncology IND which it may utilize for those protocols, if any, it determines
to advance to a Phase I/II clinical trial. The timing of any such
advancement will depend on the progress of preclinical studies.
OPHTHALMOLOGY. The Company believes that photodynamic therapy has the
potential to treat a variety of ophthalmic disorders, including conditions
caused by neovascularization, such as age-related macular degeneration ("AMD")
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and diabetic retinopathy, as well as other ophthalmic conditions, including
glaucoma. Neovascularization is a condition in which new blood vessels grow
abnormally on the surface of the retina or other parts of the eye. These
fragile vessels can hemorrhage, causing scarring and damage to the nerve
tissue and lead to loss of vision. The Company is collaborating with
Pharmacia & Upjohn on the co-development of SnET2 in the field of
ophthalmology and is collaborating with Iridex on the co-development of light
devices in this field. The Company is conducting clinical trials for the
treatment of choroidal neovascularization including AMD. The Company began
Phase I/II clinical trials for AMD in the United States in May 1996 and is
conducting preclinical studies for the treatment of diabetic retinopathy and
glaucoma.
UROLOGY
BPH is a urological disorder characterized by a gradual enlargement of
the prostate, a gland in men which surrounds the urethra. As men age, the
prostate gland increases in size and pinches the urethra, leading to
complications in urination and other debilitating symptoms. The Company is
collaborating with Pharmacia & Upjohn on the co-development of SnET2 in the
field of urology. Additionally, the Company is conducting preclinical studies
using SnET2 for the treatment of BPH and is collaborating with Boston
Scientific on the joint development of medical catheter devices for this use.
Based on the results from these studies, the Company submitted an
Investigational New Drug application ("IND") to enter into Phase I/II
clinical trials.
DERMATOLOGY
A number of dermatologic disorders have shown potential for being
treated with photodynamic therapy. Among these are psoriasis, a chronic and
potentially debilitating skin disorder, and actinic keratosis, a precancerous
condition of the upper layer of the skin. The Company is collaborating with
Pharmacia & Upjohn on the co-development of SnET2 in the field of
dermatology. The first dermatology application targeted by the Company and
Pharmacia & Upjohn is psoriasis. The Company is continuing preclinical
studies in psoriasis and may advance to a Phase I/II clinical trial based on
the progress of the preclinical studies. Preparations include development of
LED light systems and light delivery systems for use in dermatology
applications and protocol development for anticipated clinical trials.
CARDIOLOGY
The Company is developing photodynamic therapy in the field of
cardiology. Early studies with photodynamic therapy indicate that certain
photoreactive drugs may be preferentially retained in the hyperproliferating
and lipid-rich components of arterial plaques, as they are in cancer cells.
The Company is conducting preclinical studies for the prevention of
restenosis (re-blocking of arterial vessels), and believes that photodynamic
therapy may provide a means of preventing restenosis, or even treating
diffuse atherosclerosis, without injury to the vessel. The Company is
collaborating with Cordis on the joint development of medical catheter
devices for such cardiovascular applications. In addition, the Company
believes that photodynamic therapy may provide a means of reducing intimal
hyperplasia (excessive cell growth at the anastamosis (stitch) sites)
associated with bypass grafts and is collaborating with Ramus on the
application of photodynamic therapy in the area of bypass grafts.
GYNECOLOGY
The Company believes that photodynamic therapy has potential in various
gynecological applications, including dysfunctional uterine bleeding which
accounts for a significant percent of all hysterectomies. The risks
associated with hysterectomy have prompted the development of alternatives
which allow destruction of the endometrial lining of the uterus rather than
surgical removal of the uterus. However, current techniques for such
endometrial ablation, such as the use of high-power laser or electrocautery,
are not entirely effective. The Company is therefore conducting preclinical
studies using photodynamic therapy as a method of endometrial ablation and
believes photodynamic therapy may be a non-surgical alternative to existing
techniques or hysterectomies.
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STRATEGIC COLLABORATIONS
The Company pursues a strategy of establishing license agreements and
collaborative arrangements for the purpose of securing exclusive access to
drug and device technologies and providing market access for products. The
Company intends to continue to pursue this strategy where appropriate in
order to enhance in-house research programs, facilitate clinical testing and
gain access to distribution channels and additional technology. Strategic
collaborations are not, however, without risks. See "--Risk
Factors--Reliance on Collaborative Partners" and "--Limited Manufacturing and
Marketing Capabilities and Experience." To date, the Company has entered
into the following collaborative arrangements:
PHARMACIA & UPJOHN
The Company has entered into a series of agreements with certain
subsidiaries of Pharmacia & Upjohn (collectively "Pharmacia & Upjohn")
relating to the development and commercialization of SnET2.
SNET2 LICENSE AGREEMENT. Under a July 1995 development and license
agreement (the "License Agreement"), the Company granted to Pharmacia &
Upjohn an exclusive, worldwide license to use, distribute and sell SnET2 in
the area of photodynamic therapy. The License Agreement provides for the
co-development of SnET2 for use in photodynamic therapy in the fields of
oncology, urology and dermatology. In August 1996, the Company signed an
agreement with Pharmacia & Upjohn for the co-development of SnET2 in the
field of ophthalmology with similar terms and conditions as the License
Agreement.
Under the License Agreement, Pharmacia & Upjohn is responsible for
conducting certain aspects of clinical trials involving SnET2 and to fund
other current and future preclinical and clinical trials conducted by the
Company involving SnET2. The Company is entitled to receive royalties on the
sale of SnET2, payments for certain contemplated indications upon the
achievement of certain milestones and reimbursement for certain expenses.
Pharmacia & Upjohn has also agreed to promote, market and sell SnET2 and to
refrain from developing or selling other photodynamic therapy drugs in the
fields of oncology, urology, dermatology and ophthalmology during the
agreement term. Pharmacia & Upjohn also has a right of first negotiation with
respect to the marketing rights to any new photodynamic therapy drug
developed in the fields of oncology, urology, dermatology and ophthalmology
by the Company. The License Agreement remains in force for the duration of
the patents related to SnET2 or for a period of ten years from the first
commercial sale of SnET2 on a country-by-country basis, whichever is longer.
After those periods have expired, Pharmacia & Upjohn will have an
irrevocable, royalty-free, nonexclusive license to SnET2. See "--Risk
Factors, Uncertainty Regarding Patents and Proprietary Technology" and
Note 7 of Notes to Consolidated Financial Statements.
STOCK PURCHASE AGREEMENT. Concurrent with the License Agreement,
Pharmacia & Upjohn entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement"), pursuant to which Pharmacia & Upjohn purchased 600,000
shares of Common Stock from the Company for $12 million, and agreed to
certain restrictions with respect to the acquisition and sale of shares of
the Common Stock, subject to certain exceptions.
DRUG SUPPLY AGREEMENT. The Company and Pharmacia & Upjohn have also
entered into a Drug Supply Agreement pursuant to which the Company agreed to
manufacture (or have manufactured) and supply to Pharmacia & Upjohn upon
specified payment terms Pharmacia & Upjohn's requirements of SnET2 in
finished pharmaceutical form for clinical and commercial purposes in the area
of photodynamic therapy. The Drug Supply Agreement was amended in 1996 to
include similar terms and conditions for the field of ophthalmology. The Drug
Supply Agreement remains in force for the term of the License Agreement,
subject to termination under certain limited circumstances. Upon termination,
the Company has agreed to continue to provide SnET2 to Pharmacia & Upjohn on
terms to be negotiated by the parties. See Note 7 of Notes to Consolidated
Financial Statements.
DEVICE SUPPLY AGREEMENT. The Company and Pharmacia & Upjohn also entered
into a Device Supply Agreement pursuant to which the Company appointed
Pharmacia & Upjohn as a non-exclusive worldwide distributor of certain
instruments developed, manufactured or licensed by the Company that produce,
deliver or
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measure light ("light devices") for use with SnET2 in photodynamic therapy in
the fields of oncology, urology and dermatology. The Device Supply Agreement
provides for the sale by the Company to Pharmacia & Upjohn of such light
devices at specified rates and the Company is responsible for the development
and regulatory approval of the light devices. During the term of the Device
Supply Agreement, Pharmacia & Upjohn is prohibited from developing ,
manufacturing or purchasing from third parties such light devices or
distributing or selling them for use with any photodynamic drug other than
SnET2. If, however, the Company determines not to or is unable to
manufacture or supply a particular light device, Pharmacia & Upjohn is
entitled to manufacture such device. The Device Supply Agreement was amended
in 1996 to include similar terms and conditions for the field of
ophthalmology. The Device Supply Agreement remains in force during the term
of the License Agreement, subject to earlier termination under certain
limited circumstances. See Note 7 of Notes to Consolidated Financial
Statements.
FORMULATION AGREEMENT. In August 1994, the Company entered into a
supply contract with Pharmacia & Upjohn to develop an emulsion formulation
suitable for intravenous administration of SnET2. Pursuant to this agreement,
Pharmacia & Upjohn agreed to (i) be the Company's exclusive supplier of such
emulsion products, (ii) manufacture and supply all of the Company's worldwide
requirements of certain emulsion formulations containing SnET2, and (iii)
not develop or supply formulations or services for use in any photodynamic
applications for any other company. This agreement continues indefinitely
except that it may be terminated ten years after the first commercial sale of
SnET2. See "--Manufacturing" and Note 7 of Notes to Consolidated Financial
Statements.
BOSTON SCIENTIFIC CORPORATION
In December 1993, the Company executed a strategic development letter
agreement with Boston Scientific, a leading developer, manufacturer and
marketer of catheter-based medical technology, for the joint development of
catheter-based light delivery devices for photodynamic therapy in the fields
of urology, pulmonology and gastroenterology. The letter agreement pursuant
to which the parties are collaborating is intended to provide the framework
for a more definitive agreement, relating to, among other things, the
distribution, manufacturing and licensing of developed products, and
continues until the parties enter into such an agreement. At this time,
however, the Company and Boston Scientific have not entered into any such
agreement. See "--Manufacturing" and Note 7 of Notes to Consolidated
Financial Statements.
CORDIS CORPORATION
In December 1993, the Company executed a strategic development letter
agreement with Cordis, a Johnson & Johnson company and a leader in coronary
catheter devices, for the joint development of catheter-based light delivery
devices for photodynamic therapy in the cardiovascular field.
The letter agreement pursuant to which the parties are collaborating is
intended to provide the framework for a more definitive agreement, relating
to, among other things, the distribution, manufacturing and licensing of
developed products, and continues until the parties enter into a definitive
agreement. At this time, the Company and Cordis have not entered into any
such agreement. See "--Manufacturing" and Note 7 of Notes to Consolidated
Financial Statements.
IRIDEX CORPORATION
In May 1996, the Company entered into a co-development and distribution
agreement with Iridex, a leading provider of semiconductor-based laser
systems to treat eye diseases. The agreement generally provides (i) the
Company with the exclusive right to co-develop with Iridex light-producing
devices for use in photodynamic therapy in the field of ophthalmology, (ii)
that the Company will conduct clinical trials and make regulatory
submissions with respect to all co-developed devices and Iridex will
manufacture all devices for such trials, with costs shared as set forth in
the agreement, and (iii) that Iridex will have an exclusive, worldwide
license to make, distribute and sell all co-developed devices, on which it
will pay royalties to the Company. The agreement
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remains in effect, subject to earlier termination in certain circumstances,
until ten years after the date of the first FDA approval of any co-developed
device for commercial sale, subject to certain renewal rights. See
"--Manufacturing."
RAMUS MEDICAL TECHNOLOGIES
In December 1996,the Company's wholly owned subsidiary, PDT
Cardiovascular, Inc. ("PDTC"), entered into a co-development agreement with
Ramus, an innovator in the development of autologous tissue stent-grafts for
coronary bypass surgeries. Generally the agreement provides PDTC with the
exclusive rights to co-develop its photodynamic therapy technology with
Ramus' proprietary technology in the development of autologous vascular
grafts for coronary arteries and other vessels. Ramus shall provide, at no
cost to PDTC, products for use in preclinical and clinical testing with all
other preclinical and clinical costs to be paid by PDTC. The agreement
remains in effect until the later of (i) ten years after the date of the
first FDA approval of any co-developed device for commercial sale, or (ii)
the life of any patent issued thereon, subject to certain renewal rights.
In conjunction with the co-development agreement, PDTC purchased, for $2
million, shares of Ramus' Series A Preferred Stock and obtained an option to
acquire the remaining shares of Ramus at some time in the future under
specified terms and conditions. Further, PDTC is provided first refusal
rights and pre-emptive rights for any issuance of new securities, whether
debt or equity, made by Ramus and requires that Ramus maintain certain
financial and other covenants.
THE UNIVERSITY OF TOLEDO, THE MEDICAL COLLEGE OF OHIO AND ST. VINCENT MEDICAL
CENTER
In July 1989, the Company entered into a License Agreement with the
University of Toledo, the Medical College of Ohio and St. Vincent Medical
Center, of Toledo, Ohio (collectively, "Toledo"). This agreement provides the
Company with, among other items, exclusive, worldwide rights, subject to
certain governmental rights as described below: (i) to make, use, sell,
license or sublicense certain photoreactive compounds (including SnET2)
covered by certain Toledo patents and patent applications, or not covered by
such patents or patent applications but owned or licensed to Toledo (and
which Toledo has the right to sublicense); (ii) to make, use, sell, license
or sublicense certain of such compounds for which the Company has provided
Toledo with financial support; and (ii) to make, use or sell any invention
claimed in certain Toledo patents or applications and any composition,
method or device related to compounds conceived or developed by Toledo under
research funded by the Company. The agreement further provides that the
Company pay Toledo royalties on the sales of such compounds. As of December
31, 1996, no royalties had been paid or accrued since no drug or related
product had been sold. Under the agreement, the Company is required to
satisfy certain development and commercialization objectives. This agreement
terminates upon the expiration or non-renewal of the last patent which may
issue under this agreement, currently 2016. By its terms, however, the
license extends upon issuance of any new Toledo patents. The Company does not
have contractual indemnification rights against Toledo under the agreement.
Certain research relating to the compounds covered by the License Agreement,
including SnET2, has been or is being funded in part by certain governmental
grants under which the United States Government has or will have certain
rights in the technology developed, including the right under certain
circumstances to a non-exclusive license or to require the Company to grant
an exclusive license to a third party. See "--Patents and Proprietary
Technology" and "--Risk Factors--Uncertainty Regarding Patents and Proprietary
Technology."
LASERSCOPE
In April 1992, the Company entered into a seven-year License and
Distribution Agreement with Laserscope of San Jose, California, a leader in
the surgical laser industry. Pursuant to this agreement, as amended, among
other terms: (i) the Company granted to Laserscope rights to manufacture and
sell a dye laser module developed by the Company; (ii) the Company retains
the right to manufacture and sell this system for use with the Company's own
photoreactive drugs; and (iii) Laserscope agreed to pay to the Company a
license fee and royalties on Laserscope's sales. This dye laser module had
been developed by the Company prior to the development of the Company's diode
light systems. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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RESEARCH AND DEVELOPMENT PROGRAMS
The Company's research and development programs are devoted to the
discovery and development of drugs and devices for photodynamic therapy.
These research activities are conducted in-house in the Company's
pharmaceutical and engineering laboratories or elsewhere in collaboration
with medical or other research institutions or with other companies. The
Company has expended, and expects to continue to spend, substantial funds on
its research and development programs. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company's pharmaceutical research program is focused on the ongoing
evaluation of its proprietary compounds for different disease applications.
Among its outside or extramural research, the Company is conducting
preclinical animal studies at various academic and medical research
institutions in the United States, Europe and Australia. The Company is also
active in the research and development of devices for photodynamic therapy.
These programs include development of fiber optic light delivery devices and
measurement devices for accuracy in dosimetry and fluorescence detection
systems for diagnostic application of photodynamic therapy. Device research
and development is presently conducted either in-house or in collaboration
with partners.
The Company has pursued and been awarded various government grants and
contracts, such as grants sponsored by the National Institutes of Health and
the Small Business Innovative Research Administration, which complement the
Company's research efforts and facilitate new development. See "--Patents
and Proprietary Technology." See Note 7 of Notes to Consolidated Financial
Statements.
The Company's expenditures for research and development (which include
clinical trial expenses) totaled approximately $15.7 million, $8.8 million
and $7.0 million in 1996, 1995 and 1994 , respectively.
MANUFACTURING
The Company's strategy is generally to retain manufacturing rights and,
where appropriate, to partner with leading pharmaceutical and medical device
companies for certain elements of its manufacturing processes. The Company is
licensed by the State of California to manufacture bulk drug substance at its
Santa Barbara, California facility for clinical trial use and currently
manufactures the active SnET2 drug substance, light producing devices and
light delivery devices, and conducts other production and testing activities,
at this location. However, the Company has limited capabilities and
experience in the manufacture of drug, light producing and light delivery
products and utilizes outside suppliers, contracted or otherwise, for certain
materials and services related to its manufacturing activities. Although most
of the Company's materials and components are available from various sources
it is dependent on certain suppliers for key materials or services used in
the Company's drug and light producing and light delivery device development
and production operations. One such supplier is Pharmacia & Upjohn, which
processes SnET2 into a sterile injectable formulation and packages it in
vials for distribution by the Company. The Company and Pharmacia & Upjohn
expect to continue to develop new formulations which may or may not have
similar dependencies on suppliers.
Although the Company believes it can continue to produce its drug and
device products in quantities sufficient to support its clinical trial
requirements for the foreseeable future, the Company has limited capabilities
and experience in large-scale drug and device manufacturing. The Company has
and may elect in the future to utilize contract suppliers and manufacturers
for the production of certain drug and device components or product lines.
Moreover, if definitive collaborative arrangements with Boston Scientific and
Cordis are consummated, it is anticipated that such companies will
manufacture the medical catheters and the Company will manufacture the fiber
optic sub-assemblies. Under the terms of the co-development agreement with
Iridex, all manufacturing for light producing devices for use in photodynamic
therapy in the field of ophthalmology is the responsibility of Iridex. There
can be no assurance that such collaborative arrangements will be available to
the Company on acceptable terms, if at all. Additionally, although the
Company anticipates continuous and good relationships with its current
suppliers, there can be no assurance that such suppliers will continue to be
available to the Company on acceptable terms, if at all, or that the Company
will be able to produce materials or components in-house in a
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timely manner or in sufficient quantities to meet its needs. See "--Risk
Factors--Limited Manufacturing and Marketing Capability and Experience" and
"--Strategic Collaboration."
In February 1997, the Company received registration to ISO 9001 and EN
46001 signifying compliance to the International Standards Organization
quality systems requirements for design, manufacture and distribution of
medical devices. This registration should enable the Company to more easily
attain international device marketing approvals.
MARKETING, SALES AND DISTRIBUTION
The Company's strategy is to partner with leading pharmaceutical and
medical device companies for the marketing, sales and distribution of its
products. The Company has granted to Pharmacia & Upjohn the exclusive,
worldwide license to market and sell the Company's leading drug candidate
SnET2. Under the terms of the Company's co-development arrangements with
Boston Scientific and Cordis, these companies have the option of negotiating
to enter into long-term relationships with the Company, under which they will
do have a license to market and sell the co-developed medical catheters --
Boston Scientific in the fields of urology, pulmonology and gastroenterology
and Cordis in the field of cardiology on a worldwide basis. At this time, the
Company and Boston Scientific and Cordis have not entered into any such
agreements. Also, the Company has granted to Iridex, the worldwide license to
market and sell all co-developed light producing devices for use in
photodynamic therapy in the field of ophthalmology. See "--Strategic
Collaborations."
Where appropriate, the Company intends to seek additional arrangements
with collaborative partners, selected for experience in disease applications
or markets, to act as the marketing and sales arm for the Company and to
establish distribution channels for the Company's drugs and devices. However,
there can be no assurance that such collaborative arrangements can be
negotiated or will be successful. See "--Risk Factors--Reliance on
Collaborative Partners."
The Company may also distribute its products directly or through
independent distributors. The Company currently has limited capabilities and
experience in marketing, sales and distribution of its products. See "--Risk
Factors--Limited Manufacturing and Marketing Capability and Experience" and
Note 1 of Notes to Consolidated Financial Statements.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company pursues a policy of seeking patent protection for its
technology both in the United States and in selected countries abroad. The
Company plans to prosecute, assert and defend its patent rights when
appropriate. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position.
The Company is currently the record owner of eighteen United States
patents duly issued by the U.S. Patent and Trademark Office which expire 2010
through 2014, a majority of which relate to certain light delivery and
measurement devices. Also in its name, the Company has a number of United
States (and related foreign) patent applications filed and pending relating
to certain light delivery and measurement devices. In addition, the Company
has exclusive rights under fourteen issued United States patents, which
expire from 2006 through 2016, and three issued foreign patent expiring in
2006, and under several pending United States patent applications (and
related foreign patent applications), relating to certain photoreactive
compounds. Additionally, issued in its name the Company has one foreign
method patent which expires in 2013. Certain of the foregoing patents and
patent applications are subject to certain governmental rights described
below.
The Company currently does not have any drug patents issued in its own
name. The Company obtained its photoreactive compound patent rights,
including rights to SnET2, through an exclusive License Agreement with
Toledo. This agreement is the basis for the Company's core drug technology.
See "--Strategic Collaborations" for a description of the Toledo agreement.
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The patent position of pharmaceutical and medical device firms generally
is highly uncertain and involves complex legal and factual questions. There
can be no assurance that patent applications owned by or licensed to the
Company will result in issued patents, that any issued patents will provide
the Company with significant proprietary protection or competitive advantages
or will not be infringed upon or designed around by others, will not be
challenged by others and held to be invalid or unenforceable or that the
patents of others will not have a material adverse effect on the Company.
See "--Risk Factors--Uncertainty Regarding Patents and Proprietary
Technology."
The Company is aware that its competitors and other companies,
institutions and individuals have been issued patents relating to
photodynamic therapy. In addition, the Company's competitors and other
companies, institutions and individuals may have filed patent applications or
been issued patents relating to other potentially competitive products of
which the Company is not aware. Further, the Company's competitors and other
companies, institutions and individuals may in the future file applications
for, or be granted licenses or otherwise obtain proprietary rights to,
patents relating to other potentially competitive products. There can be no
assurance that these existing or future patents or patent applications will
not conflict with the Company's or its licensors' patents or patent
applications. Such conflicts could result in a rejection of the Company's or
its licensors' patent applications or the invalidation of their patents,
which could have a material adverse effect on the Company's competitive
position. In the event of such conflicts, or in the event the Company
believes that such competitive products may infringe the patents owned by or
licensed to the Company, the Company may pursue patent infringement
litigation or interference proceedings against, or may be required to defend
against litigation involving, holders of such conflicting patents or
competing products. Such proceedings may materially adversely affect the
Company's competitive position, and there can be no assurance that the
Company will be successful in any such proceeding. Litigation and other
proceedings relating to patent matters, whether initiated by the Company or a
third party, can be expensive and time consuming, regardless of whether the
outcome is favorable to the Company, and can result in the diversion of
substantial financial, managerial and other resources from the Company's
other activities. An adverse outcome could subject the Company to significant
liabilities to third parties or require the Company to cease any related
research and development activities or product sales. The Company does not
have contractual indemnification rights against the licensors of the various
drug patents. In addition, if patents that contain dominating or conflicting
claims have been or are subsequently issued to others and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses under patents or other proprietary rights of others. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to the Company, if at all.
If the Company does not obtain such licenses, it could encounter delays or
could find that the development, manufacture or sale of products requiring
such licenses is foreclosed.
The Company also relies upon unpatented trade secrets, and no assurance
can be given that others will not independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access
to the Company's trade secrets or disclose such technology, or that the
Company can meaningfully protect its rights to its unpatented trade secrets
and know-how.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to
execute confidentiality agreements upon the commencement of employment or
consulting relationships with the Company. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific limited
circumstances. The Company also requires signed confidentiality or material
transfer agreements from any company that is to receive confidential data or
proprietary compounds. In the case of employees and consultants, the
agreements generally provide that all inventions conceived by the individual
while rendering services to the Company shall be assigned to the Company as
the exclusive property of the Company. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies
for the Company's trade secrets or other proprietary information in the event
of unauthorized use or disclosure of such information.
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Certain of the Company's research, including research relating to certain
drug compounds covered by the License Agreement with Toledo, including SnET2,
has been or is being funded in part by Small Business Innovation Research or
National Institutes of Health grants. See "--Research and Development
Programs." As a result of such funding, the United States Government has or
will have certain rights in the inventions developed with the funding. These
rights include a non-exclusive, paid-up, worldwide license under such
inventions for any governmental purpose. In addition, the government has the
right to require the Company to grant an exclusive license under any of such
inventions to a third party if the government determines that (i) adequate
steps have not been taken to commercialize such inventions, (ii) such action
is necessary to meet public health or safety needs or (iii) such action is
necessary to meet requirements for public use under federal regulations.
Federal law requires that any exclusive licensor of an invention that was
partially funded by federal grants (which is the case with the subject matter
of certain patents issued in the Company's name or licensed from Toledo)
agree that it will not grant exclusive rights to use or sell the invention in
the United States unless the grantee agrees that any products embodying the
invention will be manufactured substantially in the United States, although
such requirement is subject to a discretionary waiver by the government. It
is not expected that the government will exercise any such rights or that
such exercise would have material impact on the Company.
GOVERNMENT REGULATION
The research, development, manufacture, marketing and distribution of the
Company's products are subject to regulation for safety and efficacy by
numerous governmental authorities in the United States and other countries.
In the United States, pharmaceutical products and medical devices are
regulated by the FDA through the Food, Drug and Cosmetic Act ("FDC Act").
The FDC Act and various other federal and state statutes control and
otherwise affect the development, approval, manufacture, testing, storage,
records and distribution of drugs and medical devices. The Company is subject
to regulatory requirements governing both drugs and devices.
DRUG PRODUCTS. The FDA generally requires the following steps before a
new drug product may be marketed in the United States: (i) preclinical
studies (laboratory and animal tests); (ii) the submission to the FDA of an
application for an IND exemption, which must become effective before human
clinical trials may commence; (iii) adequate and well-conducted clinical
trials to establish safety and efficacy of the drug for its intended use;
(iv) the submission to the FDA of a New Drug Application ("NDA"); and (v)
review and approval of the NDA by the FDA before any commercial sale or
shipment of the drug. In addition to obtaining FDA approval for each new drug
product, each drug manufacturing establishment must be registered with the
FDA. Manufacturing establishments, both domestic and foreign, are subject to
inspections by or under the authority of the FDA and by other federal, state
or local agencies and must comply with the FDA's current Good Manufacturing
Practices ("GMP") regulations. The FDA will not approve an NDA until a
preapproval inspection of the manufacturing facilities confirms that the drug
is produced in accordance with current drug GMPs. In addition, drug
manufacturing establishments in California must also be licensed by the State
of California and must comply with manufacturing, environmental and other
regulations promulgated and enforced by the California Department of Health
Services.
Preclinical studies include laboratory evaluation of product chemistry,
conducted under Good Laboratory Practice ("GLP") regulations, and animal
studies to assess the potential safety and efficacy of the drug and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of the IND. Unless the FDA objects to the IND, the IND becomes effective
30 days following its receipt by the FDA.
Clinical trials involve the administration of the investigational drug to
human subjects under FDA regulations and other guidance commonly known as
good clinical practice ("GCP") requirements and the supervision of a
qualified physician. Clinical trials are conducted in accordance with
protocols that detail the objectives of the study, the parameters to be used
to monitor safety and the efficacy criteria to be evaluated. Each protocol is
submitted to the FDA as a part of the IND. Each clinical study must be
conducted under the auspices of an independent Institutional Review Board
("IRB"). The IRB considers, among other things, ethical factors, the safety
of human subjects and the possible liability of the testing institution.
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Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. Phase I represents the initial introduction
of the drug to a small group of humans to test for safety (adverse effects),
dosage tolerance, absorption, distribution, metabolism, excretion and
clinical pharmacology and, if possible, to gain early evidence of
effectiveness. Phase II involves studies in a limited sample of the intended
patient population to assess the efficacy of the drug for a specific
indication, to determine dose tolerance and optimal dose range and to
identify possible adverse effects and safety risks. Once a compound is found
to have some efficacy and to have an acceptable safety profile in Phase II
evaluations, Phase III clinical trials are initiated for definitive clinical
safety and efficacy studies in a broader sample of the patient population at
multiple study sites. The results of the preclinical and clinical testing are
submitted to the FDA in the form of an NDA for marketing approval.
Completing clinical trials and obtaining FDA approval for a new drug
product is likely to take several years and require expenditure of
substantial resources. If an NDA application is submitted, there can be no
assurance that the FDA will approve the NDA in a timely manner, if at all.
Even if initial FDA approval is obtained, further studies will be required to
gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially approved.
Also, the FDA requires post-market surveillance programs to monitor and
report the drug's side effects. For certain drugs, the FDA may also,
concurrent with marketing approval, seek agreement from the sponsor to
conduct post-marketing ("Phase IV") studies to obtain further information
about the drug's risks, benefits, and optimal use. Results of such monitoring
and of Phase IV post-marketing studies may affect the further marketing of
the product.
Where appropriate, the Company may seek to obtain accelerated review
and/or approval of products and to use expanded access programs that may
provide broader accessibility and, if approved by the FDA, payment for an
investigational drug product. These activities may include, but may not be
limited to, pursuing programs such as treatment IND or parallel track IND
classifications which allow expanded availability of an investigational
treatment to patients not in the ongoing clinical trials, and seeking
physician or cross-referenced INDs which allow individual physicians to use
an investigational drug before marketing approval and for an indication not
covered by the ongoing clinical trials. However, there can be no assurance
that the Company will seek such avenues in all possible cases or in any
individual case. Further, there can be no assurance that the Company will be
able to obtain access to such avenues in a timely manner, if at all. If the
Company is able to obtain access to any such avenue, there can be no
assurance that an avenue will be successful or result in accelerated review
or approval, or broader accessibility to, any of the Company's products.
MEDICAL DEVICE PRODUCTS. The Company's medical device products are
subject to government regulation in the United States and foreign countries.
In the United States, the Company is subject to the rules and regulations
established by the FDA requiring that the Company's medical device products
are safe and efficacious and are designed, tested, developed, manufactured
and distributed in accordance with FDA regulations.
Under the FDC Act, medical devices are classified into one of three
classes (i.e., class I, II, or III) on the basis of the controls necessary to
reasonably ensure their safety and effectiveness. Safety and effectiveness
can reasonably be assured for class I devices through general controls (e.g.,
labeling, premarket notification and adherence to GMPs) and for class II
devices through the use of general and special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive premarket approval
by the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to legally marketed devices).
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a premarket approval application ("PMA"). A PMA requires the
completion of extensive clinical trials comparable to those required of new
drugs and typically requires several years before FDA approval, if any, is
obtained. A 510(k) clearance will be granted if the submitted data establish
that the proposed device is "substantially equivalent" to a legally marketed
class I or class II medical device, or to a class III medical device for
which the FDA has not called for PMAs. Currently, devices indicated
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for use in photodynamic therapy, such as the Company's devices, regardless of
classification, must be evaluated in conjunction with an IND as a combination
drug-device product.
COMBINATION DRUG-DEVICE PRODUCTS. Medical products containing a
combination of drugs, devices or biological products may be regulated as
"combination products." A combination product is generally defined as a
product comprised of components from two or more regulatory categories
(drug/device, device/biologic, drug/biologic, etc.) and in which the various
components are required to achieve the intended effect and are labeled
accordingly. Each component of a combination product is subject to the rules
and regulations established by the FDA for that component category, whether
drug, biologic or device. Primary responsibility for the regulation of a
combination product depends on the FDA's determination of the "primary mode
of action" of the combination product, whether drug, biologic or device.
In order to facilitate premarket review of combination products, the FDA
designates one of its centers to have primary jurisdiction for the premarket
review and regulation of both components, in most cases eliminating the need
to receive approvals from more than one center. The determination whether a
product is a combination product or two separate products is made by the FDA
on a case-by-case basis. Market approval authority for combination
photodynamic therapy drug/device products is vested in the FDA Center for
Drug Evaluation and Research (the "CDER") which is required to consult with
the FDA Center for Devices and Radiological Health. As the lead agency, the
CDER administers and enforces the premarket requirements for both the drug
and device components of the combination product. The FDA has reserved the
decision on whether to require separate submissions for each component until
the product is ready for premarket approval. Although to date photodynamic
therapy products have been categorized by the FDA as combination drug-device
products, there can be no assurance that the Company's products currently
under investigation or any future drug/device products will continue to be
categorized for regulatory purposes as combination products, that they will
not require separate drug and device submissions, or that they will not
require separate approval by both centers.
In the event that separate applications for approval are required in the
future for photodynamic therapy devices, it may be necessary for the Company
to submit a PMA or a 510(k) to the FDA for its photodynamic devices.
Submission of a PMA would include the same clinical studies submitted under
the IND to show the safety and efficacy of the device for its intended use in
the combination product. A 510(k) notification would include information and
data to show that the Company's device is substantially equivalent to
previously marketed devices. There can be no assurance as to the exact form
of the premarket approval submission required by the FDA or post-marketing
controls for the Company's photodynamic therapy devices.
POST-APPROVAL COMPLIANCE. Once a product is approved for marketing, the
Company must continue to comply with various FDA, and in some cases Federal
Trade Commission, requirements for design, safety, advertising, labeling,
record keeping and reporting of adverse experiences associated with the use
of a product. The FDA actively enforces regulations prohibiting marketing of
products for non-approved uses. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, injunctions, civil
penalties, failure of the government to grant premarket clearance, premarket
approval or export certificates for devices or drugs, delays or suspensions
or withdrawals of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. 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.
INTERNATIONAL. With regard to the marketing of photodynamic therapy
drugs and devices outside the United States, the Company is subject to
foreign regulatory requirements governing testing, development, marketing,
licensing, pricing and/or distribution of drugs and devices in other
countries. These regulations vary from country to country. Beginning in 1995,
a new regulatory system to approve drug market registration applications was
implemented in the European Union ("EU"). The system provides for new
centralized, decentralized and national (member state by member state)
registration procedures through which a company may obtain drug marketing
registrations. The centralized procedure allows for expedited review and
approval of biotechnology and high technology/innovative product marketing
applications by a central Committee for Proprietary Medicinal Products that
is binding on all member states in the EU. The decentralized procedure allows
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a company to petition individual EU member states to review and recognize a
market application previously approved in one member state by the national
route. There can be no assurance that the Company's drug products will
qualify for the centralized review procedure or that the Company will be able
to obtain a national market application that will be accepted by other EU
member states. The Company's devices must also meet the new Medical Device
Directive effective in Europe in 1998. The Directive requires that the
Company's manufacturing quality assurance systems and compliance with
technical essential requirements be certified with a CE Mark authorized by a
registered notified body of an EU member state prior to free sale in the EU.
Registration and approval of a photodynamic therapy product in other
countries, such as Japan, may include additional procedures and requirements,
nonclinical and clinical studies, and may require the assistance of native
corporate partners.
The time and expense required to gain approval for a product in another
country may be more or less than that required for U.S. approval. There can
be no assurance as to degree or extent of approval requirements or regulation
of the Company's products in any country, or the effect of such requirements
or regulations on the Company's ability to sell its products outside of the
United States.
OTHER LAWS; FUTURE LEGISLATION OR REGULATIONS. In addition to the
regulations for drug or device approvals, the Company is subject to
regulation under state, federal or other law, including regulations for
worker occupational safety, laboratory practices, environmental protection
and hazardous substance control. The Company continues to make capital and
operational expenditures for protection of the environment in amounts which
are not material. However, there can be no assurance that future expenditures
will not have a material adverse effect on the Company. The Company may also
be subject to other present and possible future local, state, federal and
foreign regulation. There can be no assurance that any such regulations will
not adversely affect the Company's business.
Heightened public awareness and concerns regarding the growth in overall
health care expenditures in the United States, combined with the continuing
efforts of governmental authorities to contain or reduce costs of health
care, may result in the enactment of national health care reform or other
legislation or regulations that impose limits on the number and type of
medical procedures which may be performed or which have the effect of
restricting a physician's ability to select specific products for use in
certain procedures. Such new legislation or regulations may materially
adversely affect the demand for the Company's products. In the United States,
there have been, and the Company expects that there will continue to be, a
number of federal and state legislative proposals and regulations to
implement greater governmental control in the health care industry. For
example, the Clinton Administration and certain members of Congress have
proposed health care reform legislation that may impose pricing or
profitability limitations or other restrictions on companies in the health
care industry. The announcement of such proposals may materially adversely
affect the Company's ability to raise capital or to form collaborations, and
the enactment of any such reforms could have a material adverse effect on the
Company. In certain foreign markets, the pricing and profitability of health
care products are subject to governmental influence or control. In addition,
legislation or regulations that impose restrictions on the price that may be
charged for health care products or medical devices may adversely affect the
Company's results of operations. From time to time, legislation or regulatory
proposals are considered that could alter the review and approval process
relating to pharmaceutical or medical device products. The Company is unable
to predict the likelihood of adverse effects which might arise from future
legislative or administrative action, either in the United States or abroad.
COMPETITION
The pharmaceutical and medical device industries are characterized by
extensive worldwide research and development efforts and rapid technological
change. Competition from other domestic and foreign pharmaceutical or medical
device companies and research and academic institutions in the areas of
product development, product and technology acquisition, manufacturing and
marketing is intense and is expected to increase. These competitors may
succeed in obtaining approval from the FDA or other regulatory agencies for
their products more rapidly than the Company. Competitors have also developed
or are in the process of developing technologies that are, or in the future
may be, the basis for competitive products.
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The Company believes that a primary competitive issue will be the
performance characteristics of photoreactive drugs, including product
efficacy and safety, as well as availability, price and patent position,
among other issues. As the photodynamic therapy industry evolves, the Company
believes that new and more sophisticated devices will be required and that
the ability of any group to develop advanced devices will be of primary
importance to market position. The Company believes that, after approval,
competition will be based on product reliability, clinical utility,
availability, price and patent position.
The Company is aware of various competitors involved in the photodynamic
therapy drug arena. The Company understands that these companies are
conducting preclinical and/or clinical testing in various countries and for a
variety of disease indications. One such company is QLT PhotoTherapeutics
("QLT"). The Company understands that QLT's drug Photofrin-Registered
Trademark- has received marketing approval in certain countries for various
specific disease indications. In addition, the Company is aware of
competitors active in the commercialization of photodynamic therapy devices.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company and substantially greater
experience in developing products, conducting preclinical or clinical
testing, obtaining regulatory approvals and manufacturing and marketing.
Further, the Company's competitive position could be materially adversely
affected by the establishment of patent protection by its competitors. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective or affordable
than those being developed by the Company or that would render the Company's
technology and products less competitive or obsolete. See "--Risk
Factors--Competition and Technological Uncertainty."
LIABILITY OR RECALL
The use of the Company's products in clinical trials and the sale of such
products may expose the Company to liability claims. These claims could be
made directly by patients or consumers, or by companies, institutions or
others using or selling such products. In addition, the Company is subject to
the inherent risk that a governmental authority or third party may require
the recall of one or more of the Company's products. The Company has not
obtained liability insurance that would cover a claim relating to the use or
recall of its products. In the absence of such insurance, claims made against
the Company or a product recall could have a material adverse effect on the
Company. In addition, there can be no assurance that, if the Company seeks
insurance coverage in the future, such coverage will be available at a
reasonable cost and in amounts sufficient to protect the Company against
claims that could have a material adverse effect on the financial condition
and prospects of the Company. Further, liability claims relating to the use
of the Company's products or a product recall could negatively effect the
Company's ability to obtain or maintain regulatory approval for its products.
The Company has agreed to indemnify certain of its collaborative partners
against certain potential liabilities relating to the manufacture and sale of
SnET2 and photodynamic therapy light devices. See "--Strategic
Collaborations."
EMPLOYEES
As of March 14, 1997, the Company employed 134 individuals, approximately
58 of which were engaged in research and development, 39 were engaged in
manufacturing and clinical activities and 37 in general and administrative
activities. The Company believes that its relationship with its employees is
good and none of the employees are represented by a labor union.
RISK FACTORS
The Company does not provide forecasts of potential future operational or
financial performance. While management of the Company is optimistic about
the Company's long-term prospects, the following issues and uncertainties,
among others, should be considered in evaluating its outlook. This Annual
Report on Form 10-K contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, which involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievement of the Company, or industry results, to
differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Actual results
could
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differ materially from those contemplated by such statements. The factors
listed below represent certain important factors the Company believes could
cause such results to differ. These factors are not intended to represent a
complete list of the general or specific risks that may affect the Company.
It should be recognized that other risks may be significant, presently or in
the future, and the risks set forth below may affect the Company to a greater
extent than indicated.
EARLY STAGE OF THE COMPANY AND ITS PRODUCTS
The Company and its products are in an early stage of development. No
revenues have been generated from sales of the Company's drugs and only
limited revenues have been generated from sales of the Company's devices. The
Company does not expect to achieve significant levels of revenues for at
least several years. The Company's revenues to date have consisted, and for
the foreseeable future are expected to consist, principally of grants awarded
and payments for its devices which are purchased by others engaged in
preclinical and clinical testing and research of photodynamic therapy drugs
or by companies that distribute the devices and payments under research and
development agreements, license fees, royalties, clinical reimbursements,
milestone payments and interest income. To achieve profitable operations on a
continuing basis, the Company, alone or with collaborative partners, must
successfully research, develop, test, obtain regulatory approval,
manufacture, introduce, market and distribute its products. The time frame
necessary to achieve these goals for any individual product is long and
uncertain. Most of the products currently under development by the Company
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. There
can be no assurance that the Company's research or product development
efforts or those of its collaborative partners will be successfully
completed, that the drugs or devices currently under development will be
successfully transformed into marketable products, that required regulatory
approvals can be obtained, that products can be manufactured at an acceptable
cost and with appropriate quality, that any approved products can be
successfully marketed, or that any products that may be marketed will be
favorably accepted. The likelihood of the Company's success must be
considered in light of these and other problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
formation of a new business and the development and commercialization of new
products, particularly pharmaceutical and medical device products. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "--Government Regulation."
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has generated little revenue to date, has experienced
operating losses since its inception in 1989 and has not yet achieved
profitability. As of December 31, 1996, the Company had an accumulated
deficit of approximately $50.6 million. These losses have resulted primarily
from the Company's research and development programs, the funding of
preclinical and clinical testing and regulatory activities and the general
and administrative expenses associated with these activities. The Company
anticipates incurring substantial and increasing losses over at least the
next several years. The extent of losses and the time required to reach
profitability are highly uncertain. To achieve sustained profitable
operations, the Company, alone or with collaborative partners, must
successfully research, develop, test, obtain regulatory approval,
manufacture, introduce, market and distribute its products. There can be no
assurance that the Company will be able to achieve profitability or that
profitability, if achieved, can be sustained on an ongoing basis. Moreover,
if profitability is achieved, the level of that profitability cannot be
accurately predicted. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNPROVEN SAFETY AND EFFICACY; CLINICAL TRIALS
All drug and device products currently under development by the Company
will require extensive preclinical and clinical testing prior to regulatory
approval for commercial use. None of the Company's products have completed
testing for efficacy or safety in humans. There can be no assurance that such
testing will demonstrate that SnET2 or any other of the Company's products is
safe or efficacious or that testing for any of the Company's compounds
currently under development will be commenced or completed successfully
within any
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specified time period, if at all. Further, there can be no assurance that
clinical data reported by the Company will not change as a result of the
continuing evaluation of patients. Data obtained from preclinical and
clinical trials are subject to varying interpretations which can delay, limit
or prevent approval by the FDA or other regulatory authorities. There can be
no assurance that the Company will not encounter problems in research and
development, preclinical testing or clinical trials that will cause the
Company to delay, suspend or cancel clinical trials. Many potential
pharmaceutical and medical device products that achieve promising results in
preclinical tests and clinical trials fail to demonstrate sufficient safety
or efficacy to warrant approval by the FDA or other regulatory authorities,
and there can be no assurance that any of the Company's potential products
will obtain the required approvals or, if approved, will obtain sufficient
market acceptance to become commercially successful. Moreover, as a result of
changing market, clinical or regulatory conditions, or clinical trial
results, the Company's focus may shift to other indications, or it may be
determined not to further pursue one or more of the indications currently
being pursued. See "--Government Regulation."
To date, the Company has very limited experience in conducting clinical
trials. The Company will either need to rely on third parties, including its
collaborative partners, to design and conduct any required clinical trials or
expend resources to hire additional personnel to administer such clinical
trials. There can be no assurance that the Company will be able to find
appropriate third parties to design and conduct clinical trials or that it
will have the resources to hire personnel to administer clinical trials
in-house.
RELIANCE ON COLLABORATIVE PARTNERS
The Company has entered into collaborative relationships with certain
corporations and academic institutions in connection with the research and
development, preclinical and clinical testing, licensing, manufacturing and
distribution of its products. In July 1995, the Company entered into a
collaborative agreement with Pharmacia & Upjohn, Inc. pursuant to which the
Company granted to Pharmacia & Upjohn an exclusive worldwide license to use,
distribute and sell SnET2 for therapeutic or diagnostic applications in the
area of photodynamic therapy. See "--Strategic Collaborations." The amount
of royalty revenues and other payments, if any, ultimately received by the
Company with respect to sales of SnET2 is dependent, in part, on the amount
and timing of resources Pharmacia & Upjohn commits to research and
development, clinical testing and regulatory and marketing activities, which
are entirely within the control of Pharmacia & Upjohn. The resources
committed by Pharmacia & Upjohn in these areas will depend on Pharmacia &
Upjohn's own competitive, marketing and strategic considerations, including
the relative advantages of alternative products or therapies developed and
marketed by Pharmacia & Upjohn or competitors. There can be no assurance that
Pharmacia & Upjohn will pursue the development and commercialization of SnET2
or that Pharmacia & Upjohn will perform its obligations as expected. In
addition, the Company is collaborating with Boston Scientific and Cordis with
respect to the development of catheters for use in photodynamic therapy. The
Company has not entered into any definitive collaborative agreement with
either of these companies. No assurance can be given that these additional
collaborations will culminate in definitive collaborative agreements or
marketable products or will otherwise be successful. Also, there can be no
assurance that Iridex and Ramus will continue to pursue the development of
devices for use in photodynamic therapy in the fields of ophthalmology and
cardiology, respectively or that such development will result in marketable
products .
In addition, the Company is currently at various stages of discussions
with other companies regarding the establishment of various collaborations.
The Company's current and future collaborations are important to the Company
because they allow the Company greater access to funds, to research,
development or testing resources and to manufacturing, sales or distribution
resources than it would otherwise have, and the Company intends to continue
to rely on such collaborative arrangements. However, there can be no
assurance that the Company will be able to negotiate acceptable collaborative
arrangements in the future or that such future or existing collaborative
arrangements will be successful or result in products that are marketed or
sold. In addition, there can be no assurance that such collaborative
relationships will not limit or restrict the Company in any way. Further,
there can be no assurance that the Company's collaborative partners will not
develop or pursue alternative technologies either on their own or in
collaboration with others, including the Company's competitors, as a means of
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developing or marketing products for the diseases targeted by the
collaborative programs and the Company's products. See "--Strategic
Collaborations."
ADDITIONAL FINANCING REQUIREMENTS AND UNCERTAINTY OF CAPITAL FUNDING
The Company has incurred negative cash flows from operations since its
inception and has expended substantial funds in connection with its research
and development programs and preclinical and clinical testing. The Company
may require substantial funding to continue or undertake its research and
development activities, preclinical and clinical testing and manufacturing,
marketing, sales, distribution and administrative activities. There can be no
assurance that the Company's existing capital resources, together with the
proceeds from future offerings and future cash flows, will be sufficient to
fund the Company's future operations. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
COMPETITION AND TECHNOLOGICAL UNCERTAINTY
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company and substantially greater
experience in developing products, conducting preclinical or clinical
testing, obtaining regulatory approvals and manufacturing and marketing.
Further, the Company's competitive position could be materially adversely
affected by the establishment of patent protection by its competitors. There
can be no assurance that the Company's existing competitors or other
companies will not succeed in developing technologies and products that are
more effective or affordable than those being developed by the Company or
that would render the Company's technology and products less competitive or
obsolete. See "--Patents and Proprietary Technology" and "--Competition."
The Company's products are subject to the risks of failure inherent in
the development and testing of products based on innovative technologies.
These risks include the possibilities that this technology or any or all of
the Company's products may be found to be ineffective or to have
unanticipated limitations or otherwise fail.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its ongoing
research and development, preclinical testing and clinical trial activities
are subject to extensive regulation and review by numerous governmental
authorities in the United States, including the FDA, and in other countries.
All drugs and most medical devices developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory
approval process administered by the FDA under the FDC Act, and comparable
foreign authorities before they can be marketed. These processes involve
substantial cost and can take many years. The Company has limited experience
in, and limited resources available to commit to, regulatory activities.
Failure to comply with the applicable regulatory requirements can, among
other things, result in non-approval, suspensions of regulatory approvals,
fines, product seizures and recalls, operating restrictions, injunctions and
criminal prosecution.
The time required for completing such testing and obtaining such
approvals is uncertain and approval itself may not be obtained. In addition,
delays or rejections may be encountered due to, among other reasons,
regulatory review of each submitted new drug, device or combination
drug/device application or product license application, as well as changes in
regulatory policy during the period of product development. Similar delays
may also be encountered in foreign countries. To date, no pharmaceutical
product candidate being developed by the Company has been submitted for
approval or has been approved by the FDA or any other regulatory authority
for marketing, and there can be no assurance that, even after investing
substantial time and expense, regulatory approval will be obtained for any
products developed by the Company. Moreover, if regulatory approval of a
product is granted, such approval may entail limitations on the indicated
uses for which the product may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and the facilities
in which the product is manufactured are subject to continual review and
periodic inspections. Later
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discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market and litigation. Although
to date photodynamic therapy products have been categorized by the FDA as
combination drug-device products, there can be no assurance that the
Company's products currently under investigation or any future drug/device
products will continue to be categorized for regulatory purposes as
combination products, that they will not require separate drug and device
submissions, or that they will not require separate approval by regulatory
authorities. See "--Government Regulation."
REIMBURSEMENT
The Company's ability to commercialize its products successfully may
depend in part on the extent to which reimbursement for such products and
related treatment will be available from corporate partners, government
health administration authorities, private health insurers, managed care
entities and other organizations. Such payors are increasingly challenging
the price of medical products and services and establishing protocols and
formularies which effectively limit physicians' ability to select products
and procedures. Uncertainty exists as to the reimbursement status of health
care products (especially innovative technologies), and there can be no
assurance that adequate reimbursement coverage will be available to enable
the Company to achieve market acceptance of its products or to maintain price
levels sufficient for realization of an appropriate return on its products.
LIMITED MANUFACTURING AND MARKETING CAPABILITY AND EXPERIENCE
To be successful, the Company's products must be manufactured in
commercial quantities under current GMP prescribed by the FDA and at
acceptable costs. Although the Company intends to manufacture drugs and
devices, the Company has not yet manufactured any products in commercial
quantities under GMP and has no experience in such commercial manufacturing.
The Company will need to expand its manufacturing capabilities and/or depend
on its collaborators, licensees or contract manufacturers for the commercial
manufacture of its products. In the event the Company determines to expand
its manufacturing capabilities, it will require the expenditure of
substantial funds, the hiring and retention of significant additional
personnel and compliance with extensive regulations applicable to such
expansion. There can be no assurance that the Company will be able to expand
such capabilities successfully or that it will be able to manufacture
products in commercial quantities for sale at competitive prices. Further,
there can be no assurance that the Company will be able to enter into
manufacturing arrangements with collaborators, licensees, or contract
manufacturers on acceptable terms or at all. If the Company is not able to
expand its manufacturing capabilities or enter into additional commercial
manufacturing agreements, it could be materially and adversely affected. See
"--Strategic Collaborations" and "--Manufacturing."
The Company has limited experience in marketing, distributing and
selling pharmaceutical products, and will need to develop a sales force or
rely on its collaborators or licensees or make arrangements with others to
provide for the marketing, distribution and sale of its products. There can
be no assurance that the Company's marketing, distribution and sales
capabilities or current or future arrangements with third parties to perform
such activities will be adequate for the successful commercialization of its
products. See "--Strategic Collaborations" and "--Marketing, Sales and
Distribution."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its and its licensors'
ability to obtain, assert and defend its patents, protect trade secrets and
operate without infringing the proprietary rights of others. The Company has
filed applications for or has been issued U.S. and foreign patents a majority
of which relate to its light delivery and measurement devices, and the
Company has an exclusive license under patent applications or patents of
others relating to certain photoreactive compounds. Such issued U.S. patents
expire from 2006 through 2014. Certain of the foregoing patents and patent
applications are subject to certain governmental rights. The exclusive
license to the Company under various drug patents, including patents relating
to its leading drug candidate SnET2, provides
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that the licensors may elect that the license become non-exclusive if the
Company fails to satisfy certain development and commercialization
objectives. Although the Company believes it should be able to achieve such
objectives, there can be no assurance that the Company will be successful.
The patent position of pharmaceutical and medical device firms generally is
highly uncertain and involves complex legal and factual questions. There can
be no assurance that the patent applications owned by or licensed to the
Company will result in issued patents, that any issued patents will provide
the Company with proprietary protection or competitive advantages, will not
be infringed upon or designed around by others, will not be challenged by
others and held to be invalid or unenforceable or that the patents of others
will not have a material adverse effect on the Company. See "--Strategic
Collaborations."
The Company is aware that its competitors and other companies,
institutions and individuals have been issued patents relating to
photodynamic therapy. In addition, the Company's competitors and other
companies, institutions and individuals may have filed patent applications or
been issued patents relating to other potentially competitive products of
which the Company is not aware. Further, the Company's competitors and other
companies, institutions and individuals may in the future file applications
for, or be granted or license or otherwise obtain proprietary rights to,
patents relating to other potentially competitive products. There can be no
assurance that these existing or future patents or patent applications will
not conflict with the Company's or its licensors' patents or patent
applications. Such conflicts could result in a rejection of the Company's or
its licensors' patent applications or the invalidation of their patents,
which could have a material adverse effect on the Company's competitive
position. In the event of such conflicts, or in the event the Company
believes that such competitive products may infringe the patents owned by or
licensed to the Company, the Company may pursue patent infringement
litigation or interference proceedings against, or may be required to defend
against litigation involving, holders of such conflicting patents or
competing products. Such proceedings may materially adversely affect the
Company's competitive position, and there can be no assurance that the
Company will be successful in any such proceeding. Litigation and other
proceedings relating to patent matters, whether initiated by the Company or a
third party, can be expensive and time consuming, regardless of whether the
outcome is favorable to the Company, and can result in the diversion of
substantial financial, managerial and other resources from the Company's
other activities. An adverse outcome could subject the Company to significant
liabilities to third parties or require the Company to cease any related
research and development activities or product sales. The Company does not
have contractual indemnification rights against the licensors of the various
drug patents. In addition, if patents that contain dominating or conflicting
claims have been or are subsequently issued to others and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses under patents or other proprietary rights of others. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to the Company, if at all.
If the Company does not obtain such licenses, it could encounter delays or
could find that the development, manufacture or sale of products requiring
such licenses is foreclosed.
The Company also seeks to protect its proprietary technology and
processes in part by confidentiality agreements with its collaborative
partners, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors. Certain of the research
activities relating to the development of certain of the patents owned by or
licensed to the Company were funded, in part, by agencies of the United
States government. When the United States government participates in research
activities, it retains certain rights that include the right to use the
resulting patents for government purposes under a royalty-free license. See
"--Research and Development Programs" and "--Patents and Proprietary
Technology."
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company's ability to successfully develop its products, manage
growth and maintain a competitive position will depend in large part on its
ability to attract and retain highly qualified scientific, management and
other personnel and to develop and maintain relationships with leading
research institutions and consultants. The Company is highly dependent upon
principal members of its management, key employees, scientific staff and
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consultants which the Company may retain from time to time. Competition for
such personnel and relationships is intense, and there can be no assurance
that the Company will be able to continue to attract and retain such
personnel. The Company's consultants may be affiliated or employed by others,
and some have consulting or other advisory arrangements with other entities
that may conflict or compete with their obligations to the Company.
Inventions or processes discovered by such persons will not necessarily
become the property of the Company and may remain the property of such
persons or others. See Item 10, "Directors and Executive Officers."
DEPENDENCE UPON SUPPLIERS
The Company currently depends upon outside suppliers, contracted or
otherwise, for certain raw materials and components for its products. There
can be no assurance that such raw materials or components will continue to be
available to the Company's standards or on acceptable terms, if at all, or
that alternative suppliers will be available to the Company on acceptable
terms, if at all. Further, there can be no assurance that the Company will be
able to produce needed materials or components in-house in a timely manner or
in sufficient quantities to meet the needs of the Company, if at all.
Although most of the Company's raw materials and components are available
from various sources, the Company is currently dependent on single,
contracted sources for certain key materials or services used by the Company
in its drug development, light producing and light delivery device
development and production operations. Although the Company has entered into
agreements with these suppliers, there can be no assurance that these
arrangements will be successful or that the Company will not encounter delays
or other problems which may materially adversely affect its business. See
"--Strategic Collaborations" and "--Manufacturing."
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, county and local laws and
regulations relating to the protection of the environment. In the course of
its business, the Company is involved in the handling, storage and disposal
of materials that are classified as hazardous. The Company's safety
procedures for handling, storage and disposal of such materials are designed
to comply with the standards prescribed by applicable laws and regulations.
However, there can be no assurance that the Company will not be involved in
contamination or injury from these materials. In the event of such an
occurrence, the Company could be held liable for any damages that result, and
any such liability could materially and adversely affect the Company.
Further, there can be no assurance that the cost of complying with these laws
and regulations will not increase materially in the future. See "--Government
Regulation."
CONTROL BY OFFICERS AND DIRECTORS
As of March 14, 1997, the Company's officers and directors beneficially
own approximately 32.8% of the outstanding Common Stock (approximately 44.7%
is beneficially owned if all options granted to such officers and directors
become vested and are exercised). These shareholders will be able to elect a
substantial number of the Company's directors and will have the ability to
influence significantly the Company and the direction of its business and
affairs. Such concentration of ownership may have the effect of delaying or
preventing a change in control of the Company, which could adversely affect
the market price for the Common Stock. See Item 12, "Security Ownership of
Certain Beneficial Owners and Management."
OUTSTANDING OPTIONS AND WARRANTS
As of March 14, 1997, there were outstanding options to purchase
2,421,088 shares of Common Stock at a weighted average exercise price of
$14.16 per share, and warrants to purchase 1,634,471 shares of Common Stock
at a weighted average exercise price of $10.53 per share. The exercise of
these options and warrants would result in significant book value and
earnings dilution to existing shareholders. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General" and Notes 3 and 4 of Notes to Consolidated Financial
Statements.
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ITEM 2. PROPERTIES
The Company has entered into three leases for approximately 65,500
square feet of office and laboratory space in Santa Barbara, California. The
first lease for approximately 18,300 square feet of space was entered into in
1992 at a base rent of approximately $16,000 per month. The rent is adjusted
annually based on increases in the consumer price index, and the rent is
$18,100 per month in 1997. This lease expires in October 1997, subject to the
Company's option to extend the lease for a three year term upon six months
notice to lessor. The facility is equipped and licensed to allow certain
laboratory testing and manufacturing. The Company manufactures and
distributes its active SnET2 drug substance from this facility.
In the second half of 1996, the Company entered into two additional
leases for approximately 47,200 square feet of office, laboratory and
manufacturing space. The current base rent for these two leases totals
approximately $45,700 per month. Each lease provides for rent to be adjusted
annually based on increases in the consumer price index. These leases expire
in August 1999, subject to the Company's option to extend them for a three
year term upon six months notice to lessor. Each leased property is located
in a business park and is subject to a master lease. The Company
manufactures its light producing and light delivery devices and performs
research and development of drugs, light delivery and light producing devices
from this facility. The Company will continue to incur additional costs for
the construction of the laboratories and office space associated with these
new facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently party to any material litigation or
proceeding and is not aware of any material litigation or proceeding
threatened against it.
During 1996, the Company and two of its executive officers responded to
subpoenas from the Securities and Exchange Commission (the "SEC") to provide
certain information and documents and to testify in the matter of "TRADING IN
THE SECURITIES OF THE UPJOHN COMPANY" (HO 3129). Although the breadth and
nature of this investigation is not known, neither the SEC nor its staff has
given any indication that it intends to make any allegations or bring any
claims against the Company or any of its directors or officers, and, after
completion of its own internal inquiries, the Company continues to believe
that neither it nor any of its officers or directors has engaged in any
inappropriate activity. The Company and management are cooperating fully
with the investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol PDTI. From April 11, 1995 through August 29, 1995, the Common
Stock was traded on The Nasdaq SmallCap Market. At the close of business on
August 29, 1995, the Common Stock ceased trading on The Nasdaq SmallCap
Market and on August 30, 1995 commenced trading on The Nasdaq National
Market. The following table sets forth high and low sales prices per share
of Common Stock as reported on The Nasdaq National Market based on published
financial sources, for the period commencing on August 30, 1995, and the high
and low bid prices of the Common Stock on The Nasdaq SmallCap Market for the
period from April 11, 1995 to August 29, 1995. The Nasdaq SmallCap Market
prices reflect inter-dealer prices, without mark-up, mark-down or commission
and may not reflect actual transactions.
HIGH LOW
-------- --------
1996
First quarter . . . . . . . . . . . . . . . . . . $ 62.00 $ 47.00
Second quarter. . . . . . . . . . . . . . . . . . 60.75 33.00
Third quarter . . . . . . . . . . . . . . . . . . 39.00 26.75
Fourth quarter. . . . . . . . . . . . . . . . . . 33.50 22.38
1995
Second quarter (from April 11). . . . . . . . . . $ 25.33 $ 10.67
Third quarter (through August 29) . . . . . . . . 38.67 21.17
Third quarter (from August 30). . . . . . . . . . 43.00 33.00
Fourth quarter. . . . . . . . . . . . . . . . . . 74.25 32.50
As of March 14, 1997, there were approximately 232 stockholders of
record of the Common Stock. The Company has never paid dividends, cash or
otherwise, on its capital stock and does not anticipate paying any such
dividends in the foreseeable future. The Company currently intends to retain
future earnings, if any, to finance the growth and development of its
business. Any future determination to pay dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant. The Company's bank
credit line prohibits the payment of dividends on the Common Stock.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data set forth below
for each of the three years in the period ended December 31, 1996 and the
consolidated balance sheet data set forth below at December 31, 1995 and 1996
are derived from the consolidated financial statements of the Company which
have been audited by Ernst & Young LLP, independent auditors, and which are
included elsewhere herein. The consolidated statement of operations data for
the years ended December 31, 1992 and 1993 and the consolidated balance sheet
data at December 31, 1992, 1993 and 1994 are derived from audited
consolidated financial statements not included herei n. The data set forth
below should be read in conjunction with Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related notes listed under Item 14,
"Exhibits, Financial Statement Schedules, and Reports on Form 8-K."
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
(in thousands, except share and per share data)
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................ $ 3,598 $ 521 $ 130 $ 503 $ 2,444
Costs and expenses............... 22,113 12,416 9,350 7,636 4,780
----------- ----------- ----------- ----------- -----------
Loss from operations............. (18,515) (11,895) (9,220) (7,133) (2,336)
Interest income (expense)........ 2,373 185 (259) (134) 5
----------- ----------- ----------- ----------- -----------
Net loss......................... $ (16,142) $ (11,710) $ (9,479) $ (7,267) $ (2,331)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss per share (1) .......... $ (1.37) $ (1.19) $ (1.04) $ (0.85) $ (0.29)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares used in computing net
loss per share (1) .............. 11,786,429 9,861,212 9,115,926 8,508,882 8,117,216
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities... $ 52,098 $ 8,886 $ 1,483 $ 4,979 $ 2,783
Working capital.................. 51,519 6,403 (882) 2,705 2,548
Total assets..................... 59,886 11,259 3,545 7,254 4,473
Long-term obligations ........... 21 203 778 3,164 91
Accumulated deficit.............. (50,645) (34,503) (22,793) (13,314) (6,047)
Total shareholders' equity....... 56,717 8,167 150 1,548 3,374
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
GENERAL
Since its inception, the Company has been principally engaged in the
research and development of drugs and medical device products for use in
photodynamic therapy. The Company has been unprofitable since its founding
and has incurred a cumulative net loss of approximately $50.6 million as of
December 31, 1996. The Company expects to continue to incur substantial and
increasing operating losses for the next several years due to continued and
increased spending on research and development programs, the funding of
preclinical and clinical testing and regulatory activities and the costs of
manufacturing and administrative activities.
The Company's revenues primarily reflect income earned from licensing
agreements, contracts, grants, and device product sales. Device product sales
represent limited sales of photodynamic therapy devices (e.g. light
producing devices and light delivery and measurement devices), sold both
domestically and internationally, to researchers and an OEM distributor. To
date, the Company has received no revenue from the sale of drug products, and
the Company is not permitted to engage in commercial sales of drugs or
devices until such time, if ever, as the Company receives requisite
regulatory approvals. As a result, the Company does not expect to record
significant product sales until such approvals are received.
Until the Company commercializes its product(s), the Company expects
revenues to continue to be attributed to grants, contracts, licensing
agreements and device product sales for research use. The Company anticipates
that future revenues and results of operations may continue to fluctuate
significantly depending on, among other factors, the timing and outcome of
applications for regulatory approvals, the Company's ability to successfully
manufacture, market and distribute its drug products and device products
and/or the establishment of collaborative arrangements for the manufacturing,
marketing and distribution of some of its products. The Company anticipates
its operating activities will result in substantial net losses for several
more years.
The Company is conducting Phase II/III clinical trials for three
indications in the oncology area; has initiated a Phase I/II clinical trial
in ophthalmology, is preparing to initiate additional Phase I/II clinical
trials in the urology, oncology and dermatology areas; and is conducting
preclinical studies in oncology, ophthalmology, urology, dermatology,
gynecology and cardiology. See Item 1, "Business--Targeted Diseases and
Clinical Trials" and "--Risk Factors."
The Company has awarded, and may award in the future, stock options that
vest upon the achievement of certain milestones. Under Accounting Principals
Board Opinion No. 25, such options are accounted for as variable stock
options. As such, until the milestone is achieved (but only after it is
determined to be probable), deferred compensation is recorded in an amount
equal to the difference between the fair market value of the Common Stock on
the date of determination less the option exercise price and is adjusted from
period to period to reflect changes in the market value of the Common Stock.
Deferred compensation, as it relates to a particular milestone, is amortized
over the period between when achievement of the milestone becomes probable
and when the milestone is estimated to be achieved. Amortization of deferred
compensation could result in significant additional compensation expense
being recorded in future periods based on the market value of the Common
Stock from period to period.
28
<PAGE>
Effective June 21, 1996, the Compensation Committee of the Board of
Directors adjusted the future vesting periods of the variable stock options
covering 400,000 shares of Common Stock. These variable stock options were
adjusted to change the vesting periods to specific dates as opposed to the
original vesting periods which were based upon the achievement of milestones;
no change was made to the exercise prices of these variable stock options.
This change in the vesting periods provides for the options to be accounted
for as non-variable options and therefore alleviates the impact of deferred
compensation fluctuating in future periods based on changes in the per share
market value from period to period. As of December 31, 1996, options
covering 227,500 shares with an exercise price of $34.75 per share, have
vested. The remaining unvested shares will vest in the years 1997 through
2000.
RESULTS OF OPERATIONS
The following table provides a summary of the Company's revenues for the
years ended 1996, 1995 and 1994:
- --------------------------------------------------------------------
Consolidated Revenues 1996 1995 1994
- --------------------------------------------------------------------
Product sales............ $ 5,000 $ 37,000 $ 28,000
Grants and contracts..... 577,000 445,000 95,000
Royalties................ 73,000 39,000 7,000
License.................. 2,943,000 -- --
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Total revenue............ $ 3,598,000 $ 521,000 $ 130,000
- --------------------------------------------------------------------
- --------------------------------------------------------------------
REVENUES. The Company's revenues increased from $130,000 in 1994 to
$521,000 in 1995 and increased to $3,598,000 in 1996. The increase for the
year ended December 31, 1996 relates to the increase in license income which
was $2,943,000 in 1996 compared to no license income for 1995. The increase
in license income is due to the commencement in 1996 of the billing for the
reimbursement of clinical costs in conjunction with the license agreement
entered into in July 1995 with Pharmacia & Upjohn. The Company anticipates
recording license income for the reimbursement of clinical costs throughout
1997 and beyond. Although the level of such income may fluctuate in the
future depending on the amount of clinical costs incurred. See Item 1,
"Business--Strategic Collaborations." In 1994 and continuing through 1996,
the Company decreased its custom device order activities so as to direct its
resources toward device production in support of its clinical trials and drug
product development, which resulted in decreased device product sales. The
increase in revenues of $391,000 from 1994 to 1995, related directly to
$290,000 in increased grant income. Grant income increased to $550,000 for
1996. Revenues from grants may be an ongoing source of revenue in the future
depending on grant awards received by the Company.
COST OF GOODS SOLD. Cost of goods sold decreased from $81,000 in 1994
to $67,000 in 1995 and to $5,000 in 1996. This represents negative margins of
($53,000) and ($30,000) in 1994 and 1995, respectively, and break-even
margins in 1996. The decrease in cost of goods sold from 1994 through 1996 is
due to the reduction in unit volume based on the Company's decrease in custom
device order activity due to its decision to allocate its manufacturing
resources to supporting its preclinical and clinical programs. The Company
expects gross margins to be insignificant until the Company commences
commercial sales of its products.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $7.0 million in 1994 to $8.8 million in 1995 and to $15.7 million in
1996. These ongoing increases in research and development expenses reflect
increased research staffing, facilities and preclinical and clinical testing
of the Company's drug and device development programs. The increase in
research and development expense from 1994 through 1996 was primarily due to
significant increases in (i) costs associated with the development of drug
formulation, (ii) costs associated with the purchase of raw materials and
supplies for the production of clinical devices and drug product for use in
clinical trials, (iii) payroll costs due to the growth of research and
development personnel and (iv) compensation expense associated with
non-variable and variable stock options which vest upon achievement of
milestones related to research and development. The Company anticipates
future research and development expenses to
29
<PAGE>
increase as the Company expands its research and development programs which
include the increased hiring of personnel and continued expansion of
preclinical and clinical testing.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased from $2.3 million in 1994 to $3.5 million
in 1995 and to $6.4 million in 1996. The increase from 1994 through 1996
relates primarily to (i) the increase in costs associated with professional
services received from financial and investor consultants, attorneys, and
public and media relations, (ii) payroll costs due to the addition of
administrative and corporate personnel and (iii) costs associated with
non-variable and variable stock option compensation expense. The Company
expects future selling, general and administrative expenses to continue to
grow as a result of the increased support required for research and
development activities, continuing corporate development and professional
services, compensation expense associated with stock options and financial
consultants and general corporate matters as well as the other factors
described above.
INTEREST INCOME. Interest income increased from $74,000 in 1994 to
$338,000 in 1995 and to $2.4 million in 1996. The increase in interest income
during 1995 and 1996 resulted from the investment of proceeds received from
the Company's initial public offering in April 1995, Pharmacia & Upjohn's $12
million investment in the Common Stock in July 1995 and the Company's
secondary public offering in April 1996.
INTEREST EXPENSE. Interest expense decreased from $333,000 in 1994 to
$153,000 in 1995 and to $34,000 in 1996. The decrease in interest expense
from 1994 through 1996 resulted primarily from the conversion of the
Company's convertible notes to Common Stock (approximately 79% were converted
in December 1994, 18% were converted during 1995 and the remaining 3% were
converted during 1996) and the payoff of the Company's $1.0 million line of
credit in 1995.
As of December 31, 1996, the Company had approximately $49.5 million of
net operating loss carryforwards for federal income tax purposes, which
expire at various dates from the years 2002 through 2011. In addition, the
Company has approximately $2.3 million of research and development and
alternative minimum tax credit carryforwards available for federal and state
tax purposes. The Company also has a state net operating loss tax
carryforward of $12.9 million which expires at various dates from the years
1997 to 2001. Under Section 382 of the Internal Revenue Code, utilization of
the net operating loss carryforwards may be limited based on changes in the
percentage ownership of the Company. The Company's ability to utilize the net
operating loss carryforwards, without limitation, is uncertain.
The Company does not believe that inflation has had a material impact on
its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception through December 31, 1996, the Company has accumulated a
deficit of approximately $50.6 million and expects to continue to incur
substantial and increasing operating losses for the next several years. The
Company has financed its operations primarily through private placements of
common and preferred stock, private placements of convertible notes and short
term notes, its initial public offering, Pharmacia & Upjohn's purchase of
Common Stock and a secondary public offering. As of December 31, 1996, the
Company had received proceeds from the sale of equity securities and
convertible notes of approximately $110.7 million. In addition, the Company
has financed a portion of its leasehold improvements and certain equipment
through capital lease obligations, a leasehold improvement loan and a bank
line of credit. The Company has available a $1.0 million bank line of credit
which has a variable rate of interest based on the bank's lending rate (7.8%
as of December 31, 1996), which expires on January 31, 1998, and is
collateralized by the Company's cash balances. The credit agreement subjects
the Company to certain customary restrictions, including a prohibition on the
payment of dividends. The Company presently has no outstanding borrowings
under the line of credit.
In April 1996, the Company completed a secondary public offering of
1,500,000 shares of Common Stock at $48 per share. The offering provided net
proceeds to the Company of approximately $65.3 million. These
30
<PAGE>
proceeds are anticipated to be used to fund preclinical and clinical testing,
research and development and the balance for general corporate activities.
Pending such uses, the Company has invested the net proceeds in short-term,
interest-bearing obligations which primarily consist of marketable securities
with domestic corporate issuers collateralized by U.S. Government securities.
In July 1996, the Company's Board of Directors authorized the purchase
of up to 600,000 shares of the Company's Common Stock. During 1996, the
Company repurchased 138,500 shares at a cost of $3.9 million under this
repurchase program. As of December 31, 1996, all shares repurchased were
retired.
In connection with the licensing agreement with Pharmacia & Upjohn
entered into in July 1995, the Company has recorded as license income for the
reimbursement of clinical costs of $2.9 million in 1996. No license income
associated with the reimbursement of clinical costs was recorded in 1995.
The Company anticipates recording license income for the reimbursement of
clinical costs throughout 1997 and beyond.
For 1994, 1995 and 1996, the Company required cash for operations of
$7.8 million, $7.8 million and $15.1 million, respectively. The increase in
cash used in operations from 1994 through 1996 was primarily due to an
increase in operating activities associated with the continued expansion of
preclinical and clinical testing, the increase in research and development
programs, personnel and the increase in general corporate activities. For
1994, 1995 and 1996, the Company received net cash from its financing
activities of $4.7 million, $15.8 million and $62.2 million, respectively.
The 1995 and 1996 increases resulted from proceeds from the sale of Common
Stock in the Company's initial public offering in April 1995, Pharmacia &
Upjohn's investment in the Common Stock of the Company in July 1995 and the
Company's secondary public offering in April 1996. During 1994, the Company
received funding from a private placement of securities and a convertible
debenture offering.
The Company invested a total of $2.2 million in property and equipment
from 1994 through 1996. During 1996, the Company entered into two new lease
agreements for additional facilities. The addition of these new facilities
increased the Company's equipment costs due to the expansion of its
laboratories and office space and the purchase of equipment for this new
space. The Company expects to continue to purchase significant property and
equipment during 1997 as the Company expands its preclinical, clinical and
research and development activities and continues its laboratory and office
construction in its new facilities. Since inception, the Company has entered
into capital lease agreements for approximately $184,000 of equipment,
consisting primarily of laboratory equipment. The Company expects to continue
to lease equipment from time to time as needed, when and if financing
resources become available at acceptable terms to the Company.
The Company's capital requirements will depend on numerous factors,
including the progress and magnitude of the Company's research and
development programs, preclinical testing and clinical trials, the time
involved in obtaining regulatory approvals, the cost involved in filing and
maintaining patent claims, technological advances, competitor and market
conditions, the ability of the Company to establish and maintain
collaborative arrangements, the cost of manufacturing scale-up and the cost
and effectiveness of commercialization activities and arrangements.
The Company may require substantial funding to continue its research and
development activities, preclinical and clinical testing and manufacturing,
marketing, sales, distribution and administrative activities. The Company
has raised funds in the past through the public or private sale of
securities, and may contemplate raising funds in the future through public or
private financings, collaborative arrangements or from other sources. The
success of such efforts will depend in large part upon continuing
developments in the Company's preclinical and clinical testing. The Company
continues to explore and, as appropriate, enter into discussions with other
companies regarding the potential for equity investment, collaborative
arrangements, license agreements or development or other funding programs
with the Company in exchange for manufacturing, marketing, distribution or
other rights to products developed by the Company. However, there can be no
assurance that discussions with other companies will result in any
investments, collaborative arrangements, agreements or funding or that the
necessary additional financing through debt or equity financing will be
available to the Company on acceptable terms, if at all. Further, there can
be no assurance that any arrangements resulting from these discussions will
31
<PAGE>
successfully reduce the Company's funding requirements. If additional funding
is not available to the Company when needed, the Company will be required to
scale back its research and development programs, preclinical and clinical
testing and administrative activities and the Company's business and
financial results and condition would be materially adversely affected. See
Item 1, "Business--Risk Factors--Additional Financial Requirements and
Uncertainty of Capital Funding."
Except for the historical information herein, the matters discussed in
this report are deemed forward-looking statements under federal securities
laws that involve risks and uncertainties. Actual results may differ
materially from those in the forward-looking statements depending on a number
of factors including, among other things, the risks, uncertainties and other
factors detailed in Item 1, "Business--Risk Factors."
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The Report of Independent Accountants and the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements of the Company
that are filed as part of this Report are listed under Item 14, "Exhibits,
Financial Statement Schedules, and Reports on Form 8-K" and are set forth on
pages 43 through 57 immediately following the signature page of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND DISCLOSURE
None.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- ---- ---------------------------------------------------------------------
<S> <C> <C>
Gary S. Kledzik, Ph.D...... 47 Chairman of the Board and Chief Executive Officer
Daniel R. Doiron, Ph.D..... 46 Director, Vice President of Technology and President of
PDT Systems, Inc.
David E. Mai .............. 52 Director, President of PDT, Inc., President of PDT
Pharmaceuticals, Inc. and President of PDT Cardiovascular, Inc.
John M. Philpott........... 36 Chief Financial Officer, Controller, Treasurer and Assistant Secretary
Charles T. Foscue.......... 48 Director
Michael D. Farney.......... 53 Director
Donald K. McGhan........... 63 Director
Raul E. Perez, M.D. ....... 47 Director
</TABLE>
GARY S. KLEDZIK, PH.D. is a founder of the Company and has served as a
director since its inception in June 1989. He served as President of the
Company from June of 1989 to May of 1996. He has been Chairman of the Board
of Directors since July 1991 and Chief Executive Officer since September
1992. Dr. Kledzik held the office of President of PDT Pharmaceuticals, Inc.
since its formation until July 1996. Prior to joining the Company, Dr.
Kledzik was Vice President of the Glenn Foundation for Medical Research. His
previous experience includes serving as General and Research Manager for an
Ortho Diagnostic Systems, Inc. division of Johnson & Johnson, Vice President
of Immulok, Inc. a cancer and infectious disease biotechnology company which
he co-founded and which was acquired by Johnson & Johnson in 1983, Laboratory
Director for Endocrine Sciences in Los Angeles and Adjunct Research Scientist
at the University of California at Los Angeles. Dr. Kledzik holds a B.S. in
Biology and a Ph.D. in Physiology from Michigan State University.
DANIEL R. DOIRON, PH.D. is a founder of the Company and has served as
Vice President of Technology or Chief Scientist and a director of the
Company, and as President of the PDT Systems, Inc. subsidiary, since the
Company's inception in June 1989. Dr. Doiron was the principal officer of
Laserguide, Inc., the custom laser, fiber optic and accessory firm which he
founded in January 1984 and which was acquired by the Company in August 1989.
Dr. Doiron's prior experience includes positions as Research Associate at
the Institute of Physics and Imaging Science at the University of Southern
California, Director of Photophysics Laboratory at Children's Hospital of Los
Angeles and Assistant Professor of Research at the USC School of Medicine.
He holds B.S. and M.S. degrees in Nuclear Engineering and a Ph.D. degree in
Chemical Engineering from the University of California at Santa Barbara.
DAVID E. MAI has served as President of the Company since May 1996,
President of PDT Cardiovascular, Inc. since September 1992 and President of
PDT Pharmaceuticals, Inc. since July 1996. Mr. Mai served as Vice President
of Corporate Development for the Company from March 1994 until May 1996. Mr.
Mai became associated with PDT, Inc. in July 1990 as a consultant assisting
with technology and business development. He joined the Company in 1991,
serving as New Product Program Manager from February 1991 to July 1992 and as
Clinical Research Manager from July 1992 to September 1992. Prior to joining
the Company, Mr. Mai was Director of the Intravascular Ultrasound Division of
Diasonics Corporation from 1988 to 1989. Previously, Mr. Mai served as
Director of Strategic Marketing for Boston Scientific Corporation's Advanced
Technologies Division, Vice President of Stanco Medical and Sales Engineer
with Hewlett-Packard
33
<PAGE>
Medical Electronics. Mr. Mai's early career in the hospital/clinical field
included positions as Manager of Cardiology Department and Clinical and
Research Associate in Cardiology at Fresno Community Hospital. Mr. Mai
received his cardiopulmonary training in the U.S. Navy and holds a B.S.
degree in Biology from the University of Hawaii.
JOHN M. PHILPOTT has served as Chief Financial Officer since December
1995. Since March 1995, Mr. Philpott has served as Controller for the
Company. Prior to joining the Company, Mr. Philpott was a Senior Manager
with Ernst & Young LLP, which he joined in 1986. Mr. Philpott was an
Assistant Controller with Corporate Events, Inc. from June 1985 until August
1986. Mr. Philpott is a Certified Public Accountant in the State of
California. He holds a B.A. degree in Accounting and in Management
Information Systems from California State University of Northridge.
MICHAEL D. FARNEY is a founder of the Company and has served as a
director since its inception in June 1989. He served as Chief Financial
Officer of the Company from inception until December 1995. Mr. Farney also
serves as a director, Chief Executive Officer, Chief Financial Officer,
Secretary and Treasurer of INAMED Corporation, Las Vegas, Nevada ("INAMED"),
which develops, manufactures and markets medical devices. He also serves as
Chief Financial Officer, Secretary and Treasurer of INAMED's wholly-owned
subsidiaries, including, BioEnterics Corporation, BioDermis Corporation,
Flowmatrix Corporation, McGhan Medical Corporation and Medisyn Technologies
Corporation. He has held his present position with INAMED since April 1987.
CHARLES T. FOSCUE has served as a director of the Company since July
1996. Mr. Foscue is a founder, Chairman, President and Chief Executive
Officer of HAI Financial, Inc. ("HAI") and has held those positions since the
inception of HAI in 1979 (previously known as Harmet Associates, Inc.). HAI
serves as a corporate financial consultant in the areas of mergers and
acquisitions, public and private financings, strategic planning and financial
analysis. HAI and Mr. Foscue have been advisors to the Company since 1991
and have been involved in the Company's private and public financings from
1991 to the present. Prior to founding HAI, Mr. Foscue was Vice President of
Marketing for Tri-Chem, Inc. Mr. Foscue holds a B.A. degree in Economics
from the University of North Carolina and an M.B.A. degree from Harvard
University, Graduate School of Business.
DONALD K. MCGHAN is a founder of the Company and has served as a
director since its inception in June 1989. He served as Chairman of the
Board prior to Dr. Kledzik's appointment in 1991. Mr. McGhan concurrently
serves as Chairman of the Board and President of INAMED. Previously, Mr.
McGhan was Founder, Chairman of the Board and Chief Executive Officer of
McGhan NuSil Corporation, acquired by Union Carbide Corporation in 1990. Mr.
McGhan has also served as Director of Operations for an Ortho Diagnostic
Systems, Inc. subsidiary of Johnson & Johnson and as a Founder, President
and Chairman of the Board of Immulok, Inc., which was acquired by Johnson &
Johnson in 1983.
RAUL E. PEREZ, M.D. has served as a director of the Company since
September 1992. Dr. Perez is a board certified obstetrician/gynecologist.
He has been in practice for thirteen years and currently practices at St.
John's Mercy Medical Center in St. Louis, Missouri, where he is also a member
of the Quality Assurance Committee. Dr. Perez is also a fellow of the
Academy of Obstetricians and Gynecologists. Dr. Perez completed his medical
education at the University of Baltimore and completed his internship and
residency in obstetrics and gynecology at St. John's Mercy Medical Center.
All directors hold office until the next annual meeting of shareholders
or until their successors have been elected and qualified. The officers of
the Company are appointed by, and serve at the discretion of, the Board of
Directors, subject to existing employment agreements with such officers.
34
<PAGE>
BOARD COMMITTEES
The Board has standing Audit and Compensation Committees. The Board does
not have a standing nominating committee or a committee performing similar
functions. Both the Audit Committee and the Compensation Committee function
independently of the Company's management. The current members of each of
the Board's committees are listed below.
THE AUDIT COMMITTEE. The Audit Committee, composed solely of outside
directors, meets periodically with the Company's independent accountants and
management to discuss, recommend and review accounting principles, financial
and accounting controls, the scope of the annual audit and other matters;
advises the Board on matters related to accounting and auditing; and reviews
management's selection of independent accountants. The current members of the
Audit Committee are Charles T. Foscue, Michael D. Farney, Donald K. McGhan
and Raul E. Perez, M.D.
THE COMPENSATION COMMITTEE. The Compensation Committee, composed solely
of non-employee directors, reviews and takes action regarding terms of
compensation, employment contracts and pension matters that concern officers
and key employees of the Company. The current members of the Compensation
Committee are Charles T. Foscue, Michael D. Farney, Donald K. McGhan and
Raul E. Perez, M.D.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors, executive officers, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership on Forms 3,
4 and 5 with the SEC and any national securities exchange on which the
Company's securities are listed. Directors, executive officers, and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, or written representations from certain reporting persons that no
Forms 5 were required for these persons, the Company believes that all its
directors, executive officers, and greater than ten percent shareholders
complied with all filing requirements applicable to them with respect to
transactions during 1996, except Gerald W. Yankie failed to file a timely
Form 4 with respect to the transfer of 2,500 shares to a family trust, which
also failed to file a timely Form 3 with respect to the same transfer.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's
Chief Executive Officer and to the Company's other most highly compensated
executive officers other than the Chief Executive Officer, whose total annual
salary exceeded $100,000 for services rendered in all capacities to the
Company during the fiscal years ended December 31, 1996, 1995 and 1994
(collectively, the "named executive officers").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- -------------
SECURITIES
UNDERLYING
OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# OF SHARES)
- -------------------------------------------------------- ---- --------- ------- -------------
<S> <C> <C> <C> <C>
Gary S. Kledzik........................................ 1996 $ 180,000 $ -- 5,000(1)
Chairman of the Board and Chief Executive Officer 1995 135,000 55,000(2) 200,000
1994 125,000 -- 7,500
Daniel R. Doiron....................................... 1996 144,000 5,000(1)
Director and Vice President of Technology 1995 122,000 -- 100,000
1994 110,500 -- 7,500
David E.Mai............................................ 1996 154,797 -- 5,000(1)
Director and President of PDT, Inc. 1995 118,000 -- 100,000
1994 104,000 -- 7,500
</TABLE>
(1) Represents options for 2,500 shares which were originally granted on
February 1, 1996 at an exercise price of $56.00, the closing price of
the Company's Common Stock on the Nasdaq National Market on the date of
grant, and, subsequently, were re-priced on December 31, 1996 to
$28.00, the closing price of the Common Stock on the Nasdaq National
Market on such date. The net result of this transaction was that a
total of 2,500 options granted to each named executive officer in 1996
was held by each such officer at December 31, 1996. The options vest
equally over a period of four years and expire upon the earlier of
(i) six months after termination of employment (or upon termination
if terminated for cause), or (ii) ten years from the date of grant.
(2) Dr. Kledzik was awarded a bonus of $55,000, with after tax net proceeds
of $33,000. The bonus was awarded with the explicit intent for the net
proceeds to be used to pay off Dr. Kledzik's outstanding note payable to
the Company of $33,000 which includes outstanding interest.
The following table sets forth certain information as of December 31,
1996 and the year then ended concerning stock options granted to the named
executive officers.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM
GRANTED DURING PRICE EXPIRATION --------------------------
NAME (# OF SHARES) THE YEAR ($/SHARE)(*) DATE 5% 10%
- ------------------------ ------------- -------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary S. Kledzik......... 5,000 (*) 1.54% $ 28.00 2/01/06 $ 246,091 $ 516,248
Daniel R. Doiron....... 5,000 (*) 1.54% 28.00 2/01/06 246,091 516,248
David E. Mai............. 5,000 (*) 1.54% 28.00 2/01/06 246,091 516,248
</TABLE>
* See Note 1 to Summary Compensation Table above.
36
<PAGE>
The following table sets forth information as to the stock options held
by the named executive officers at the end of 1996 and the value of the
options at that date based on the difference between the market price of the
stock and the exercise prices of the options. There were no exercises of
stock options during 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1996 YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
Gary S. Kledzik.......................... 559,688 59,062 $10,780,886 $ 136,864
Daniel R. Doiron........................ 164,688 84,062 3,590,636 136,864
David E. Mai............................. 194,688 84,062 4,413,011 136,864
</TABLE>
(1) Based on the difference between the closing price of the Common Stock
as reported on the Nasdaq National Market as of December 31, 1996 and
the exercise price of such options.
EMPLOYMENT AGREEMENTS
The Company and Dr. Kledzik are parties to an employment agreement
effective December 31, 1989, as amended (the "Employment Agreement"),
pursuant to which Dr. Kledzik serves as Chief Executive Officer for the
Company and its subsidiaries. The Employment Agreement provides for an
initial employment term of one (1) year, renewed for successive one-year
terms, unless Dr. Kledzik notifies the Company in writing at least 30 days in
advance of or the Company notifies Dr. Kledzik in writing 30 days before or
after the anniversary of the effective date. Under the terms of the
Employment Agreement, Dr. Kledzik is entitled to an annual salary as
determined by the Compensation Committee of the Board of Directors from time
to time. The current annual salary is $200,000. As of December 31, 1996, in
connection with the Employment Agreement, Dr. Kledzik has received options to
purchase a total of 674,466 shares of Common Stock at exercise prices ranging
from $0.03 to $2.00 per share with a weighted average price of $0.89 per
share. Additionally, from one of the Company's employee stock option plans,
Dr. Kledzik has received options to purchase 231,250 shares at exercise
prices ranging from $6.00 to $56.00 per share with a weighted average
exercise price of $31.71 per share. See Note 1 to Summary Compensation
Table. Options for 844,154 shares have vested, of which 284,466 have been
exercised. Options outstanding at December 31, 1996 vest ratably over four
years from the date of grant except for options covering 50,000 shares
originally granted as milestone options for which the vesting was fixed to be
vested as of December 31, 1997. Vesting of all of the stock options under the
Employment Agreement is contingent upon Dr. Kledzik's continued employment
with PDT, and all of the underlying Common Stock is covered by a repurchase
option in favor of the Company which expires four years after the grants of
the respective stock options. The Employment Agreement provides that Dr.
Kledzik shall perform his duties at 'the Company's designated facility in
Santa Barbara, California. If the Employment Agreement is terminated other
than at Dr. Kledzik's option or by the Company for cause, then the Company
shall pay Dr. Kledzik severance compensation in an amount equal to the
product of his monthly base salary multiplied by the greater of: (i) the
number of months remaining under the term of the Employment Agreement; or
(ii) six. If the Company terminates Dr. Kledzik's employment for cause or
Dr. Kledzik terminates his employment, he is not entitled to severance pay.
"Cause" is defined in the Employment Agreement to be personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of
any law, rule or regulation (other than minor traffic violations) or material
breach of any provision of the Employment Agreement or any other agreement
between Dr. Kledzik and the Company. In addition, in connection with the
execution of the Employment Agreement, Dr. Kledzik executed and delivered the
Company's standard form Intellectual Property and Confidentiality Agreement
providing for the assignment to the Company of inventions and intellectual
property
37
<PAGE>
created or enhanced during Dr. Kledzik's employment to and providing
for the protection of confidential information.
PDT Systems, Inc. and Dr. Doiron are parties to an employment agreement
effective August 1, 1992, as amended (the "Employment Agreement") pursuant to
which Dr. Doiron serves as President of PDT Systems, Inc. and Chief Scientist
of PDT, Inc. The Employment Agreement provides for an initial employment
term of one (1) year, renewed for successive one-year terms, unless Dr.
Doiron notifies PDT Systems, Inc. in writing at least 30 days in advance or
PDT Systems, Inc. notifies Dr. Doiron in writing 30 days before or after the
anniversary of the effective date. Under the terms of the Employment
Agreement, Dr. Doiron is entitled to an annual salary as determined by the
Company from time to time. The current annual salary is $158,000. As of
December 31, 1996, in connection with the Employment Agreement, Dr. Doiron
has received options to purchase a total of 329,466 shares of Common Stock at
exercise prices ranging from $0.03 to $2.00 per share with a weighted average
price of $0.61 per share. Additionally, from one of the Company's employee
stock option plans, Mr. Doiron has received options to purchase 131,250
shares at exercise prices ranging from $6.00 to $56.00 per share with a
weighted average exercise price of $29.39 per share. See Note 1 to Summary
Compensation Table. Options for 374,154 shares have vested, of which 209,466
have been exercised. The options generally vest ratably over four years from
the date of grant. The remaining terms and conditions of Dr. Doiron's
Employment Agreement are substantially identical to that between PDT, Inc.
and Dr. Kledzik.
The Company and Mr. Mai are parties to an employment agreement effective
February 1, 1991, as amended (the "Employment Agreement") pursuant to which
Mr. Mai serves as President of PDT, Inc., PDT Cardiovascular, Inc. and PDT,
Pharmaceuticals, Inc. The Employment Agreement provides for an initial
employment term of one (1) year, renewed for successive one-year terms,
unless Mr. Mai notifies the Company in writing at least 30 days in advance,
or the Company notifies Mr. Mai in writing 30 days before or after, January
1st of each year. Under the terms of the Employment Agreement, Mr. Mai is
entitled to an annual salary as determined by the Company from time to time.
The current annual salary is $178,200. As of December 31, 1996, in connection
with the Employment Agreement, Mr. Mai has received options to purchase a
total of 150,000 shares of Common Stock at exercise prices ranging from $0.67
to $2.00 per share with a weighted average price of $1.42 per share.
Additionally, from one of the Company's employee stock option plans, Mr. Mai
has received options to purchase 131,250 shares at exercise prices ranging
from $6.00 to $56.00 per share with a weighted average exercise price of
$29.39 per share. See Note 1 to Summary Compensation Table. Options for
194,688 shares have vested, of which none have been exercised. The options
generally vest ratably over four years from the date of grant. The remaining
terms and conditions of Mr. Mai's Employment Agreement are substantially
identical to those in Dr. Kledzik's agreement except that if the Employment
Agreement is terminated other than at Mr. Mai's option or by the Company for
cause, then the Company shall pay Mr. Mai severance compensation in an amount
equal to one week's salary for each six month employment period, beginning
six months after the effective date of the Employment Agreement.
COMPENSATION OF DIRECTORS
Employees of the Company do not receive any additional compensation for
serving the Company as members of the Board of Directors or any of its
Committees. Directors who are not employees of the Company do not receive
fees for Board Meetings attended but do receive an annual stock option grant
under the PDT, Inc. 1996 Stock Compensation Plan, as amended and restated
effective March 3, 1997 subject to stockholder approval at the 1997 Annual
Meeting of Stockholders (the "Plan"). The Plan provides for an automatic
grant of non-qualified stock options to purchase 7,500 shares of Common Stock
to non-employee directors on the first day of the fourth quarter of each year
that a non-employee director serves on the Board of Directors. Each stock
option vests upon the grant date. The options are granted at an option price
equal to the fair market value of the Company's Common Stock on the grant
date. Each stock option is subject to a repurchase option in favor of the
Company for some or all of the underlying shares, and such repurchase option
lapses at a rate of 20% per year over five years subsequent to the grant
date. The options terminate 90 days from the date on which a director is no
longer a member of the Board of Directors for any reason other than death,
ten years from the date of grant, or six months from the director's death.
Non-employee directors are also eligible for discretionary awards of
38
<PAGE>
stock options under the Plan. During the year ended December 31, 1996, the
following non-employee directors were awarded stock options under the
Non-Employee Directors' Stock Option Plan which will be terminated and
superseded by the Plan subject to stockholder approval of the Plan at the
1997 Annual Meeting. Charles T. Foscue, Michael D. Farney, Donald K. McGhan
and Raul E. Perez were each awarded a stock option to purchase 7,500 shares.
In addition, the Company also reimburses directors for out-of-pocket expenses
incurred in connection with attending Board and Committee Meetings.
COMPENSATION COMMITTEE INTERLOCKS
The members of the Company's Compensation and Audit Committees for
fiscal 1996 were Michael D. Farney, Donald K. McGhan, Raul E. Perez, M.D. and
Charles T. Foscue. Mr. Farney was the Chief Financial Officer for the
Company prior to the appointment of John M. Philpott in 1995, and Mr. McGhan
was Chairman of the Board prior to Dr. Kledzik's appointment in 1991. Mr.
Foscue is a founder, Chairman, President and Chief Executive Officer of HAI.
HAI and Mr. Foscue have been advisors to the Company since 1991 and have been
involved in the Company's private and public financings from 1991 to the
present. Additionally, HAI and Mr. Foscue acted as advisors to Ramus in
connection with the sale of Ramus' stock to the Company's subsidiary, PDTC.
See Item 1, "Business" and Item 13, "Certain Relationships and Related
Transaction."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 14, 1997 by (i) each
person known by the Company to own beneficially five percent or more of the
outstanding shares of its Common Stock, (ii) each of the named executive
officers, (iii) each director of the Company and (iv) all directors and
executive officers of the Company as a group.
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OF OUTSTANDING
NAME OWNED (1)(2) STOCK
- -------------------------------------- ------------ --------------
Daniel R. Doiron, Ph.D. (3)(4) 1,641,336 13.1%
Gary S. Kledzik, Ph.D. (3) 1,388,813 10.7
Donald K. McGhan (3)(5) 1,316,420 10.6
Paul F. Glenn (6) 827,160 6.7
Pharmacia & Upjohn, Inc. (7) 787,502 6.3
Michael D. Farney 472,500 3.8
David E. Mai 195,313 1.6
Raul E. Perez, M.D. 37,500 *
Charles T. Foscue 36,390 *
All directors and executive officers
as a group (8 persons) 5,103,897 38.0
- -------------
* Less than one percent.
(1) Each person has sole voting and investment power over the Common Stock
shown as beneficially owned, subject to community property laws where
applicable and the information contained in the footnotes below.
39
<PAGE>
(2) Includes the following shares of Common Stock issuable upon exercise
of options and/or warrants exercisable within 60 days of March 14, 1997:
Dr. Doiron--165,313 shares; Dr. Kledzik--560,313 shares;
Mr. McGhan--27,000 shares; Mr. Glenn--0 shares; Mr. Farney--37,500 shares;
Mr. Mai--195,313 shares; Dr. Perez--37,500 shares; Mr. Foscue 7,500
shares; and directors and officers as a group--1,046,064 shares.
(3) Dr. Doiron's and Dr. Kledzik's address is 7408 Hollister Avenue, Santa
Barbara, California 93117; Mr. McGhan's address is 3800 Howard Hughes
Parkway, Las Vegas, Nevada 89109.
(4) Includes 50,000 shares held in a Charitable Remainder Trust of which
Dr. Doiron is a trustee. Does not include 18,738 shares of Common Stock
held in trusts for Dr. Doiron's minor children as to which he disclaims
beneficial ownership.
(5) Includes 539,420 shares of Common Stock held by McGhan Management, a
Nevada Limited Par tnership, of which Mr. McGhan is the General Partner
and all other Limited Partners are members of his immediate family. Does
not include 10,500 shares held by a member of Mr. McGhan's immediate
family as to which he disclaims beneficial ownership.
(6) According to the Schedule 13G filings, Mr. Glenn's address is
P.O. Box 50310, Santa Barbara, California 93105.
(7) Includes warrants to purchase 62,501 shares of Common Stock. Pharmacia
& Upjohn is a Delaware corporation formed by the merger in November 1995
of Pharmacia AB of Sweden and The Upjohn Company of the United States,
according to a press release issued by Pharmacia & Upjohn on November 2,
1995. Each of Pharmacia AB and Pharmacia S.p.A., an Italian corporation
and wholly-owned subsidiary of Pharmacia AB, has filed a Schedule 13D
with the Securities and Exchange Commission dated July 7, 1995. According
to the Schedule 13D filings, the principal business address of
Pharmacia AB is S-171 97 Stockholm Sweden, and the principal business
address of Pharmacia S.p.A. is via Robert Hoch 1.2, 75017 Milan, Italy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company entered into the License Agreement, the Drug
Supply Agreement and the Device Supply Agreement with Pharmacia & Upjohn, the
beneficial owners of more than 5% of the Company's Common Stock. Concurrent
with entering into the License Agreement, Pharmacia & Upjohn entered into the
Stock Purchase Agreement pursuant to which Pharmacia & Upjohn purchased
600,000 shares of Common Stock from the Company for $12 million. In August
1994, the Company entered into a Formulation Agreement with Pharmacia &
Upjohn. For the year ended December 31, 1996, the Company paid $2.6 million
and recorded as expense $2.5 million in connection with the Formulation
Agreement. The Formulation Agreement requires the Company to pay an
additional $400,000 if certain milestones are achieved as well as paying for
the costs related to the development program being performed. See Item 1,
"Business--Strategic Collaborations" and Note 7 of Notes to Consolidated
Financial Statements.
Mr. Foscue, a director of the Company, is a founder, Chairman, President
and Chief Executive Officer of HAI which provides corporate financial
consulting services in the areas of mergers and acquisitions, public and
private financings, strategic planning and financial analysis. Both HAI and
Mr. Foscue have been advisors to the Company since 1991 and have been
involved in the Company's private and public financings from 1991 to the
present. For the year ended December 31, 1996, the Company paid HAI
$1,115,000 associated with the Company's secondary offering and paid HAI
$105,000 and recorded as expense $224,000 in connection with ongoing
consulting services. See Note 9 of Notes to Consolidated Financial
Statements. Additionally, Mr. Foscue and HAI acted as an advisor to Ramus
and HAI is entitled to be paid fees by Ramus' selling shareholders upon the
exercise of PDTC's option to
40
<PAGE>
purchase the remaining shares of Ramus. Ramus paid HAI $140,000 in 1996 as a
fee associated with PDTC's purchase of $2 million of Ramus stock. See Item
1, "Business--Strategic Collaborations" and Note 7 of Notes to Consolidated
Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SELECTED PAGE(S)
QUARTERLY FINANCIAL DATA:
Report of Independent Auditors 43
Consolidated Balance Sheets as of
December 31, 1996, and 1995 44
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994 45
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1996, 1995, and 1994 46
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 47
Notes to Consolidated Financial Statements 48
(a)(2) INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is given in the consolidated
financial statements or notes thereto.
(a)(3) INDEX TO EXHIBITS:
See Index to Exhibits on pages 58 to 59.
(b) REPORTS ON FORM 8-K:
None
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PDT, Inc.
/s/ Gary S. Kledzik, Ph.D.
------------------------------------------
Gary S. Kledzik, Ph.D., Chief Executive
Officer and Chairman of the Board
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Gary S. Kledzik, Ph.D. Chairman of the Board, Director, March 31, 1997
- -------------------------- and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/s/ David E. Mai Director and President March 31, 1997
- --------------------------
David E. Mai
/s/ John M. Philpott Chief Financial Officer and March 31, 1997
- -------------------------- Controller (Principal Financial
John M. Philpott Officer and Principal Accounting
Officer)
/s/ Daniel R. Doiron, Ph.D. Director and Vice President March 31, 1997
- -------------------------- of Technology
Daniel R. Doiron, Ph.D.
/s/ Michael D. Farney Director March 31, 1997
- --------------------------
Michael D. Farney
/s/ Donald K. McGhan Director March 31, 1997
- --------------------------
Donald K. McGhan
/s/ Raul E. Perez, M.D. Director March 31, 1997
- --------------------------
Raul E. Perez, M.D.
/s/ Charles T. Foscue Director March 31, 1997
- --------------------------
Charles T. Foscue
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
PDT, Inc.
We have audited the accompanying consolidated balance sheets of PDT, Inc. as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, 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 misstatements. 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 consolidated financial position of PDT, Inc. at
December 31, 1996 and 1995 and the consolidated 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.
ERNST & YOUNG LLP
Woodland Hills, California
February 5, 1997
43
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 31,498,000 $ 8,886,000
Investments in short term marketable securities...................................... 20,600,000 --
Accounts receivable.................................................................. 2,179,000 11,000
Inventory-finished goods............................................................. -- 10,000
Prepaid expenses and other current assets............................................ 390,000 385,000
-------------- ------------
Total current assets.................................................................. 54,667,000 9,292,000
Property, plant & equipment:
Vehicles......................... ................................................... 28,000 --
Furniture and fixtures............................................................... 943,000 336,000
Equipment............................................................................ 2,444,000 1,630,000
Leasehold improvements............................................................... 1,072,000 666,000
Capital lease equipment.............................................................. 184,000 184,000
-------------- ------------
4,671,000 2,816,000
Accumulated depreciation and amortization............................................ 1,806,000 1,210,000
-------------- ------------
2,865,000 1,606,000
Investment in affiliate............................................................... 2,000,000 --
Patents and other assets.............................................................. 354,000 361,000
-------------- ------------
Total assets.......................................................................... $ 59,886,000 $ 11,259,000
-------------- ------------
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 2,716,000 $ 2,468,000
Accrued payroll and expenses......................................................... 352,000 331,000
Current portion of long term obligations............................................. 42,000 51,000
Current portion of capital lease obligations......................................... 38,000 39,000
-------------- ------------
Total current liabilities............................................................. 3,148,000 2,889,000
Long term obligations, less current portion........................................... -- 47,000
Capital lease obligations, less current portion....................................... 21,000 63,000
Convertible notes payable............................................................. -- 93,000
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 12,337,876 and
10,401,358 shares issued and outstanding at December 31, 1996 and
December 31, 1995, respectively..................................................... 108,974,000 50,188,000
Deferred compensation................................................................ (1,612,000) (7,518,000)
Accumulated deficit.................................................................. (50,645,000) (34,503,000)
-------------- ------------
Total shareholders' equity............................................................ 56,717,000 8,167,000
-------------- ------------
Total liabilities and shareholders' equity........................................... $ 59,886,000 $ 11,259,000
-------------- ------------
-------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
44
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ -----------
Revenues:
Product sales......................... $ 5,000 $ 37,000 $ 28,000
Grants, licensing and royalty revenue. 3,593,000 484,000 102,000
------------ ------------ -----------
3,598,000 521,000 130,000
Cost and expenses:
Cost of goods sold.................... 5,000 67,000 81,000
Research and development.............. 15,715,000 8,802,000 6,963,000
Selling, general and administrative... 6,393,000 3,547,000 2,306,000
------------ ------------ -----------
Total costs and expenses............... 22,113,000 12,416,000 9,350,000
Loss from operations................... (18,515,000) (11,895,000) (9,220,000)
Interest income (expense):
Interest income....................... 2,407,000 338,000 74,000
Interest expense...................... (34,000) (153,000) (333,000)
------------ ------------ -----------
Total interest income (expense)........ 2,373,000 185,000 (259,000)
------------ ------------ -----------
Net loss............................... $(16,142,000) $(11,710,000) $(9,479,000)
------------ ------------ -----------
------------ ------------ -----------
Net loss per share..................... $ (1.37) $ (1.19) $ (1.04)
------------ ------------ -----------
------------ ------------ -----------
Shares used in computing net
loss per share........................ 11,786,429 9,861,212 9,115,926
------------ ------------ -----------
------------ ------------ -----------
SEE ACCOMPANYING NOTES.
45
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
RECEIVABLE
PREFERRED STOCK COMMON STOCK FROM DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT OFFICER COMPENSATION DEFICIT TOTAL
-------- --------- ---------- ------------ ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994. . . . . 375,000 $ 500,000 7,882,642 $15,854,000 $(25,000) $(1,467,000) $(13,314,000) $ 1,548,000
Issuance of stock and warrants at
$8.00 per share (net of
approximately $56,000 of
offering costs). . . . . . . . . - - 574,587 4,541,000 - - - 4,541,000
Exercise of stock options . . . . - - 1,088 4,000 - - - 4,000
Conversion of notes payable to
stock and warrants (net of
approximately $63,000 of debt
issuance costs) . . . . . . . . - - 294,624 2,490,000 - - - 2,490,000
Deferred compensation related to
stock options granted. . . . . . - - - 220,000 - (220,000) -
Amortization of deferred
compensation . . . . . . . . . . - - - - - 1,046,000 - 1,046,000
Net loss. . . . . . . . . . . . . - - - - - - (9,479,000) (9,479,000)
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
Balance at December 31, 1994. . . . 375,000 500,000 8,752,941 23,109,000 (25,000) (641,000) (22,793,000) 150,000
Issuance of stock at $10.67
per share (net of approximately
$1,105,000 of offering costs). . - - 525,000 4,496,000 - - - 4,496,000
Issuance of stock at $20.00
per share. . . . . . . . . . . . - - 600,000 12,000,000 - - - 12,000,000
Conversion of Preferred stock to
Common stock . . . . . . . . . . (375,000) (500,000) 375,000 500,000 - - - -
Exercise of stock options and
warrants . . . . . . . . . . . . - - 84,169 404,000 - - - 404,000
Conversion of notes payable
(net of approximately $7,000 of
debt issuance costs) . . . . . . - - 68,748 543,000 - - - 543,000
Repurchase of stock . . . . . . . - - (4,500) (27,000) - - - (27,000)
Repayment of note receivable from
officer. . . . . . . . . . . . . - - - - 25,000 - - 25,000
Deferred compensation related to
stock options and warrants
granted. . . . . . . . . . . . . - - - 9,163,000 - (9,163,000) - -
Amortization of deferred
compensation . . . . . . . . . . - - - - - 2,286,000 - 2,286,000
Net loss. . . . . . . . . . . . . - - - - - - (11,710,000) (11,710,000)
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
Balance at December 31, 1995. . . . - - 10,401,358 50,188,000 - (7,518,000) (34,503,000) 8,167,000
Issuance of stock at $48.00
per share (net of approximately
$6,733,000 of offering costs). . - - 1,500,000 65,267,000 - - - 65,267,000
Exercise of stock options and
warrants . . . . . . . . . . . . - - 563,456 1,010,000 - - - 1,010,000
Conversion of notes payable
(net of approximately $5,000 of
debt issuance costs) . . . . . . - - 11,562 87,000 - - - 87,000
Repurchase of stock . . . . . . . - - (138,500) (3,948,000) - - - (3,948,000)
Deferred compensation related to
stock options and warrants
granted. . . . . . . . . . . . . - - - (3,630,000) - 3,630,000 - -
Amortization of deferred
compensation . . . . . . . . . . - - - - - 2,276,000 - 2,276,000
Net loss. . . . . . . . . . . . . - - - - - - (16,142,000) (16,142,000)
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
Balance at December 31, 1996. . . . - $ - 12,337,876 $108,974,000 $ - $(1,612,000) $(50,645,000) $ 56,717,000
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
-------- --------- ---------- ------------ ---------- ----------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
46
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ................................................. $ (16,142,000) $(11,710,000)) $(9,479,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization........................... 615,000 602,000 553,000
Amortization of deferred compensation................... 2,276,000 2,286,000 1,046,000
Changes in operating assets and liabilities:
Accounts receivable................................... (2,168,000) -- 38,000
Inventories........................................... 10,000 14,000 101,000
Prepaid expenses and other assets..................... 34,000 (250,000) (77,000)
Accounts payable and accrued payroll and
expenses............................................. 269,000 1,257,000 (18,000)
------------- ------------ -----------
Net cash used in operating activities..................... (15,106,000) (7,801,000) (7,836,000)
INVESTING ACTIVITIES:
Purchases of marketable securities........................ (130,200,000) -- --
Sales of marketable securities............................ 109,600,000 -- --
Investment in affiliate................................... (2,000,000) -- --
Assets used in clinical trials............................ -- (528,000) --
Purchases of property, plant, and equipment............... (1,855,000) (10,000) (305,000)
Purchases of patents...................................... (51,000) (64,000) (50,000)
------------- ------------ -----------
Net cash used in investing activities..................... (24,506,000) (602,000) (355,000)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, less
issuance costs........................................... 66,271,000 16,866,000 4,678,000
Purchase of Common Stock.................................. (3,948,000) -- --
Proceeds from notes payable............................... -- 1,230,000 --
Payments of notes payable................................. -- (1,230,000) --
Payments of capital lease obligations..................... (43,000) (38,000) (28,000)
Proceeds from long term obligations....................... -- -- 26,000
Payments of long term obligations......................... (56,000) (47,000) (43,000)
Proceeds from line of credit.............................. -- 3,682,000 10,040,000
Payments of line of credit................................ -- (4,682,000) (9,978,000)
Repayment of officer note receivable...................... -- 25,000 --
------------- ------------ -----------
Net cash provided by financing activities................. 62,224,000 15,806,000 4,695,000
------------- ------------ -----------
Net increase (decrease) in cash and cash equivalents...... 22,612,000 7,403,000 (3,496,000)
Cash and cash equivalents at beginning of period.......... 8,886,000 1,483,000 4,979,000
------------- ------------ -----------
Cash and cash equivalents at end of period................ $ 31,498,000 $ 8,886,000 $ 1,483,000
------------- ------------ -----------
------------- ------------ -----------
SUPPLEMENTAL DISCLOSURES:
State taxes paid.......................................... $ 14,000 $ 8,000 $ 16,000
------------- ------------ -----------
------------- ------------ -----------
Interest paid............................................. $ 34,000 $ 213,000 $ 347,000
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
PDT, Inc. (the Company) is engaged in the development of drugs and
devices used in photodynamic therapy. The Company is located in Santa
Barbara, California. The Company has had limited sales of devices and its
customers are medical device companies, researchers, hospitals and
universities located throughout the world.
As of December 31, 1996, the Company had an accumulated deficit of $50.6
million and anticipates it will continue to incur losses for some time. The
Company is continuing its efforts in research and development and the
clinical trials of its products. These efforts, and obtaining requisite
regulatory approval, prior to commercialization, will require substantial
expenditures. While management of the Company believes that it has sufficient
resources to fund the required expenditures for the next few years and that
additional funding will be available when required, there is no assurance
that this will be the case.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results may differ from those estimates and
such differences may be material to the financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PDT, Inc.
and its wholly owned subsidiaries, PDT Systems, Inc., PDT Pharmaceuticals,
Inc., and PDT Cardiovascular, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
INVESTMENTS IN AFFILIATES
Investments in affiliates, owned more than 20 percent but not in excess
of 50 percent where the Company is not deemed to be able to exercise
controlling influence, are recorded on the equity method. In December 1996,
the Company purchased a 33% equity interest in Ramus Medical Technologies
("Ramus") of Carpinteria, California for $2,000,000. The investment
agreement contains an option to acquire the remaining shares or Ramus at some
time in the future under specified terms and conditions. In addition, the
Company is provided first refusal rights and preemptive rights for any
issuance of new securities, whether debt or equity, made by Ramus. The
Company's portion of Ramus' operations for 1996 is not significant to the
results of operations for the Company for the year ended December 31, 1996.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and are
carried at market value. Unrealized gains and losses are reported in
shareholders' equity. Realized gains and losses on investment transactions
are recognized when realized based on settlement dates and recorded as
interest income. Interest and dividends on securities are recognized when
earned. As of December 31, 1996, the market value approximates the cost of
the marketable securities and therefore there are no unrecognized gains or
losses reflected as a component of shareholders' equity. As of December 31,
1996, marketable securities consisted primarily of short-term interest
bearing obligations with domestic corporate issuers and collateralized by
U.S. Government securities.
48
<PAGE>
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation", encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB Opinion No. 25"). The
Company has awarded stock options that vest upon the achievement of certain
milestones. Under APB Opinion No. 25, such options are accounted for as
variable stock options. As such, until the milestone is achieved (but only
after it is determined to be probable), deferred compensation is recorded in
an amount equal to the difference between the fair market value of the Common
Stock on the date of determination less the option exercise price and is
adjusted from period to period to reflect changes in the market value of the
Common Stock. Deferred compensation, as it relates to a particular milestone,
is amortized over the period between when achievement of the milestone
becomes probable and when the milestone is estimated to be achieved.
Amortization of deferred compensation could result in significant
compensation expense being recorded in future periods based on the market
value of the Common Stock from period to period.
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or market.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. The acquisition
of technology rights for research and development projects and the value of
equipment for specific research and development projects are also included in
research and development expenses.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment is stated at cost with depreciation provided over the
estimated useful lives of the respective assets on the straight-line basis
and on the double-declining method. Leasehold improvements are stated at cost
with amortization provided on the straight-line basis. The estimated useful
lives of the assets are as follows:
Furniture and fixtures 5 years
Equipment 3 - 5 years
Leasehold improvements 5 years or the remaining life of the
lease term, whichever is shorter
PATENTS AND OTHER ASSETS
Costs of acquiring patents are capitalized and amortized on the
straight-line basis over the estimated useful life of the patents, seventeen
years. Accumulated amortization was $48,000 and $30,000 at December 31, 1996
and 1995, respectively. The costs of servicing the Company's patents are
expensed as incurred. Also included in this caption are deposits and other
miscellaneous non-current assets.
REVENUE RECOGNITION
The Company recognizes revenues from product sales at the time of
shipment to the customer. Grant, royalty and licensing income is recognized
based on the terms of the related agreements and includes the reimbursement
of clinical costs.
49
<PAGE>
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive, except that, pursuant to Securities and Exchange Commission
Staff Accounting Bulletins and Staff policy, common and common equivalent
shares issued during the twelve-month period prior to the initial public
offering at prices substantially below the public offering price are presumed
to have been issued in contemplation of the public offering and have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method). The net loss per share also
gives effect to the automatic conversion of all outstanding shares of
convertible preferred stock into common stock upon the closing of the
Company's initial public offering using the if-converted method.
On May 23, 1995 and July 14, 1995, the Company's Board of Directors and
shareholders, respectively, approved a three-for-two split of the Company's
Common Stock for shareholders of record on July 24, 1995. All outstanding
options, rights and convertible securities that include provisions for
adjustments in the number of shares held thereby, and the exercise or
conversion price thereof, as a result of the stock split have been adjusted.
Share data included in the consolidated financial statements and notes
reflects the effect of the stock split for all periods presented.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
2. CREDIT ARRANGEMENTS
On July 30, 1992, the Company entered into a $1,000,000 line of credit
agreement with a bank, with a variable rate of interest based on the bank's
lending rate (7.8% as of December 31, 1996). The weighted average interest
rates for the year ended December 31, 1995 was 8.25%. The Company did not
utilize the line of credit during 1996. The line of credit expires on January
31, 1997 and has been subsequently renewed through January 31, 1998 with
similar terms and conditions. The line of credit is collateralized by the
Company's cash balances. The credit agreement subjects the Company to certain
customary restrictions including a prohibition on the payment of dividends.
In conjunction with the Company's building lease agreement, the Company
received two tenant improvement allowances totaling $215,000. The tenant
improvement allowances must be repaid over the term of the lease and have
fixed interest rates of 10% and 8.5%, respectively. The total outstanding
balance of the tenant improvement allowances was $42,000 and $98,000 at
December 31, 1996 and 1995, respectively.
3. SHAREHOLDERS' EQUITY
In April 1996, the Company completed a secondary public offering in
which it sold 1,500,000 shares of Common Stock at $48 per share. The
offering provided net proceeds to the Company of approximately $65.3 million.
In July 1996, the Company's Board of Directors authorized the purchase
of up to 600,000 shares of the Company's Common Stock. During 1996, the
Company repurchased 138,500 shares at a cost of $3,948,000 under this
repurchase program. As of December 31, 1996, all shares repurchased were
retired.
STOCK OPTION PLANS
The Company has five stock-based compensation plans which are described
below - the 1989 Plan, the 1992 Plan, the 1994 Plan, ( the "Existing Plans")
the PDT, Inc. 1996 Stock Compensation Plan (the "1996 Plan") and the
Non-Employee Directors Stock Option Plan. As disclosed in Note 1, the
Company applies APB Opinion
50
<PAGE>
No. 25 and related interpretations in accounting for its plans. The Company
records deferred compensation for the excess of the fair value of Common
Stock over the exercise price of stock options. With respect to variable
stock options granted, deferred compensation is recorded when the likelihood
of the achievement of the specified milestone is considered probable.
The Existing Plans provide for the grant of both incentive stock options
and non-statutory stock options. Stock options were granted under these plans
to certain employees and corporate officers. The purchase price of
incentive stock options must equal or exceed the fair market value of the
Common Stock at the grant date and the purchase price of non-statutory stock
options may be less than fair market value of the Common Stock at grant date.
Effective July 21, 1996, the Existing Plans were superseded with the adoption
of the 1996 Plan except to the extent of options outstanding in the Existing
Plans. The Company has allocated 300,000 shares, 750,000 shares and 600,000
shares for the 1989 Plan, the 1992 Plan and the 1994 Plan, respectively.
Included in the outstanding options under the 1992 Plan are options for the
purchase of 427,500 shares at $34.75 per share which originally were variable
options that vested upon the achievement of certain milestones.
Subsequently, these variable options were adjusted to change the vesting
period to a specific date as discussed further. As of December 31, 1996,
milestone options covering 227,500 shares have vested and the remaining
unvested shares will vest in the years 1997 through 2000. The remaining
outstanding shares granted under the Existing Plans vest in equal annual
installments over four years beginning one year from the grant date and
expire ten years from the original grant date.
The 1996 Plan provides for awards which include incentive stock options,
non-qualified stock options, restricted shares, stock appreciation rights,
performance shares, stock payments and dividend equivalent rights. Included
in the 1996 Plan is a stock purchase program for which the commencement has
been deferred pending further evaluation. Officers, key employees, employee
directors and independent contractors or agents of the Company may be
eligible to participate in the 1996 Plan, except that incentive stock options
may only be granted to employees of the Company. The 1996 Plan supersedes and
replaces the Existing Plans except to the extent of options outstanding in
the Existing Plans. The purchase price for awards granted from the 1996 Plan
may not be less than the fair market value at the date of grant. The maximum
amount of shares that could be awarded under the 1996 Plan over its term is
3,500,000 shares. Awards granted under the 1996 Plan expire on the date
determined by the Plan Administrators as evidenced by the award agreement but
shall not expire later than ten years from the date the award is granted
except for grants of restricted shares which expire at the end of a specified
period if the specified service or performance conditions have not been met.
In 1992, the Company established the Non-Employee Directors' Stock
Option Plan under which grants of non-qualified stock options are made to the
Company's non-employee directors. The plan provides for an automatic annual
grant of an option for the purchase of 7,500 shares at fair market value on
the first day of the fourth quarter of each year to be made to each
non-employee director. The options vest on the grant date and expire ten
years from the date of grant or within 90 days of termination of the
individual's directorship.
As of December 31, 1995, the Company had nonvested variable stock
options with an exercise price of $34.75 per share covering 427,500 shares of
Common Stock of which deferred compensation has been recorded for 347,500
shares. The Company recorded deferred compensation of $8,074,000 with
respect to variable stock options, the vesting of which (due to the
likelihood of achievement of specified milestones) was considered to be
probable. Of this amount, $1,247,000 and $687,000 was amortized in the years
ended December 31, 1995 and 1994, respectively, with the remaining amount to
be amortized over future periods. Effective June 21, 1996, the Compensation
Committee of the Board of Directors adjusted the future vesting periods of
the variable stock options granted in 1995 under the 1992 Plan covering
400,000 shares of Common Stock. The remaining options covering 27,500 shares
were not adjusted due to milestones being attained. These variable stock
options were adjusted to change the vesting periods to specific dates as
opposed to the original vesting periods which were based upon the achievement
of milestones; no change was made to the exercise prices of these variable
stock options. This change in the vesting periods provides for the options to
be accounted for as non-variable options and therefore alleviates the impact
of deferred compensation and the related expense fluctuating in future
periods based on the changes in the per share market value from period to
period. For the year ended December 31, 1996,
51
<PAGE>
the Company recorded deferred compensation expense of $767,000 and a
reduction in deferred compensation of $3,652,000 for 1996 with respect to
variable milestone options. As of December 31, 1996, options covering
227,500 shares with an exercise price of $34.75 per share have vested. The
remaining unvested shares will vest in the years 1997 through 2000.
Additionally, during the years ended December 31, 1996, 1995 and 1994,
the Company recorded deferred compensation with respect to certain of the
Common Stock options which had been granted at less than the estimated fair
value. Deferred compensation recorded is amortized ratably over the period
that the options vest to the option holder. This resulted in compensation
expense of $378,000, $348,000 and $359,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
OTHER STOCK OPTIONS
In connection with employment agreements the Company has with its
executives and certain key employees, nonqualified stock options have been
granted to purchase shares of Common Stock. The options generally become
exercisable in equal installments over four years beginning one year from the
grant date and expire ten years from the original grant date.
On December 15, 1989, the Company granted to an outside investor an
option to purchase 375,000 shares of Common Stock at $1.33 per share. The
option was exercised in January 1996.
Prior to the Company's initial public offering, 79,769 options were
issued to various selling agents of the Company and 16,500 options were
granted in connection with consulting agreements.
The following table summarizes all stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE STOCK
PER SHARE PRICE OPTIONS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1994..... $ 0.33 - 8.00 $2.24 1,878,634
Granted........................... 4.00 - 6.00 7.02 281,342
Exercised......................... 4.00 4.00 (1,088)
Cancelled......................... 6.00 6.00 (3,000)
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1994... 0.33 - 8.00 2.83 2,155,888
Granted........................... 10.67 - 40.25 32.54 513,500
Exercised......................... 0.67 - 8.00 2.63 (62,331)
Cancelled......................... 0.67 - 8.00 6.24 (43,687)
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1995... 0.33 - 40.25 8.74 2,563,370
Granted........................... 24.375 - 56.00 36.58 355,040
Exercised......................... 0.33 - 8.00 1.58 (545,062)
Cancelled......................... 6.00 - 56.00 49.83 (114,918)
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1996 $ 0.33 - 52.25 $12.76 2,258,430
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Exercisable at:
December 31, 1994.................. $ 0.33 - 8.00 $1.94 1,281,267
December 31, 1995.................. 0.33 - 40.25 2.72 1,647,754
December 31, 1996.................. 0.33 - 40.25 8.39 1,629,469
</TABLE>
In accordance with APB Opinion No. 25 and in connection with accounting
for the Company's stock-based compensation plans, the Company recorded total
stock compensation expense of $1.1 million, $1.6 million and $1.0 million for
the years ended December 31, 1996, 1995 and 1994, respectively, with respect
to the variable stock options and options granted at less than fair value
described previously. If the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date for its
stock-based
52
<PAGE>
compensation plans consistent with the method of SFAS No. 123, the Company's
net income and loss per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
----------------------------------------------------------------------------
Net Loss
As Reported......................... $ (16,172,000) $ (11,710,000)
Pro forma........................... $ (22,940,000) $ (13,365,000)
Loss per share
As Reported......................... $ ( 1.37) $ (1.19)
Pro forma........................... $ ( 1.95) $ (1.36)
----------------------------------------------------------------------------
The fair value of each option grant was estimated using the Black-Scholes
option pricing model using the Multiple Option approach whereby a separate
fair value is computed for each vesting increment of an option. The following
assumptions were used:
1996 1995
----------------------------------------------------------------------------
Expected dividend yield.............. 0% 0%
Expected stock price volatility...... 50% 50%
Risk-free interest rate.............. 6.01% - 6.41% 5.23% - 5.58%
Expected life of options............. 2 - 4 years 2 - 4 years
The above assumptions are highly subjective, in particular the expected
stock price volatility of the underlying stock. Because changes in these
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not provide a reliable single
measure of the fair value of its stock options.
Additionally, the weighted average remaining contractual life of options
outstanding at December 31, 1996 and 1995 was 6.9 years and 6.8 years,
respectively.
WARRANTS
In connection with a private placement offering which commenced in 1993
and continued through 1994, the Company issued one detachable Common Stock
warrant for every two shares of Common Stock purchased. Each half warrant was
allocated $0.67 of the overall $8.00 per share purchase price. In 1994 and
1993, the Company issued detachable stock warrants in connection with the
private placement offering of 287,294 and 242,247, respectively. Each
detachable stock warrant provides for the purchase of one share of Common
Stock at $8.00 per share with the warrants expiring in February 1998.
Warrants to purchase 13,190 and 7,751 shares of Common Stock were exercised
during 1996 and 1995, respectively.
During 1994 and 1993, the Company issued warrants to private placement
selling agents and a corporate partner to purchase 7,216 shares and 148,449
shares of Common Stock, respectively. Each warrant provides for the purchase
of one share of Common Stock at $8.00 per share with the warrants expiring
February 1998. As of December 31, 1996, no warrants have been exercised.
In January 1995, the Company, in connection with a loan received from a
principal of its designated selling agent, issued warrants to purchase 15,000
shares of the Company's Common Stock at $10.67 per share. The warrants expire
February 1998. As of December 31, 1996, no warrants have been exercised.
In April 1995, the Company, in connection with consulting agreements,
issued warrants to purchase 750,000 shares of Common Stock at $10.67 per
share to various consultants. These warrants vest equally over the term of
the agreement, generally three years. Additionally, in November 1995, the
Company, in connection with consulting agreements, issued warrants to
purchase 55,000 shares of Common Stock to different consultants. These
warrants vest equally over the term of the agreement, generally between one
and three years. The consulting
53
<PAGE>
agreements can be terminated by the Company at any time with only those
warrants vested as of the date of termination exercisable. The warrants
expire five years after the date of issuance. As of December 31, 1996, no
warrants have been exercised. In 1995, the Company recorded deferred
compensation associated with the value of these warrants of $3,215,000. The
Company recorded compensation expense of $1,129,000 and $693,000 for the
years ended December 31, 1996 and 1995, respectively.
4. CONVERTIBLE NOTES PAYABLE
During 1993, the Company issued $3,000,000 in convertible notes payable.
The notes earn interest at 10% per year which is payable quarterly (beginning
September 30, 1993) and the principal balance is due three years from the
date of issuance. The principal balance is due to be paid on the due date or
can be converted into shares of Common Stock at a price of $8.00 per share.
In December 1994, the holders of $2,357,000 in principal amount of
convertible notes exchanged their notes for shares of Common Stock at $8.00
per share for 294,624 shares of Common Stock. The conversion also provided
the noteholders with one warrant for every two shares of Common Stock
converted for total warrants covering 147,312 shares of Common Stock. The
warrants provide for the purchase of one share of Common Stock at $8.00 per
share and expire February 1998. During 1995, warrants to purchase 14,062
shares of Common Stock were exercised and noteholders converted an additional
$550,000 in principal amount of notes for 68,748 shares of Common Stock at
$8.00 per share. During 1996, holders of the remaining $93,000 in principal
amount of convertible notes exchanged their notes for 11,562 shares of Common
Stock at $8.00 per share and warrants to purchase 5,204 shares of Common
Stock were exercised.
5. RETIREMENT SAVINGS PLAN
The Company has available a retirement savings plan for all eligible
employees who have completed three months and 500 hours of service and who
are at least 21 years of age. The plan has received Internal Revenue Service
approval under Section 401(a) of the Internal Revenue Code. Participating
employees are 100% vested upon entering the plan and no matching contribution
is made by the Company.
6. PROVISION FOR INCOME TAXES
The deferred income tax assets and liabilities consist of differences
between the financial statements and tax basis of assets and liabilities, and
is measured at the current enacted tax rates. The temporary differences
related to the following as of December 31:
1996 1995
----------------------------------------------
Current Non-current Current Non-current
----------------------------------------------
Deferred tax assets:
Uniform capitalization..... $ 2,000 $ -- $ 3,000 $ --
Other accruals and
reserves.................. 91,000 -- 81,000 --
Capitalized research and
development............... -- 1,461,000 -- --
Net operating losses and
tax credits............... -- 20,346,000 -- 12,484,000
----------------------------------------------
Total deferred tax assets... 93,000 21,807,000 84,000 12,484,000
Deferred tax liabilities:
Amortization and
depreciation expense...... -- 413,000 16,000 --
Federal benefit for
state income taxes........ 7,000 1,169,000 -- 636,000
----------------------------------------------
Total deferred tax
liabilities................ 7,000 1,582,000 16,000 636,000
----------------------------------------------
Net deferred tax assets..... 86,000 20,225,000 68,000 11,848,000
Less valuation reserve...... 86,000 20,225,000 68,000 11,848,000
----------------------------------------------
$ -- $ -- $ -- $ --
----------------------------------------------
----------------------------------------------
54
<PAGE>
The Company has net operating loss carryforwards for federal tax purposes
of $49.5 million which expire in the years 2002 to 2011. Research and
alternative minimum tax credit carryforwards aggregating $2.3 million which
are available for federal and state tax purposes. These credits expire in the
years 2002 to 2011. The Company also has a state net operating loss
carryforward of $12.9 million which expires in the years 1997 to 2001. Under
Section 382 of the Internal Revenue Code, the utilization of the net
operating loss carryforwards may be limited based on changes in the
percentage of ownership in the Company.
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with various parties to perform
research and development and conduct clinical trials on behalf of the
Company. For the research and development agreements, the Company has the
right to use and license, patent and commercialize any products resulting
from these agreements. In connection with these clinical trial agreements,
the Company has recorded as research and development costs of $1,575,279,
$465,000, and $402,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1996, the Company has future obligations of
$148,750 of which $58,750 is due in 1997. The Company has also entered into
licensing and OEM agreements to develop, manufacture and market drugs and
devices for photodynamic therapy and other related uses. The agreements
provide for the Company to receive or pay royalties at various rates. The
Company has recorded royalty revenues of $73,000, $39,000 and $7,000 for the
years ended December 31, 1996, 1995 and 1994 , respectively.
In 1993, the Company entered into two separate strategic development
letter agreements each of which provide for the co-development of medical
catheters for use in certain photodynamic therapy applications and the option
to negotiate a long-term license to market these devices. Reimbursements for
preclinical funding of $27,000 and $60,000 were received in 1996 and 1995,
respectively, and no reimbursements were received in 1994.
In 1994, the Company entered into a development and commercial supply
agreement with a related party to receive formulation and packaging services
for one of the Company's drugs at specified prices. For the years ended
December 31, 1996 and 1995, respectively, the Company paid $2,596,000 and
$830,000 and recorded as expense $2,505,000 and $1,685,000 primarily for drug
development cost. For the year ended December 31, 1994, the Company paid and
recorded as expense $600,000. The agreement requires the Company to pay an
additional $400,000 if certain milestones are achieved.
In July 1995, the Company entered into an exclusive development and
licensing agreement with Pharmacia & Upjohn, a related party, for the
Company's leading proprietary photoreactive drug. Under this agreement, the
Company is entitled to receive funding for certain preclinical development
and clinical trial costs, payments upon the achievement of certain milestones
and royalties upon the commercial sale of drug products. In September 1995,
the Company signed two supply contracts with the same related party which
support the license agreement. The first agreement specifies the terms under
which the Company will supply drug product for the ongoing clinical
development and through to the commercial marketplace. Under the second
agreement, the Company will manufacture and supply medical light devices for
use with the drug product. For the year ended December 31, 1996, the Company
recorded license revenues of $2.9 million related to the commencement of the
billing for the reimbursement of clinical costs related to the Pharmacia &
Upjohn license agreement of which $2.0 million is included in accounts
receivable. In July 1996, the Company amended the license agreement to
include an additional disease field and in December 1996, entered into an
additional supply contract for devices under the new field. Terms of the
amendment to the license agreement and the new supply contract are similar to
existing agreements.
Certain of the Company's research has been or is being funded in part by
Small Business Innovation Research or National Institutes of Health grants.
As a result of such funding, the United States Government has or will have
certain rights in the technology developed which includes a non-exclusive,
worldwide license under such inventions of any governmental purpose and the
right to require the Company to grant an exclusive license under any of such
intentions to a third party based on certain criteria. For the years ended
December 31, 1996, 1995 and 1994, the Company has recorded income from grants
of $550,000, $385,000 and $95,000, respectively.
55
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The Company is involved in certain claims and inquiries that are routine
to its business. Legal proceedings tend to be unpredictable and costly.
Based on currently available information, management believes that the
resolution of pending claims, regulatory inquiries, and legal proceedings
will not have a material adverse effect on the Company's operating results,
financial position or liquidity position.
8. LEASES
The Company leases three buildings for a total monthly rental of
$63,800. One of the leases expires in October 1997 and may be renewed for
three years thereafter. Each of the other two leases expire August 1999 and
may also be renewed for three years thereafter. The leases provide for annual
rental increases based upon a Consumer Price Index.
Beginning in 1993, the Company entered into capital lease agreements for
various research equipment. The leases are from one to five years and require
equal monthly payments of principal and interest, with interest ranging from
10% to 14%. Amortization expense related to this capitalized leased equipment
is included as depreciation expense. Accumulated amortization was $91,000 and
$54,000 at December 31, 1996 and 1995, respectively. In connection with the
leases, noncash fixed asset acquisitions were $75,000 and $47,000 for the
years ended December 31, 1995 and 1994, respectively. There were no noncash
fixed asset acquisitions made in 1996.
Future minimum lease payments as of December 31, 1996 are as follows:
Operating Lease Capital Leases
--------------- --------------
1997................................ $ 768,000 $ 46,000
1998................................ 581,000 18,000
1999................................ 386,000 --
2000................................ 1,000 --
2001................................ -- --
------------- ------------
Total minimum lease payments........ $ 1,736,000 64,000
-------------
Less amounts representing interest.. (5,000)
------------
Present value of lease payments..... $ 59,000
------------
------------
Rent expense was $504,000, $216,000 and $207,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
9. RELATED PARTY TRANSACTIONS
A director of the Company is a founder, Chairman, President and Chief
Executive Officer of a company which provides corporate financial consulting
services in the areas of mergers and acquisitions, public and private
financings, strategic planning and financial analysis. Both the consulting
company and the director have been advisors to the Company since 1991 and
have been involved in the Company's private and public financings from 1991
to the present. The consulting company was paid $45,800 in connection with
the Company's initial public offering in 1995 and $1,115,000 in connection
with the Company's secondary offering in 1996. The Company recorded as
expense $224,000 and $53,000 for the years ended December 31, 1996 and 1995,
respectively, in connection with ongoing consulting services provided by the
company.
In July, 1996, a partner in a law firm used by the Company for outside
legal counsel, was elected by the Board of Directors to serve as Secretary of
the Company. The Company paid $131,000 in connection with legal services for
the Company's initial public offering in 1995 and $57,000 in connection with
the Company's secondary offering in 1996. In connection with general legal
services provided by the law firm, the Company recorded as expense $116,000,
$191,000 and $18,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
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10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is information concerning the fair value of each class of
financial instrument at December 31, 1996:
CASH, CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND MARKETABLE SECURITIES
The carrying amounts of cash, cash equivalents, accounts receivable and
marketable equity securities approximate their fair values. Fair values of
cash equivalents and marketable securities are based on quoted market prices.
LONG TERM OBLIGATIONS
The carrying amount of long term obligations approximate their fair
values due to the short remaining term of maturity of these obligations.
57
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INDEX TO EXHIBITS
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------- ----------- ---------------
3.1 Certificate of Amendment of the Restated Certificate of [C][3.11]
Incorporation of the Registrant filed with the Delaware
Secretary of State on July 24, 1995.
3.2 Restated Certificate of Incorporation of the Registrant [B][3.1]
filed with the Delaware Secretary of State on December
14, 1994.
3.3 Certificate of Amendment of the Certificate of [A][3.2]
Incorporation of the Registrant filed with the Delaware
Secretary of State on March 17, 1994.
3.4 Certificate of Amendment of the Certificate of [A][3.3]
Incorporation of the Registrant filed with the Delaware
Secretary of State on October 7, 1992.
3.5 Certificate of Amendment of the Certificate of [A][3.4]
Incorporation of the Registrant filed with the Delaware
Secretary of State on November 21, 1991.
3.6 Certificate of Amendment of the Certificate of [A][3.5]
Incorporation of the Registrant filed with the Delaware
Secretary of State on September 27, 1991.
3.7 Certificate of Amendment of the Certificate of [A][3.6]
Incorporation of the Registrant filed with the Delaware
Secretary of State on December 20, 1989.
3.8 Certificate of Amendment of the Certificate of [A][3.7]
Incorporation of the Registrant filed with the Delaware
Secretary of State on August 11, 1989.
3.9 Certificate of Amendment of the Certificate of [A][3.8]
Incorporation of the Registrant filed with the Delaware
Secretary of State on July 13, 1989.
3.10 Certificate of Incorporation of the Registrant filed with [A][3.9]
the Delaware Secretary of State on June 16, 1989.
3.11 Amended and Restated Bylaws of the Registrant. [G][3.11]
4.1 Specimen Certificate of Common Stock. [B][4.1]
4.2 Form of Convertible Promissory Note. [A][4.3]
4.3 Form of Indenture. [A][4.4}
4.4 Special Registration Rights Undertaking. [A][4.5]
4.5 Undertaking Agreement dated August 31, 1994. [A][4.6]
4.6 Letter Agreement dated March 10, 1994. [A][4.7]
4.7 Form of $10,000,000 Common Stock and Warrants Offering [A][4.8]
Investment Agreement.
10.1@ Amendment dated as of March 20, 1996 to Development and [D][10.1]
License Agreement, Product Supply Agreement and Device
Supply Agreement between Registrant and Pharmacia, S.p.A.
10.2@ Development and Distribution Agreement between Registrant [F][10.1]
and Iridex Corporation.
10.3# Commercial Lease Agreement between Registrant and Santa [F][10.2]
Barbara Business Park, a California Limited Partnership.
10.4 PDT, Inc. Stock Compensation Plan.* [E]
10.5@ Ophthalmology Amendment to Development and License [G][10.2]
Agreement between Registrant and Pharmacia & Upjohn
S.p.A. and Pharmacia & Upjohn AB.
10.6 Forms of Loan Program including Loan Program Agreement, [G][10.3]
Loan Program Summary Description and Employee Loan
Promissory Note.
10.7 Form of Amendment No. 3 to 1989 Stock Option Agreement.* [G][10.4]
10.8 Form of Incentive Stock Option Agreement.*
10.9 Form of Non-Qualified Stock Option Agreement.*
10.10 Form of Restricted Share Agreement.*
10.11 Form of Stock Rights Agreement.*
10.12 Amendment No. 4 to Employment Agreement dated as of May 17,
1996 between the Registrant and Gary S. Kledzik.*
58
<PAGE>
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------- ----------- ---------------
10.13 Amendment No. 8 to Employment Agreement dated as of
May 17, 1996 between the Registrant and David E. Mai.*
10.14 Amendment No. 9 to Employment Agreement dated as of
July 17, 1996 between the Registrant and David E. Mai.*
10.15 Amendment No. 1 to Employment Agreement dated as of
December 25, 1995 between the Registrant and John M.
Philpott.*
10.16+ Investment Agreement dated December 27, 1996 between PDT
Cardiovascular, Inc. and Ramus Medical Technologies.
10.17 Co-Development Agreement dated December 27, 1996 between
PDT Cardiovascular, Inc. and Ramus Medical Technologies.
10.18+ Series A Preferred Stock Registration Rights Agreement
dated December 27, 1996 between PDT Cardiovascular, Inc.
and Ramus Medical Technologies.
10.19+ Option to Purchase Ramus Medical Technologies dated
December 27, 1996.
10.20+ Amendment dated as of December 16, 1996 to Product
Supply Agreement between Registrant and Pharmacia &
Upjohn S.p.A. and Pharmacia & Upjohn AB.
10.21+ SnET2 Device Supply Agreement for Ophthalmology dated as
of December 20, 1996 between Registrant and Pharmacia &
Upjohn AB.
11.1 Statement regarding computation of net loss per share.
27.1 Financial Data Schedule.
__________________________
[A] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Registration
Statement on Form S-1 (File No. 33-87138).
[B] Incorporated by reference from the exhibit referred to in
brackets contained in Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-87138).
[C] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the
quarter ended June 30, 1995, as amended on Form 10-Q/A
dated December 6, 1995 (File No. 0-25544).
[D] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the
quarter ended March 31, 1996 (File No. 0-25544).
[E] Incorporated by reference from the Registrant's 1996
Definitive Proxy Statement filed June 18, 1996
[F] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the
quarter ended June 30, 1996 (File No. 0-25544).
[G] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-25544).
@ Filed subject to confidential treatment application
granted by the Commission. Confidential portions of this
Exhibit have been omitted (by redacting-out such material).
# The material has been filed separately on paper pursuant
to a request granted by the Commission for a continuing
hardship exemption from filing electronically.
+ Filed subject to confidential treatment. Confidential
portions of this exhibit have been omitted (by
redacting-out such material).
* Management contract or compensatory plan or arrangement.
59
<PAGE>
EXHIBIT 10.8
PDT, INC.
STOCK COMPENSATION PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION (THE "OPTION") is made and entered into at
Santa Barbara, California, on the date hereinafter set forth by and between PDT,
INC., a Delaware corporation, hereinafter called the "COMPANY", and the person
whose name is set forth on the signature page hereof, hereinafter called the
"OPTIONEE", who is an officer, key employee or employee director of the Company
or one of its subsidiaries.
WHEREAS:
A. The Board of Directors of the Company (THE "BOARD") adopted on May 17,
1996, with subsequent stockholder approval, the PDT, Inc. 1996 Stock
Compensation Plan (THE "PLAN");
B. The Plan provides for the granting of Incentive Stock Options ("ISOS")
by a committee to be appointed by the Board (THE "PLAN ADMINISTRATORS") to key
employees of the Company or any subsidiary of the Company to purchase shares of
the Common Stock of the Company, par value $0.01 (THE "STOCK"), in accordance
with the terms and provisions of the Plan; and
C. The Plan Administrators consider the Optionee to be a person who is
eligible for a grant of compensatory options under the Plan and have determined
that it would be in the best interest of the Company to grant an ISO as
documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of the Plan
and as hereinafter set forth, the Company, with the approval and at the
direction of the Plan Administrators, hereby grants to the Optionee, as of the
Date of Grant set forth on the signature page hereof, an option to purchase up
to the number of shares of Stock set forth on the signature page hereof at a
price per share set forth on the signature page hereof which shall be determined
pursuant to Section 12 hereof (THE "FAIR MARKET VALUE), provided however, if at
the time the Option is granted the Optionee owns or would be considered to own
by reason of the Internal Revenue Code of 1986, as amended (THE "CODE"), Section
424(d) more than 10% of the total combined voting power of all classes of stock
of the Company or its subsidiaries, the purchase price of the shares covered by
the Option shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the Date of Grant. Such ISO is hereinafter referred to as the
"OPTION" and the shares of stock purchasable upon exercise of the Option are
hereinafter referred to as the "OPTION SHARES." The Option is intended by the
parties hereto to be, and shall be treated as, an option qualified as an
incentive stock option, as such term is defined under Code Section 422.
INCENTIVE STOCK OPTION
PDT, INC. STOCK COMPENSATION PLAN
Page-1-
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2. INSTALLMENT EXERCISE OF OPTION. Subject to such further limitations
as set forth in the Plan and as are provided herein, the Option shall vest in
installments as set forth on the signature page hereof. Employment with the
Company is a condition of the vesting of this Option.
3. EXERCISE OF OPTIONS.
(a). The Optionee may exercise the Option with respect to all or any
part of the number of Option Shares then vested and exercisable hereunder by
properly completing and delivering to the Company at its principal office an
exercise form prescribed by the Plan Administrators and attached hereto as
Exhibit 1, specifying the number of Options Shares as to which the Option is to
be exercised and the date of exercise thereof. No ISO may be exercised for a
fraction of a share of Stock.
(b). The purchase price of the Option Shares purchased shall be paid
in full, along with any applicable federal, state and local taxes due, in cash
or by certified cashier's check payable to the order of the Company or, with
prior written consent of the Plan Administrators, by shares of Stock or by the
surrender of all or part of an Award (including the ISO being exercised), or in
other property, rights or credits deemed acceptable by the Plan Administrators
or, if permitted by the Plan Administrators, by a combination of the foregoing,
at the time of exercise of the ISO. If any portion of the purchase price is
paid in shares of Stock, those shares shall be tendered at their then Fair
Market Value as determined by the Plan Administrators in accordance with Article
I, Section 22 of the Plan. Payment in shares of Stock includes the automatic
application of shares of Stock received upon the exercise of an ISO or other
option or Award to satisfy the exercise price for additional ISOs.
(c). On the exercise date specified in the Optionee's notice or as
soon as thereafter practicable, the Company shall cause to be delivered to the
Optionee, a certificate or certificates for the Option Shares then being
purchased upon full payment for such Option Shares. Provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it, with reasonable diligence, to comply with any requirements of
any state or federal agency or any securities exchange.
(d). The obligation of the Company to deliver Stock hereunder shall
be subject to the condition that, if at any time the Plan Administrators
determine in their sole discretion that the listing, registration or
qualification of the Option or the Option Shares 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 of, or in connection
with, the Option or the issuance or purchase of the Option Shares thereunder,
the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Plan Administrators.
(e). If the Optionee fails to pay for any of the Option Shares
specified in such notice of exercise or fails to accept delivery thereof, the
Optionee's right to purchase such Option Shares may be terminated by the
Company. The date specified in the Optionee's notice as the date of exercise
shall be deemed the date of exercise of the Option, provided that payment in
full for the Option Shares to be purchased upon such exercise shall have been
received by such date.
4. TERMINATION OF OPTION. Except as herein otherwise stated, this
Option, to the extent not theretofore exercised, shall terminate forthwith on
the earliest of the following:
Page-2-
<PAGE>
(a). If the Optionee ceases to be employed by the Company or any
subsidiary for any reason other than death or disability, the Option shall
immediately terminate and be of no further force and effect, provided, however,
that the Plan Administrators may, in their sole discretion, allow the Option to
be exercised, to the extent exercisable on the date of termination of
employment, at any time within three (3) months after the date of termination,
but in no event later than the expiration date specified under subparagraph (d)
hereof; provided further, however, that all vesting of the Option ceases at the
date of termination and if the Optionee is terminated "for cause", the Option
will terminate immediately upon the date of termination.
(b). If the Optionee becomes disabled within the meaning of Code
422(e)(3) while employed by the Company or any subsidiary, the Plan
Administrators, in their sole discretion, may allow the Option to be exercised,
to the extent exercisable on the date of termination of employment, at any time
within one (1) year after the date of the termination of employment due to
disability, but in no event later than the expiration date specified under
subparagraph (d) hereof.
(c). If the Optionee dies while employed by the Company or any
subsidiary, or within three (3) months after ceasing to be an employee thereof,
the Option shall expire one (1) year after the date of death, but in no event
later than the expiration date specified in subparagraph (d) hereof. During the
one (1) year period, the Option may be exercised, to the extent that it remains
unexercised on the date of death, by the person or persons whom the Optionee's
rights under the Option shall pass by will or by laws of descent and
distribution and pursuant to Article I, Section 19 of the Plan, but only to the
extent that the Optionee is entitled to exercise the Option at the time of
death.
(d) Ten (10) years from the Date of Grant, provided, however, if at
the time the Option is granted, the Optionee owns or would be considered to own
by reason of Code Section 424(d) more than 10% of the total combined voting
power of all classes of stock of the Company or its subsidiaries, the Option
shall expire not more than five (5) years from the Date of Grant.
5. ADJUSTMENTS. If the outstanding shares of Stock are increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split or other similar corporate transaction or event,
then: (i) the number and kind of shares which may thereafter be delivered in
connection with the Option; and (ii) the exercise price, grant price or purchase
price relating to the Option shall be proportionately and equitably adjusted by
the Plan Administrators, provided, however, that no such adjustment shall give
the Optionee any additional benefits under the Option. Any such adjustment made
by the Plan Administrators will be final and binding.
6. CHANGE OF CONTROL. If a Change of Control (as defined below) occurs
prior to vesting or settlement of the Option, then from and after the
Acceleration Date (as defined below), all outstanding and unexercised Options
shall be exercisable in full, whether or not otherwise exercisable and
certificates representing such Option Shares shall be delivered to the Optionee
no later than the fifth day following the Acceleration Date.
As defined herein, "CHANGE OF CONTROL" shall mean the occurrence of any of
the following: (i) any "person" or "group" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities and
Page-3-
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company,
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a company owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the total combined voting power represented by the
Company's then outstanding voting securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors who either were directors at the
beginning of the two-year period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; (iii) any Reorganization as defined below; or (iv) the stockholders of
the Company adopt a plan of complete liquidation of the Company.
The term "REORGANIZATION" as used herein shall mean: (i) the approval by
the stockholders of the Company of any statutory merger, consolidation or share
exchange to which the Company is a party as a result of which the persons who
were stockholders of the Company immediately prior to the effective date of such
Reorganization shall have beneficial ownership of less than fifty percent (50%)
of the total combined voting power in the election of directors of the surviving
corporation following the effective date of such Reorganization; or (ii) the
approval by stockholders of an agreement for the sale or disposition by the
Company of all or substantially all of the assets of the Company.
For purposes of this definition of Reorganization, the term "sale or
disposition by the Company of all or substantially all of the assets of the
Company" shall mean a sale or other disposition transaction or series of related
transactions involving assets of the Company or any subsidiary thereof
(including the stock of any direct or indirect subsidiary of the Company) in
which the value of the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefor or by such other method as
the Board of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter defined).
For purposes of the preceding sentence, the "fair market value of the Company"
shall be the aggregate market value of the outstanding shares of Stock (on a
fully diluted basis) plus the aggregate market value of the Company's other
outstanding equity securities. The aggregate market value of the shares of
Stock shall be determined by multiplying the number of shares of Stock (on a
fully diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series of related
transactions (the "Transaction Date") by the average closing price of the shares
of Stock for the ten (10) trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity securities of the Company
shall be determined in a manner similar to that prescribed in the immediately
preceding sentence for determining the aggregate market value of the shares of
Stock or by such other method as the Board shall determine is appropriate.
As defined herein, "ACCELERATION DATE" shall mean the earliest date on
which any of the following events shall have first occurred: (i) the acquisition
described in clause (i) of the definition of Change of Control above; (ii) the
change in the composition of the Board of Directors of the Company described in
clause (ii) above; or (iii) the stockholder approval or adoption described in
clauses (iii) and (iv) above.
Page-4-
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7. TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
only the Optionee (or such Optionee's legal representative) may exercise the
Option; provided, however, that the Plan Administrators may, in their sole
discretion, permit transfers of the Option for estate planning purposes if and
to the extent such transfers do not (a) cause the Optionee to lose the benefit
of the exemption under Rule 16b-3 relating to such Awards or (b) violate other
rules or regulations of the Securities and Exchange Commission (THE "SEC") or
the Internal Revenue Service or (c) materially increase the cost of the
Company's compliance with such rules or regulations, including but not limited
to, any additional registration statements that the Company would be required to
file with the SEC if such transfer were allowed. The Option may not be sold,
pledged, assigned, transferred in any manner (except as provided above or
elsewhere herein), exchanged or otherwise encumbered or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
and any attempt to do so shall be of no effect.
8. RIGHTS PRIOR TO EXERCISE OF OPTION. The Optionee shall have none of
the rights or privileges of a stockholder of the Company in respect of the
Option or any Option Shares issuable pursuant to the Option until certificates
representing the Option Shares have been issued and delivered. No Option Shares
shall be required to be issued and delivered upon any exercise of the Option
unless and until all of the requirements of law and of all regulatory agencies
having jurisdiction over the issuance and delivery of the securities shall have
been fully complied with.
9. COMPLIANCE WITH SECURITIES LAWS. Shares of Stock shall not be
issued with respect to the Option, unless the exercise of the Option and the
issuance and delivery of the Option Shares pursuant thereto shall comply with
all applicable provisions of foreign, state and federal law including, without
limitation, the Securities Act of 1933, as amended, and the Exchange Act, and
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which shares of Stock may then be listed. The Plan
Administrators may require the Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restriction imposed by law, legend, condition or
otherwise, that the Option Shares are being purchased only for investment and
without any present intention to sell or distribute the Option Shares in
violation of any state or federal law, rule or regulation, if required by the
Company. Further, the Optionee shall consent to the imposition of a legend on
the Option Shares issued under the Option and the imposition of stop-transfer
instructions restricting their transferability as may be required by the Plan
Administrators in their discretion to ensure compliance with such laws.
10. DISQUALIFYING DISPOSITIONS. If the Optionee make a disposition,
within the meaning of Code Section 424 (c), of an Option Shares issued upon the
exercise of the Option within two (2) years after the Date of Grant hereof or
within one (1) year after the Option Shares are issued to the Optionee pursuant
to the exercise of the Option, the Optionee shall notify the Plan Administrators
within ten (10) days of such disposition. The Plan Administrators may cause an
appropriate legend to be affixed to any stock certificates for such Option
Shares to enable the Company to receive notice of such disposition.
11. CONTINUED EMPLOYMENT. Nothing in the Plan or in the Option granted
hereunder shall confer upon any Optionee any right to continued employment by,
or service to, the Company or its subsidiaries or limit in any way the right of
the Company or its subsidiaries at any time to terminate or alter the terms of
that employment or service agreement. In the discretion of the Plan
Administrators, the Optionee may also be required to agree to non-competition,
non-disclosure, non-
Page-5-
<PAGE>
solicitation or any other terms or provisions not inconsistent with the Plan in
consideration of the grant of the Option.
12. FAIR MARKET VALUE. As used herein, "FAIR MARKET VALUE" shall be
determined by the Plan Administrators on the basis of such factors as they deem
appropriate; provided, however, that Fair Market Value on any day shall be
deemed to be, if the Common Stock is traded on a national securities exchange or
the Nasdaq National Market, the closing price (or, if no reported sale takes
place on such day, the arithmetic mean of the reported bid and asked prices) of
the Common Stock on such day on the principal such exchange or market, or, if
the stock is reported on the composite tape, the closing price as reported on
the composite tape. In each case, the Plan Administrators' determination of
Fair Market Value in accordance with the Code shall be conclusive.
13. WITHHOLDING. The grant or exercise of the Option or the sale and
issuance of any Option Shares to be purchased under the Option are subject to
the condition that if, at any time, the Company shall determine in its sole
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in connection with, such grant or exercise or the delivery or
purchase of shares pursuant thereto, then in such event, the grant or exercise
of the Option or the sale and issuance of any Option Shares to be purchased
shall not be effective unless such withholding shall have been effected or
obtained in a manner acceptable to the Company. At the Plan Administrator's
sole and complete discretion, the Company may, from time to time unilaterally
withhold or voluntarily accept shares of Stock already issued to the Optionee
and/or stock subject to an Award as defined in the Plan as the source of payment
for such liabilities.
14. BINDING EFFECT; AMENDMENT. The Option shall be binding upon the
heirs, executors, administrators and successors of the parties hereto. The
Option may be amended by the Plan Administrators at any time (i) if the Plan
Administrators determine, in their sole discretion, that amendment is necessary
or advisable in the light of any addition to or change in the Code or in the
regulations issued thereunder, or any federal or state securities law or other
law or regulation, which change occurs after the Date of Grant and by its terms
applies to the Option; or (ii) other than in the circumstances described in
clause (i) above, with the written consent of the Optionee.
15. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, to the
Company's and the Optionee's addresses as set forth on the signature page
hereof.
16. INCORPORATION OF PLAN BY REFERENCE. The Option is granted pursuant
to the terms of the PDT, Inc. 1996 Stock Compensation Plan, the terms of which
are incorporated herein by reference and the Option shall, in all respects, be
interpreted in accordance with the Plan. A copy of the Plan has been given to
the Optionee and the Optionee agrees to be bound by the Plan. The Plan
Administrators shall interpret and construe the Plan and the Option, and their
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder. In case of any conflict in the
terms of the Plan, or between the Plan and the Option agreement, the provisions
in Article II of the Plan shall control those in a different Article and the
provisions of the Plan shall control those in the Option agreement.
Page-6-
<PAGE>
17. CHOICE OF LAW AND VENUE. The Option, Plan and all related documents
shall be governed by, and construed in accordance with, the laws of the State of
California (except to the extent the provisions of Delaware corporate law may be
applicable). Acceptance of the Option shall be deemed to constitute consent to
the jurisdiction and venue of the Superior Court of Santa Barbara County,
California and the United States District Court of the Central District of
California for all purposes in connection with any suit, action or other
proceeding relating to such Option, including the enforcement of any rights
under the Plan or any agreement or other document, and shall be deemed to
constitute consent to any process or notice of motion in connection with such
proceeding being served by certified or registered mail or personal service
within or without the State of California, provided a reasonable time for
appearance is allowed.
SIGNATURES ON NEXT PAGE
Page-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute this Incentive Stock Option Agreement and the Optionee has placed his or
her signature hereon, effective as of the Date of Grant.
- --------------------------------------------------------------------------------
THE OPTION: OPTION #IS ____
- --------------------------------------------------------------------------------
DATE OF GRANT: OPTIONEE:
- ---------------- --------------------------------------------------
NUMBER OF OPTION SHARES: OPTION PRICE PER SHARE:
- ---------------- --------------------------------------------------
VESTING:
- ----------------------------------------------------------------------------
THE "COMPANY"
PDT, INC.
BY: _________________________________________
GARY S. KLEDZIK, PH.D.
TITLE C.E.O. & CHAIRMAN
ADDRESS: 7408 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
805/685-9880
ACCEPTED AND AGREED TO:
THE "OPTIONEE"
SIGNATURE: _________________________________________
PRINTED NAME: ___________________________________
ADDRESS: _________________________________________
_________________________________________
SOCIAL SECURITY #: __________________________________
Page-8-
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE OF STOCK OPTION
Page-9-
<PAGE>
PDT, INC.
NOTICE OF EXERCISE OF STOCK OPTION
- --------------------------------------------------------------------------------
SECTION 1: PERSONAL DATA:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Name: ________________________________________
2. SSN: ________________________________________
3. Address for stock record: _____________________________
_____________________________
4. Phone extension: ______________
5. Company: ________________________________________
- --------------------------------------------------------------------------------
SECTION II: STATEMENT OF INTENT TO EXERCISE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. I WOULD LIKE TO EXERCISE THE FOLLOWING SHARES OF PDT, INC. COMMON STOCK:
----------------------------------------------------------------------
OPTION PLAN OPTION # DATE OF GRANT OPTION PRICE # OF SHARES
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION III: PAYMENT OF PURCHASE PRICE AND TAXES:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. I UNDERSTAND THAT FOR NON-QUALIFIED STOCK OPTION EXERCISES I AM REQUIRED TO
PAY WITHHOLDING TAXES ON THE GAIN AS MEASURED BY THE DIFFERENCE BETWEEN THE
OPTION EXERCISE PRICE AND THE FAIR MARKET VALUE OF THE SHARES ON THE DATE
OF EXERCISE.
CHECK ONE:
___ I WILL SUBMIT TO PDT, INC. A CASHIERS CHECK IN PAYMENT.
___ I WILL WIRE FUNDS TO PDT, INC. IN PAYMENT.
___ I AUTHORIZE MY STOCK BROKER TO WIRE FUNDS TO PDT, INC. ON MY BEHALF OUT OF
THE NET PROCEEDS FROM THE SAME-DAY-SALE TRANSACTION FOR THE OPTION PRICE
AND APPLICABLE TAXES OWED. COMPLETE AND ATTACH THE COMPANY'S SECURITIES
TRADING REPORT FORM.
BROKERS NAME ____________________________________
FIRM ____________________________________
ADDRESS ____________________________________
PHONE/FAX ____________________________________
- --------------------------------------------------------------------------------
SECTION IV: ADMINISTRATIVE INSTRUCTIONS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. IF THIS TRANSACTION IS NOT A SAME-DAY-SALE:
CHECK ONE:
___ ISSUE STOCK IN MY NAME INDIVIDUALLY.
___ ISSUE STOCK IN MY NAME AND _________________________________ AS JOINT
TENANTS OR TENANTS IN COMMON
(PLEASE CIRCLE THE CORRECT CHOICE).
ISSUE CERTIFICATES AS FOLLOWS: ___ CERTIFICATES FOR ________________ SHARES
___ CERTIFICATES FOR ________________ SHARES
MAILING ADDRESS IF DIFFERENT THAN STOCK RECORD ADDRESS:____________________
____________________
- --------------------------------------------------------------------------------
9. SIGNATURE: _____________________________ DATE:___________
VERIFIED BY: ___________________________ DATE:___________
Page-10-
<PAGE>
EXHIBIT 10.9
PDT, INC.
STOCK COMPENSATION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION (THE "OPTION") is made and entered into at
Santa Barbara, California, on the date hereinafter set forth by and between PDT,
INC., a Delaware corporation, hereinafter called the "COMPANY", and the person
whose name is set forth on the signature page hereof, hereinafter called the
"OPTIONEE", who is an officer, key employee, employee director, independent
contractor or agent of the Company or one of its subsidiaries.
WHEREAS:
A. The Board of Directors of the Company (THE "BOARD") adopted on May 17,
1996, with subsequent stockholder approval, the PDT, Inc. 1996 Stock
Compensation Plan (THE "PLAN");
B. The Plan provides for the granting of Nonqualified Stock Options
("NQSOs") by a committee to be appointed by the Board (THE "PLAN
ADMINISTRATORS") to officers, key employees, employee directors, independent
contractors or agents of the Company or any subsidiary of the Company to
purchase shares of the Common Stock of the Company, par value $0.01 (THE
"STOCK"), in accordance with the terms and provisions of the Plan; and
C. The Plan Administrators consider the Optionee to be a person who is
eligible for a grant of compensatory options under the Plan and have determined
that it would be in the best interest of the Company to grant a NQSO as
documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of the Plan
and as hereinafter set forth, the Company, with the approval and at the
direction of the Plan Administrators, hereby grants to the Optionee, as of the
Date of Grant set forth on the signature page hereof, an option to purchase up
to the number of shares of Stock set forth on the signature page hereof at a
price per share set forth on the signature page hereof which shall be determined
pursuant to Section 11 hereof (THE "FAIR MARKET VALUE"). Such NQSO is
hereinafter referred to as the "OPTION" and the shares of stock purchasable upon
exercise of the Option are hereinafter referred to as the "OPTION SHARES". The
Option is not intended by the parties hereto to be, or to be treated as, an
incentive stock option, as such term is defined under Section 422 of the
Internal Revenue Code of 1986.
NONQUALIFIED STOCK OPTION
PDT, INC. STOCK COMPENSATION PLAN
Page-1-
<PAGE>
2. INSTALLMENT EXERCISE OF OPTION. Subject to such further limitations
as set forth in the Plan and as are provided herein, the Option shall vest in
installments as set forth on the signature page hereof. Employment with or
continued service for the Company is a condition of the vesting of this Option.
3. EXERCISE OF OPTIONS.
(a). The Optionee may exercise the Option with respect to all or any
part of the number of Option Shares then vested and exercisable hereunder by
properly completing and delivering to the Company at its principal office an
exercise form prescribed by the Plan Administrators and attached hereto as
Exhibit 1, specifying the number of Options Shares as to which the Option is to
be exercised and the date of exercise thereof. No NQSO may be exercised for a
fraction of a share of Stock.
(b). The purchase price of the Option Shares purchased shall be paid
in full, along with any applicable federal, state and local taxes due, in cash
or by certified cashier's check payable to the order of the Company or, with
prior written consent of the Plan Administrators, by shares of Stock or by the
surrender of all or part of an Award (including the NQSO being exercised), or in
other property, rights or credits deemed acceptable by the Plan Administrators
or, if permitted by the Plan Administrators, by a combination of the foregoing,
at the time of exercise of the NQSO. If any portion of the purchase price is
paid in shares of Stock, those shares shall be tendered at their then Fair
Market Value as determined by the Plan Administrators in accordance with Section
22 of Article I of the Plan. Payment in shares of Stock includes the automatic
application of shares of Stock received upon the exercise of an NQSO or other
option or Award to satisfy the exercise price for additional NQSOs.
(c). On the exercise date specified in the Optionee's notice or as
soon as thereafter practicable, the Company shall cause to be delivered to the
Optionee, a certificate or certificates for the Option Shares then being
purchased upon full payment for such Option Shares. Provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it, with reasonable diligence, to comply with any requirements of
any state or federal agency or any securities exchange.
(d). The obligation of the Company to deliver Stock hereunder shall
be subject to the condition that, if at any time the Plan Administrators
determine in their sole discretion that the listing, registration or
qualification of the Option or the Option Shares 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 of, or in connection
with, the Option or the issuance or purchase of the Option Shares thereunder,
the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Plan Administrators.
(e). If the Optionee fails to pay for any of the Option Shares
specified in such notice of exercise or fails to accept delivery thereof, the
Optionee's right to purchase such Option Shares may be terminated by the
Company. The date specified in the Optionee's notice as the date of exercise
shall be deemed the date of exercise of the Option, provided that payment in
full for the Option Shares to be purchased upon such exercise shall have been
received by such date.
Page-2-
<PAGE>
4. TERMINATION OF OPTION. Except as herein otherwise stated, this
Option, to the extent not theretofore exercised, shall terminate forthwith on
the earliest of the following:
(a). If the Optionee ceases to be employed by, or provide services
to, the Company or any subsidiary for any reason other than death or disability,
the Option shall immediately terminate and be of no further force and effect,
provided, however, that the Plan Administrators may, in their sole discretion,
allow the Option to be exercised, to the extent exercisable on the date of
termination, at any time within three (3) months after the date of termination
of employment, but in no event later than the expiration date specified under
subparagraph (d) hereof; provided further, however, that all vesting of the
Option ceases at the date of termination, and if the Optionee is terminated "for
cause", the Option will terminate immediately upon the date of termination.
(b). If the Optionee becomes disabled within the meaning of Code
Section 422(e)(3) while employed by the Company or any subsidiary, the Plan
Administrators, in their sole discertion, may allow the Option to be exercised,
to the extent exercisable on the date of termination of employment, at any time
within one (1) year after the date of th termination of employment due to
disability, but in no event later than the expiration date specified under
subparagraph (d) hereof.
(c). If the Optionee dies while employed by the Company or any
subsidiary, or within three (3) months after ceasing to be an employee thereof,
the Option shall expire one (1) year after the date of death, but in no event
later than the expiration date specified in subparagraph (d) hereof. During the
one (1) year period, the Option may be exercised, to the extent that it remains
unexercised on the date of death, by the person or persons whom the Optionee's
rights under the Option shall pass by will or by laws of descent and
distribution and pursuant to Article I, Section 19 of the Plan, but only to the
extent that the Optionee is entitled to exercise the Option at the time of
death.
(d) Ten (10) years from the Date of Grant.
5. ADJUSTMENTS. If the outstanding shares of Stock are increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split or other similar corporate transaction or event,
then: (i) the number and kind of shares which may thereafter be delivered in
connection with the Option; and (ii) the exercise price, grant price or purchase
price relating to the Option shall be proportionately and equitably adjusted by
the Plan Administrators, provided, however, that no such adjustment shall give
the Optionee any additional benefits under the Option. Any such adjustment made
by the Plan Administrators will be final and binding.
6. CHANGE OF CONTROL. If a Change of Control (as defined below) occurs
prior to vesting or settlement of the Option, then from and after the
Acceleration Date (as defined below), all outstanding and unexercised Options
shall be exercisable in full, whether or not otherwise exercisable and
certificates representing such Option Shares shall be delivered to the Optionee
no later than the fifth day following the Acceleration Date.
As defined herein, "CHANGE OF CONTROL" shall mean the occurrence of any of
the following: (i) any "person" or "group" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company, a trustee or other
Page-3-
<PAGE>
fiduciary holding securities under an employee benefit plan of the Company or a
company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% or more of the total combined voting power represented by the Company's then
outstanding voting securities; or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board and
any new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in clause
(i), (iii) or (iv) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors who either were directors at the
beginning of the two-year period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; (iii) any Reorganization as defined below; or (iv) the stockholders of
the Company adopt a plan of complete liquidation of the Company.
The term "REORGANIZATION" as used herein shall mean: (i) the approval by
the stockholders of the Company of any statutory merger, consolidation or share
exchange to which the Company is a party as a result of which the persons who
were stockholders of the Company immediately prior to the effective date of such
Reorganization shall have beneficial ownership of less than fifty percent (50%)
of the total combined voting power in the election of directors of the surviving
corporation following the effective date of such Reorganization; or (ii) the
approval by stockholders of an agreement for the sale or disposition by the
Company of all or substantially all of the assets of the Company.
For purposes of this definition of Reorganization, the term "sale or
disposition by the Company of all or substantially all of the assets of the
Company" shall mean a sale or other disposition transaction or series of related
transactions involving assets of the Company or any subsidiary thereof
(including the stock of any direct or indirect subsidiary of the Company) in
which the value of the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefor or by such other method as
the Board of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter defined).
For purposes of the preceding sentence, the "fair market value of the Company"
shall be the aggregate market value of the outstanding shares of Stock (on a
fully diluted basis) plus the aggregate market value of the Company's other
outstanding equity securities. The aggregate market value of the shares of
Stock shall be determined by multiplying the number of shares of Stock (on a
fully diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series of related
transactions (THE "TRANSACTION DATE") by the average closing price of the Stock
for the ten (10) trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of the Company shall be
determined in a manner similar to that prescribed in the immediately preceding
sentence for determining the aggregate market value of the shares of Stock or by
such other method as the Board shall determine is appropriate.
As defined herein, "ACCELERATION DATE" shall mean the earliest date on
which any of the following events shall have first occurred: (i) the acquisition
described in clause (i) of the definition of Change of Control above; (ii) the
change in the composition of the Board of Directors of the Company described in
clause (ii) above; or (iii) the stockholder approval or adoption described in
clauses (iii) and (iv) above.
Page-4-
<PAGE>
7. TRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
only the Optionee (or such Optionee's legal representative) may exercise the
Option; provided, however, that the Plan Administrators may, in their sole
discretion, permit transfers of the Option for estate planning purposes if and
to the extent such transfers do not (a) cause the Optionee to lose the benefit
of the exemption under Rule 16b-3 relating to such Awards or (b) violate other
rules or regulations of the Securities and Exchange Commission (THE "SEC") or
the Internal Revenue Service or (c) materially increase the cost of the
Company's compliance with such rules or regulations, including but not limited
to, any additional registration statements that the Company would be required to
file with the SEC if such transfer were allowed. The Option may not be sold,
pledged, assigned, transferred in any manner (except as provided above or
elsewhere herein), exchanged or otherwise encumbered or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
and any attempt to do so shall be of no effect.
8. RIGHTS PRIOR TO EXERCISE OF OPTION. The Optionee shall have none of
the rights or privileges of a stockholder of the Company in respect of the
Option or any Option Shares issuable pursuant to the Option until certificates
representing the Option Shares have been issued and delivered. No Option Shares
shall be required to be issued and delivered upon any exercise of the Option
unless and until all of the requirements of law and of all regulatory agencies
having jurisdiction over the issuance and delivery of the securities shall have
been fully complied with.
9. COMPLIANCE WITH SECURITIES LAWS. Shares of Stock shall not be
issued with respect to the Option, unless the exercise of the Option and the
issuance and delivery of the Option Shares pursuant thereto shall comply with
all applicable provisions of foreign, state and federal law including, without
limitation, the Securities Act of 1933, as amended, and the Exchange Act, and
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which shares of Stock may then be listed. The Plan
Administrators may require the Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restriction imposed by law, legend, condition or
otherwise, that the Option Shares are being purchased only for investment and
without any present intention to sell or distribute the Option Shares in
violation of any state or federal law, rule or regulation, if required by the
Company. Further, the Optionee shall consent to the imposition of a legend on
the Option Shares issued under the Option and the imposition of stop-transfer
instructions restricting their transferability as may be required by the Plan
Administrators in their discretion to ensure compliance with such laws.
10. CONTINUED EMPLOYMENT. Nothing in the Plan or in the Option granted
hereunder shall confer upon any Optionee any right to continued employment by,
or service to, the Company or its subsidiaries or limit in any way the right of
the Company or its subsidiaries at any time to terminate or alter the terms of
that employment or service agreement. In the discretion of the Plan
Administrators, the Optionee may also be required to agree to non-competition,
non-disclosure, non-solicitation or any other terms or provisions not
inconsistent with the Plan in consideration of the grant of the Option.
11. FAIR MARKET VALUE. As used herein, "FAIR MARKET VALUE" shall be
determined by the Plan Administrators on the basis of such factors as they deem
appropriate; provided, however, that Fair Market Value on any day shall be
deemed to be, if the Common Stock is traded on a national securities exchange or
the Nasdaq National Market, the closing price (or, if no reported sale takes
place on such day, the arithmetic mean of the reported bid and asked prices) of
the Common Stock on such day on the principal such exchange or market, or, if
the stock is reported on the composite tape, the
Page-5-
<PAGE>
closing price as reported on the composite tape. In each case, the Plan
Administrators' determination of Fair Market Value in accordance with the Code
shall be conclusive.
12. WITHHOLDING. The grant or exercise of the Option or the sale and
issuance of any Option Shares to be purchased under the Option are subject to
the condition that if, at any time, the Company shall determine in its sole
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in connection with, such grant or exercise or the delivery or
purchase of shares pursuant thereto, then in such event, the grant or exercise
of the Option or the sale and issuance of any Option Shares to be purchased
shall not be effective unless such withholding shall have been effected or
obtained in a manner acceptable to the Company. At the Plan Administrator's
sole and complete discretion, the Company may, from time to time unilaterally
withhold or voluntarily accept shares of Stock already issued to the Optionee
and/or stock subject to an Award as defined in the Plan as the source of payment
for such liabilities.
13. BINDING EFFECT; AMENDMENT. The Option shall be binding upon the
heirs, executors, administrators and successors of the parties hereto. The
Option may be amended by the Plan Administrators at any time (i) if the Plan
Administrators determine, in their sole discretion, that amendment is necessary
or advisable in the light of any addition to or change in the Code or in the
regulations issued thereunder, or any federal or state securities law or other
law or regulation, which change occurs after the Date of Grant and by its terms
applies to the Option; or (ii) other than in the circumstances described in
clause (i) above, with the written consent of the Optionee.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, to the
Company's and the Optionee's addresses as set forth on the signature page
hereof.
15. INCORPORATION OF PLAN BY REFERENCE. The Option is granted pursuant
to the terms of the PDT, Inc. 1996 Stock Compensation Plan, the terms of which
are incorporated herein by reference and the Option shall, in all respects, be
interpreted in accordance with the Plan. A copy of the Plan has been given to
the Optionee and the Optionee agrees to be bound by the Plan. The Plan
Administrators shall interpret and construe the Plan and the Option, and their
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder. In case of any conflict in the
terms of the Plan, or between the Plan and the Option agreement, the provisions
in Article III of the Plan shall control those in a different Article and the
provisions of the Plan shall control those in the Option agreement.
16. CHOICE OF LAW AND VENUE. The Option, Plan and all related documents
shall be governed by, and construed in accordance with, the laws of the State of
California (except to the extent the provisions of Delaware corporate law may be
applicable). Acceptance of the Option shall be deemed to constitute consent to
the jurisdiction and venue of the Superior Court of Santa Barbara County,
California and the United States District Court of the Central District of
California for all purposes in connection with any suit, action or other
proceeding relating to such Option, including the enforcement of any rights
under the Plan or any agreement or other document, and shall be deemed to
constitute consent to any process or notice of motion in connection with such
proceeding being served
Page-6-
<PAGE>
by certified or registered mail or personal service within or without the State
of California, provided a reasonable time for appearance is allowed.
SIGNATURES ON NEXT PAGE
Page-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute this Nonqualified Stock Option Agreement and the Optionee has placed his
or her signature hereon, effective as of the Date of Grant.
- --------------------------------------------------------------------------------
THE OPTION: OPTION #
- --------------------------------------------------------------------------------
OPTIONEE: DATE OF GRANT:
NUMBER OF OPTION SHARES: OPTION PRICE PER SHARE:
VESTING:
THE "COMPANY"
PDT, INC.
BY: _________________________________________
GARY S. KLEDZIK, PH.D.
TITLE CEO AND CHAIRMAN
ADDRESS: 7408 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
805/685-9880
ACCEPTED AND AGREED TO:
THE "OPTIONEE"
SIGNATURE: ___________________________________________
ADDRESS: ___________________________________________
___________________________________________
SOCIAL SECURITY #: ___________________________________
Page-8-
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE OF STOCK OPTION
PAGE-9-
<PAGE>
PDT, INC.
NOTICE OF EXERCISE OF STOCK OPTION
- --------------------------------------------------------------------------------
SECTION 1: PERSONAL DATA:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. NAME: __________________________________________
2. SSN: ________________________________________
3. ADDRESS FOR STOCK RECORD: ___________________________________________
________________________________________________________________________
4. PHONE EXTENSION: ______________
5. COMPANY: ____________________________________________
- --------------------------------------------------------------------------------
SECTION II: STATEMENT OF INTENT TO EXERCISE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. I WOULD LIKE TO EXERCISE THE FOLLOWING SHARES OF PDT, INC. COMMON STOCK:
---------------------------------------------------------------------------
OPTION PLAN OPTION # DATE OF GRANT OPTION PRICE # OF SHARES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION III: PAYMENT OF PURCHASE PRICE AND TAXES:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. I UNDERSTAND THAT FOR NON-QUALIFIED STOCK OPTION EXERCISES I AM REQUIRED TO
PAY WITHHOLDING TAXES ON THE GAIN AS MEASURED BY THE DIFFERENCE BETWEEN THE
OPTION EXERCISE PRICE AND THE FAIR MARKET VALUE OF THE SHARES ON THE DATE
OF EXERCISE.
CHECK ONE:
___ I WILL SUBMIT TO PDT, INC. A CASHIERS CHECK IN PAYMENT.
___ I WILL WIRE FUNDS TO PDT, INC. IN PAYMENT.
___ I AUTHORIZE MY STOCK BROKER TO WIRE FUNDS TO PDT, INC. ON MY BEHALF OUT OF
THE NET PROCEEDS FROM THE SAME-DAY-SALE TRANSACTION FOR THE OPTION PRICE
AND APPLICABLE TAXES OWED. COMPLETE AND ATTACH THE COMPANY'S SECURITIES
TRADING REPORT FORM.
BROKERS NAME ____________________________________
FIRM ____________________________________
ADDRESS ____________________________________
PHONE/FAX ____________________________________
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SECTION IV: ADMINISTRATIVE INSTRUCTIONS:
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8. IF THIS TRANSACTION IS NOT A SAME-DAY-SALE:
CHECK ONE:
___ ISSUE STOCK IN MY NAME INDIVIDUALLY.
___ ISSUE STOCK IN MY NAME AND _________________________________ AS JOINT
TENANTS OR TENANTS IN COMMON
(PLEASE CIRCLE THE CORRECT CHOICE).
ISSUE CERTIFICATES AS FOLLOWS: ___ CERTIFICATES FOR ________________ SHARES
___ CERTIFICATES FOR ________________ SHARES
MAILING ADDRESS IF DIFFERENT THAN STOCK RECORD ADDRESS: ________________________
________________________
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9. SIGNATURE: _______________________ DATE:__________________
VERIFIED BY: _______________________ DATE:__________________
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EXHIBIT 10.10
PDT, INC.
STOCK COMPENSATION PLAN
RESTRICTED SHARE AGREEMENT
THIS RESTRICTED SHARE AGREEMENT (THE "AGREEMENT") is made and entered into
at Santa Barbara, California, on the date hereinafter set forth by and between
PDT, INC., a Delaware corporation, hereinafter called the "COMPANY", and the
person whose name is set forth on the signature page hereof, hereinafter called
the "HOLDER", who is an officer, key employee, employee director, independent
contractor or agent of the Company or one of its subsidiaries, who is
responsible for or contributes to the management, growth, or profitability of
the business of the Company or one of its subsidiaries.
WHEREAS:
A. The Board of Directors of the Company (THE "BOARD") adopted on May 17,
1996, with subsequent stockholder approval, the PDT, Inc. 1996 Stock
Compensation Plan (THE "PLAN");
B. The Plan provides for the awarding of restricted shares of the
Company's Common Stock, par value $0.01 (THE "STOCK") under the Restricted Share
Program ("THE RESTRICTED PROGRAM") by a committee to be appointed by the Board
(THE "PLAN ADMINISTRATORS") to officers, key employees, employee directors,
independent contractors or agents of the Company or any subsidiary of the
Company as the Plan Administrators may determine, subject to terms, conditions
or restrictions as the Plan Administrators may deem appropriate, in accordance
with the terms and provisions of the Plan; and
C. The Plan Administrators have awarded, pursuant to the Restricted Plan,
a restricted stock award to the Holder conditioned upon the execution of this
Agreement by the Company and the Holder setting forth all the terms and
conditions applicable to such award as documented herein.
NOW, THEREFORE, in consideration of the mutual promise and covenant
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. AWARD OF STOCK. Under the terms and conditions of the Plan and as
hereinafter set forth, the Company, with the approval and at the direction of
the Plan Administrators, hereby awards and transfers to the Holder a restricted
stock award on the Date of Grant set forth on the signature page hereof,
covering the number of shares of Stock set forth on the signature page hereof
(THE "SHARES") subject to the terms, conditions and restrictions set forth in
this Agreement. This transfer of the Shares shall constitute a transfer of such
property in connection with the Holder's performance of service to the Company,
which transfer is intended to constitute a "transfer" for purposes of Section 83
of the Internal Revenue Code (THE "CODE").
2. SHARE RESTRICTIONS. During the period beginning on the Date of
Grant as set forth on the signature page hereof and ending on the End of
Restriction set forth on the signature page hereof (THE "RESTRICTION PERIOD"),
the Holder's ownership of the Shares shall be subject to a risk of forfeiture
(which risk is intended to constitute a "substantial risk of forfeiture" for
purposes of Section
RESTRICTED SHARE AGREEMENT
PDT, INC. STOCK COMPENSATION PLAN
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<PAGE>
83 of the Code). The transfer of the Shares shall become nonforfeitable upon
the achievement of the service or performance conditions specified on the
signature page hereof (THE "PERFORMANCE CONDITIONS") within the Restriction
Period. The Holder will be required to pay an amount equal to the aggregate par
value of the Shares, which amount will be returned to the Holder in the event
the Shares are forfeited.
3. ISSUANCE OF SHARES. The Company shall cause a stock certificate
evidencing the Shares in the name of the Holder, such certificate shall be
registered in the name of the Holder and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
restricted shares, substantially in the following form:
The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of
the PDT, Inc. Restricted Share Agreement entered into between the
registered owner hereof and PDT, Inc., a copy of which is on file at the
offices of PDT, Inc.
The stock certificate evidencing the Shares shall be held in the custody of
the Company until the restrictions thereon shall have lapsed and the Holder
shall deliver a stock power, endorsed in blank, relating to the Shares to the
Company. At the expiration of the Restriction Period, the Company shall deliver
to the Holder any certificates held by the Company representing the Shares with
respect to which the applicable Performance Conditions have been satisfied and
destroy said stock power.
The obligation of the Company to deliver the Shares hereunder shall be
subject to the condition that, if at any time the Plan Administrators determine
in their sole discretion that the listing, registration or qualification of the
Shares 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 of, or in connection with, the Shares or the issuance
or purchase of Stock thereunder, the Shares may not be released by the Company
in whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Plan Administrators.
4. RESTRICTED SHARE RIGHTS UPON TERMINATION OF EMPLOYMENT OR SERVICES.
If the Holder terminates employment with or service to the Company or any of its
subsidiaries prior to the expiration of the Restriction Period and the
applicable Performance Conditions have not been met, the Shares granted to him
or her subject to such Restriction Period shall be forfeited by Holder and shall
be transferred to the Company. The Plan Administrators may, in their sole
discretion, accelerate the lapsing of or waive such restrictions in whole or in
part based upon such factors and such circumstances as the Plan Administrators
may determine, in their sole discretion, including, but not limited to, the Plan
Participant's retirement, death or disability, all changes in the terms of the
Restriction Period to be evidenced in the Restricted Share Agreement or an
amendment thereto in writing.
5. STOCKHOLDER RIGHTS. At the discretion of the Plan Administrators, the
Holder may have, with respect to the restricted shares granted, all of the
rights of a stockholder of the Company, including the right to vote the shares,
and the right to receive any dividends thereon. The Plan Administrators may
(but are not obligated to) require that any dividends on such shares shall be
automatically deferred and reinvested in additional restricted shares subject to
the same restrictions as the underlying restricted shares. Certificates for
shares of unrestricted stock shall be delivered to the
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Holder promptly after, and only after, the Restriction Period shall expire
without forfeiture in respect of such restricted shares, all in accordance to
the terms of the Restricted Share Agreement.
6. CHANGE OF CONTROL. If a Change of Control (as defined below) occurs
prior to the end of the Restriction Period, then from and after the Acceleration
Date (as defined below), the Restriction Period shall lapse, whether or not the
Performance Conditions have been met and certificates representing such Shares
shall be delivered to the Holder no later than the fifth day following the
Acceleration Date.
As defined herein, "CHANGE OF CONTROL" shall mean the occurrence of any of
the following: (i) any "person" or "group" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended ( the
"Exchange Act")), other than the Company, a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 20% or more of the
total combined voting power represented by the Company's then outstanding voting
securities; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii) or (iv) of
this definition) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors who either were directors at the beginning of the two-year period
or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; (iii) any Reorganization as
defined below; or (iv) the stockholders of the Company adopt a plan of complete
liquidation of the Company.
The term "REORGANIZATION" as used herein shall mean: (i) the approval by
the stockholders of the Company of any statutory merger, consolidation or share
exchange to which the Company is a party as a result of which the persons who
were stockholders of the Company immediately prior to the effective date of such
Reorganization shall have beneficial ownership of less than fifty percent (50%)
of the total combined voting power in the election of directors of the surviving
corporation following the effective date of such Reorganization; or (ii) the
approval by stockholders of an agreement for the sale or disposition by the
Company of all or substantially all of the assets of the Company.
For purposes of this definition of Reorganization, the term "sale or
disposition by the Company of all or substantially all of the assets of the
Company" shall mean a sale or other disposition transaction or series of related
transactions involving assets of the Company or any subsidiary thereof
(including the stock of any direct or indirect subsidiary of the Company) in
which the value of the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefor or by such other method as
the Board of Directors of the Company determines is appropriate in a case where
there is no readily ascertainable purchase price) constitutes more than
two-thirds of the fair market value of the Company (as hereinafter defined).
For purposes of the preceding sentence, the "fair market value of the Company"
shall be the aggregate market value of the outstanding shares of Common Stock of
the Company (on a fully diluted basis) plus the aggregate market value of the
Company's other outstanding equity securities. The aggregate market value of
the shares of Common Stock of the Company shall be determined by multiplying the
number of shares of the Company's Common Stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a
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definitive agreement with respect to the transaction or series of related
transactions (the "Transaction Date") by the average closing price of the shares
of Common Stock of the Company for the ten trading days immediately preceding
the Transaction Date. The aggregate market value of any other equity securities
of the Company shall be determined in a manner similar to that prescribed in the
immediately preceding sentence for determining the aggregate market value of the
shares of Common Stock of the Company or by such other method as the Board shall
determine is appropriate.
As defined herein, "ACCELERATION DATE" shall mean the earliest date on
which any of the following events shall have first occurred: (i) the acquisition
described in clause (i) of the definition of Change of Control above; (ii) the
change in the composition of the Board of Directors of the Company described in
clause (ii) above; or (iii) the stockholder approval or adoption described in
clauses (iii) and (iv) above.
7. NONTRANSFERABILITY OF SHARES. During the Restriction Period the
Holder shall not sell, pledge, assign, transfer in any manner, exchange or
otherwise encumber of make subject to any creditor's process, whether
voluntarily, involuntarily or by operation of law, the Shares, other than by
will or the laws of descent and distribution pursuant to Article I, Section 19
of the Plan and any attempt to do so shall be of no effect.
8. COMPLIANCE WITH SECURITIES LAWS. Upon the lapse of the Restriction
Period, the Shares shall not be delivered to the Holder unless such delivery
shall comply with all applicable provisions of foreign, state and federal law
including, without limitation, the Securities Act of 1933, as amended, and the
Exchange Act, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares of Common Stock may
then be listed. As a condition of the delivery of the Shares to the Holder, the
Plan Administrators may require the Holder to furnish evidence satisfactory to
the Company, including a written and signed representation letter and consent to
be bound by any transfer restriction imposed by law, legend, condition or
otherwise, that the Shares are being purchased only for investment and without
any present intention to sell or distribute the Shares in violation of any state
or federal law, rule or regulation, if required by the Company. Further, the
Holder shall consent to the imposition of a legend on the Shares and the
imposition of stop-transfer instructions restricting their transferability as
may be required by the Plan Administrators in their discretion to ensure
compliance with such laws.
9. CONTINUED EMPLOYMENT. Nothing in the Plan or in this Agreement shall
confer upon the Holder any right to continued employment by, or service to, the
Company or its subsidiaries or limit in any way the right of the Company or its
subsidiaries at any time to terminate or alter the terms of that employment or
service agreement. In the discretion of the Plan Administrators, the Holder may
also be required to agree to non-competition, non-disclosure, non-solicitation
or any other terms or provisions not inconsistent with the Plan in consideration
of the grant of the Shares.
10. WITHHOLDING. The grant of the Shares are subject to the condition
that if, at any time, the Company shall determine in its sole discretion, that
the satisfaction of withholding tax or other withholding liabilities under any
state or federal law is necessary or desirable as a condition of, or in
connection with, such grant of Shares pursuant hereto, then in such event, the
grant of the Shares shall not be effective unless such withholding shall have
been effected or obtained in a manner acceptable to the Company. At the Plan
Administrators sole and complete discretion, the Company may, from time to time
unilaterally withhold or voluntarily accept shares of Stock already issued to
the
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Holder and/or stock subject to an Award as defined in the Plan as the source of
payment for such liabilities.
11. BINDING EFFECT; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators and successors of
the parties hereto. The Agreement may be amended by the Plan Administrators at
any time (i) if the Plan Administrators determine, in their sole discretion,
that amendment is necessary or advisable in the light of any addition to or
change in the Code or in the regulations issued thereunder, or any federal or
state securities law or other law or regulation, which change occurs after the
Date of Grant and by its terms applies to the Shares; or (ii) other than in the
circumstances described in clause (i) above, with the written consent of the
Holder.
12. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, to the
Company's and the Holder's addresses as set forth on the signature page hereof.
13. INCORPORATION OF PLAN BY REFERENCE. This Agreement is granted
pursuant to the terms of the PDT, Inc. 1996 Stock Compensation Plan, the terms
of which are incorporated herein by reference and the Agreement shall, in all
respects, be interpreted in accordance with the Plan. A copy of the plan has
been given to the Holder and the Holder agrees to be bound by the Plan. The
Plan Administrators shall interpret and construe the Plan and the Agreement, and
their interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder. In case of any conflict in the
terms of the Plan, or between the Plan and this Agreement, the provisions in the
Article IV of the Plan shall control those in a different Article and the
provisions of the Plan shall control those which are inconsistent with this
Agreement. All capitalized terms used in this agreement shall have the same
meaning as in the Plan.
14. CHOICE OF LAW AND VENUE. This Agreement, the Plan and all related
documents shall be governed by, and construed in accordance with, the laws of
the State of California (except to the extent the provisions of Delaware
corporate law may be applicable). Acceptance of this Agreement shall be deemed
to constitute consent to the jurisdiction and venue of the Superior Court of
Santa Barbara County, California and the United States District Court of the
Central District of California for all purposes in connection with any suit,
action or other proceeding relating to this Agreement, including the enforcement
of any rights under the Plan or any agreement or other document, and shall be
deemed to constitute consent to any process or notice of motion in connection
with such proceeding being served by certified or registered mail or personal
service within or without the State of California, provided a reasonable time
for appearance is allowed.
15. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or
unenforcEability of any one provision shall have no effect on the continuing
force and effect of the remaining provisions.
16. ENTIRE AGREEMENT. This Agreement and the Plan contain the entire
understanding of the parties and except as provided herein and in the Plan, this
Agreement shall not be modified or amended except in writing and duly signed by
the parties hereto. No waiver by either party of any default under this
Agreement shall be deemed a waiver of any later default.
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IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute this Restricted Share Agreement and the Holder has placed his or her
signature hereon, effective as of the Date of Grant.
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RESTRICTED SHARE AGREEMENT: #RS ____
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DATE OF GRANT: END OF RESTRICTED PERIOD:
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NUMBER OF RESTRICTED SHARES: HOLDER:
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PERFORMANCE CONDITIONS:
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THE "COMPANY"
PDT, INC.
BY: _________________________________________
GARY S. KLEDZIK, PH.D.
TITLE C.E.O. & CHAIRMAN
ADDRESS: 7408 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
805/685-9880
ACCEPTED AND AGREED TO:
THE "HOLDER"
SIGNATURE: ___________________________________________
PRINTED NAME: ______________________________________
ADDRESS: ___________________________________________
___________________________________________
SOCIAL SECURITY #: _____________________________________
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EXHIBIT 10.11
PDT, INC.
STOCK COMPENSATION PLAN
STOCK RIGHTS AGREEMENT
THIS STOCK RIGHTS AGREEMENT (THE "AGREEMENT") is made and entered into at
Santa Barbara, California, on the date hereinafter set forth by and between PDT,
INC., a Delaware corporation, hereinafter called the "COMPANY" and the person
whose name is set forth on the signature page hereof, hereinafter called the
"HOLDER", who is a key employee or key non-employee of the Company or one of its
subsidiaries.
WHEREAS:
A. The Board of Directors of the Company (THE "BOARD") adopted on May 17,
1996, with subsequent stockholder approval, the PDT, Inc. Stock Compensation
Plan (THE "PLAN");
B. The Plan provides for the awarding of Performance Shares, Stock
Payments or Dividend Equivalent Rights of the Company's common stock, par value
$0.01 (THE "STOCK") under the Stock Rights Program ("THE STOCK RIGHTS PROGRAM")
by a committee to be appointed by the Board (THE "PLAN ADMINISTRATORS") to key
employees or non-employees of the Company or any subsidiary of the Company as
the Plan Administrators may determine, subject to terms, conditions or
restrictions as the Plan Administrators may deem appropriate, in accordance with
the terms and provisions of the Plan; and
C. The Plan Administrators have awarded, pursuant to the Stock Rights
Program, Performance Shares, Stock Payments or Dividend Equivalent Rights as
defined on the signature page hereof (THE "AWARD") to the Holder conditioned
upon the execution of this Agreement by the Company and the Holder setting forth
all the terms and conditions applicable to the Award as documented herein.
NOW, THEREFORE, in consideration of the mutual promise and covenant
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. THE AWARD. Under the terms and conditions of the Plan and as
hereinafter set forth, the Company, with the approval and at the direction of
the Plan Administrators, hereby grants to the Holder the Award as set forth on
the signature page hereof, on the Date of Grant set forth on the signature page
hereof, covering the number of shares of Stock or Dividend Equivalent Rights set
forth on the signature page hereof subject to the terms, conditions and
restrictions set forth in this Agreement. In the case of a Stock Payment, the
transfer of the Stock shall constitute a transfer of such property in connection
with the Holder's performance of service to the Company, which transfer is
intended to constitute a "transfer" for purposes of Section 83 of the Internal
Revenue Code (THE "CODE").
STOCK RIGHTS AGREEMENT
PDT, INC. STOCK COMPENSATION PLAN
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2. PERFORMANCE SHARES. If the Award specified on the signature page
hereof is for Performance Shares, the Performance Shares shall become payable to
the Holder based upon the achievement of Performance Objectives as defined in
the Plan and specifically stated on the signature page hereof. Each Performance
Objective hereunder shall satisfy the conditions for performance-based awards
under Article I, Section 17 of the Plan. Payment for the Performance Shares
shall be due upon the date specified on the signature page hereof (THE "PAYMENT
DATE") and payment for the Performance Shares may be made in full in cash or by
certified cashier's check payable to the order of the Company or, with the prior
written consent of Plan Administrators, by shares of the Company's Common Stock
or by the surrender of all or part of an Award, or in other property, rights or
credits deemed acceptable by the Plan Administrators or, with the prior written
consent of the Plan Administrators, by a combination of the foregoing. If any
portion of the purchase price is paid in shares of the Company's Common Stock,
those shares shall be tendered at their then Fair Market Value as determined by
the Plan Administrators in accordance with Article I, Section 22 of the Plan.
Payment in shares of Common Stock includes the automatic application of shares
of Common Stock received upon the exercise or settlement of this Award or other
option or award to satisfy the exercise or settlement price. During the period
beginning on the Date of Grant as set forth on the signature page hereof and
ending on the expiration date set forth on the signature page hereof (THE
"PERFORMANCE PERIOD"), the Holder's right to the Stock shall be subject to a
risk of forfeiture (which risk is intended to constitute a "substantial risk of
forfeiture" for purposes of Section 83 of the Code). The issuance of the Stock
shall become nonforfeitable upon the achievement of the Performance Objectives
specified on the signature page hereof within the Performance Period and upon
payment in full for the Performance Shares at a price per share as specified on
the signature page hereof.
3. STOCK PAYMENTS. If the Award specified on the signature page hereof
is a Stock Payment, the Stock Payment may be paid to the Holder as a bonus or
additional compensation or in lieu of the obligation of the Company or a
subsidiary to pay cash compensation under other compensatory arrangements. The
Holder will be required to pay an amount equal to the aggregate par value of the
Stock newly issued for the Stock Payment specified on the signature page hereof
prior to the expiration date specified on the signature page hereof. The Holder
shall have all the voting, dividend, liquidation and other rights with respect
to shares of Common Stock issued to the Holder as a Stock Payment (THE "SHARES")
upon the payment in full of the aggregate par value of the Stock and the Holder
becoming holder of record of such shares of Common Stock. If specified on the
signature page hereof, the Company shall cause the stock certificates evidencing
the Shares to bear an appropriate legend substantially in the following form:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE PDT,
INC. STOCK RIGHTS AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER
HEREOF AND PDT, INC., A COPY OF WHICH IS ON FILE AT THE OFFICES OF
PDT, INC.
The obligation of the Company to deliver the Shares hereunder shall be
subject to the condition that, if at any time the Plan Administrators determine
in their sole discretion that the listing, registration or qualification of the
Shares 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 of, or in connection with, the Shares or the issuance
or purchase of the Shares, the Shares may not be released by the Company in
whole or in part unless such listing, registration, qualification,
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consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Plan Administrators.
4. DIVIDEND EQUIVALENT RIGHTS. If the Award specified on the signature
page hereof is a Dividend Equivalent Right the signature page shall specify
whether the Dividend Equivalent Right is granted in tandem with the grant of an
option, stock appreciation rights, Restricted Shares or Performance Shares or
whether the Dividend Equivalent Right is independent of any other award. The
signature page hereof shall specify the number of shares of the Company's Common
Stock to which the Dividend Equivalent Right is granted (THE "NUMBER OF
RIGHTS"), the term during which the Dividend Equivalent Right is payable (THE
"DIVIDEND PERIOD"), the date on which the Dividend Equivalent Right is payable
to the Holder (THE "PAYMENT DATE") and whether the Payment is subject to such
employment, Performance Objectives or other conditions. The Payment may be made
by the Company to the Holder in cash or by shares of the Company's Common Stock
or by a combination of the foregoing. The total payment attributable to a share
of Common Stock subject to the number of Dividend Equivalent Rights specified on
the signature page hereof shall not exceed one hundred percent (100%) of the
equivalent dividends payable with respect to an outstanding share of Common
Stock during the Dividend Period, taking into account any assumed reinvestment
(including assumed reinvestment in shares of Common Stock) or interest earnings
on such Number of Rights in the case of a deferred payment, provided that such
percentage may increase to a maximum of two hundred percent (200%) if the
Dividend Equivalent Right is subject to a Performance Objective as described in
Article I, Section 17 of the Plan.
5. TERMINATION OF AWARD. Except as herein otherwise stated, this
Award, to the extent not theretofore awarded to the Holder, shall terminate
forthwith on the earliest of the following:
(a). If the Holder ceases to be employed by or provide service to the
Company or any subsidiary for any reason other than death or disability, the
Award shall immediately terminate and be of no further force and effect,
provided, however, that the Plan Administrators may, in their sole discretion,
allow the Holder to purchase any Performance Shares, to the extent earned on the
date of termination, at any time within three (3) months after the date of
termination, but in no event later than the expiration date specified under
subparagraph (d) hereof. If the Holder is terminated "for cause" under any
agreement between the Company and the Holder or under any policy of the Company,
the Award will terminate immediately upon the date of termination. In the case
of Dividend Equivalent Rights, the Plan Administrators may, in their sole
discretion, pay the Dividend Equivalent Rights earned during the Dividend Period
prior to the termination date if the Holder is terminated prior to the Payment
Date.
(b). If the Holder becomes disabled within the meaning of the
Internal Revenue Code of 1986, as amended, Section 422(e)(3) while employed by
the Company or any subsidiary, the Plan Administrators, in their sole
discretion, may allow the Holder to purchase any Performance Shares, to the
extent earned on the date of termination of employment, at any time within one
(1) year after the date of the termination of employment due to disability, but
in no event later than the expiration date specified under subparagraph (d)
hereof. In the case of Dividend Equivalent Rights, the Plan Administrators may,
in their sole discretion, pay the Dividend Equivalent Rights earned during the
Dividend Period prior to the termination date if the Holder is terminated prior
to the Payment Date.
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(c). If the Holder dies while employed by the Company or any
subsidiary, or within three (3) months after ceasing to be an employee thereof,
the Award shall expire one (1) year after the date of death, but in no event
later than the expiration date specified in subparagraph (d) hereof. During the
one (1) year period, any Performance Shares may be purchased, to the extent
earned and unpurchased on the date of death, by the person or persons whom the
Holder's rights under the Option shall pass by will or by laws of descent and
distribution and pursuant to Article I, Section 19 of the Plan, but only to the
extent that the Holder is entitled to purchase any Performance Shares at the
time of death.
(d) Ten (10) years from the Date of Grant specified on the signature
page hereof.
6. CHANGE OF CONTROL. If a Change of Control (as defined below) occurs
prior to the end of the Performance Period, in the case of an Award of
Performance Shares, or the end of a Dividend then from and after the
Acceleration Date (as defined below), the Restriction Period shall lapse,
whether or not the Performance Conditions have been met and certificates
representing such Shares shall be delivered to the Holder no later than the
fifth day following the Acceleration Date.
As defined herein, "CHANGE OF CONTROL" shall mean the occurrence of any of
the following: (i) any "person" or "group" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act), other than the Company, a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a company owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the total combined voting power represented by the
Company's then outstanding voting securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in clause (i), (iii) or (iv) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors who either were directors at the
beginning of the two-year period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; (iii) any Reorganization as defined below; or (iv) the stockholders of
the Company adopt a plan of complete liquidation of the Company.
The term "REORGANIZATION" as used herein shall mean: (i) the approval by
the stockholders of the Company of any statutory merger, consolidation or share
exchange to which the Company is a party as a result of which the persons who
were stockholders of the Company immediately prior to the effective date of such
Reorganization shall have beneficial ownership of less than fifty percent (50%)
of the total combined voting power in the election of directors of the surviving
corporation following the effective date of such Reorganization; or (ii) the
approval by stockholders of an agreement for the sale or disposition by the
Company of all or substantially all of the assets of the Company.
For purposes of this definition of Reorganization, the term "sale or
disposition by the Company of all or substantially all of the assets of the
Company" shall mean a sale or other disposition transaction or series of related
transactions involving assets of the Company or any subsidiary thereof
(including the stock of any direct or indirect subsidiary of the Company) in
which the value of the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefor or by such other method as
the Board of Directors of the Company determines is appropriate
Page-4-
<PAGE>
in a case where there is no readily ascertainable purchase price) constitutes
more than two-thirds of the fair market value of the Company (as hereinafter
defined). For purposes of the preceding sentence, the "fair market value of the
Company" shall be the aggregate market value of the outstanding shares of Common
Stock of the Company (on a fully diluted basis) plus the aggregate market value
of the Company's other outstanding equity securities. The aggregate market
value of the shares of Common Stock of the Company shall be determined by
multiplying the number of shares of the Company's Common Stock (on a fully
diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series of related
transactions (the "Transaction Date") by the average closing price of the shares
of Common Stock of the Company for the ten trading days immediately preceding
the Transaction Date. The aggregate market value of any other equity securities
of the Company shall be determined in a manner similar to that prescribed in the
immediately preceding sentence for determining the aggregate market value of the
shares of Common Stock of the Company or by such other method as the Board shall
determine is appropriate.
As defined herein, "ACCELERATION DATE" shall mean the earliest date on
which any of the following events shall have first occurred: (i) the acquisition
described in clause (i) of the definition of Change of Control above; (ii) the
change in the composition of the Board of Directors of the Company described in
clause (ii) above; or (iii) the stockholder approval or adoption described in
clauses (iii) and (iv) above.
7. NONTRANSFERABILITY OF SHARES OR RIGHTS. If specified on the
signature page hereof, in the case of a Stock Payment, the Holder may not sell,
pledge, assign, transfer in any manner, exchange or otherwise encumber of make
subject to any creditor's process, whether voluntarily, involuntarily or by
operation of law, the Shares, other than by will or the laws of descent and
distribution pursuant to Article I, Section 19 of the Plan and any attempt to do
so shall be of no effect. In the case of Dividend Equivalent Rights, the Holder
may not sell, pledge, assign, transfer in any manner, exchange or otherwise
encumber of make subject to any creditor's process, whether voluntarily,
involuntarily or by operation of law, the Dividend Equivalent Rights, other than
by will or the laws of descent and distribution pursuant to Article I, Section
19 of the Plan and any attempt to do so shall be of no effect. In the case of
Performance Shares, any restrictions on transfer shall lapse at the end of the
Performance Period as defined above and upon payment in full for the Performance
Shares by the Holder.
8. COMPLIANCE WITH SECURITIES LAWS. No Shares to be awarded hereunder
shall be delivered to the Holder unless such delivery shall comply with all
applicable provisions of foreign, state and federal law including, without
limitation, the Securities Act of 1933, as amended, and the Exchange Act, and
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares of Common Stock may then be listed. As a
condition of the delivery of any Shares hereunder to the Holder, the Plan
Administrators may require the Holder to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restriction imposed by law, legend, condition or
otherwise, that the Shares are being purchased only for investment and without
any present intention to sell or distribute the Shares in violation of any state
or federal law, rule or regulation, if required by the Company. Further, the
Holder shall consent to the imposition of a legend on the Shares and the
imposition of stop-transfer instructions restricting their transferability as
may be required by the Plan Administrators in their discretion to ensure
compliance with such laws.
Page-5-
<PAGE>
9. CONTINUED EMPLOYMENT. The Holder may be required to agree in
writing, as a condition of receiving an Award hereunder, that he or she will
remain in the employment or service of the Company or its subsidiaries following
the Date of Grant for a period specified by the Plan Administrators, in their
discretion. Nothing in the Plan or in this Agreement shall confer upon the
Holder any right to continued employment by, or service to, the Company or its
subsidiaries or limit in any way the right of the Company or its subsidiaries at
any time to terminate or alter the terms of that employment or service
agreement. In the discretion of the Plan Administrators, the Holder may also be
required to agree to non-competition, non-disclosure, non-solicitation or any
other terms or provisions not inconsistent with the Plan in consideration of the
grant of the Award.
10. WITHHOLDING. The grant of the Award hereunder is subject to the
condition that if, at any time, the Company shall determine in its sole
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in connection with, such grant of any Shares or rights pursuant
hereto, then in such event, the grant of the Award shall not be effective unless
such withholding shall have been effected or obtained in a manner acceptable to
the Company. At the Company's sole and complete discretion, the Company may,
from time to time unilaterally withhold or voluntarily accept shares of the
Company's Common Stock already issued to the Holder and/or stock subject to an
Award as defined in the Plan as the source of payment for such liabilities.
11. BINDING EFFECT; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators and successors of
the parties hereto. The Agreement may be amended by the Plan Administrators at
any time (i) if the Plan Administrators determine, in their sole discretion,
that amendment is necessary or advisable in the light of any addition to or
change in the Internal Revenue Code of 1986 or in the regulations issued
thereunder, or any federal or state securities law or other law or regulation,
which change occurs after the Date of Grant and by its terms applies to the
Shares; or (ii) other than in the circumstances described in clause (i) above,
with the written consent of the Holder.
12. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, to the
Company's and the Holder's addresses as set forth on the signature page hereof.
13. INCORPORATION OF PLAN BY REFERENCE. This Agreement is granted
pursuant to the terms of the PDT, Inc. Stock Compensation Plan, the terms of
which are incorporated herein by reference and the Agreement shall, in all
respects, be interpreted in accordance with the Plan. The Plan Administrators
shall interpret and construe the Plan and the Agreement, and their
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with respect
to any issue arising hereunder or thereunder. In case of any conflict in the
terms of the Plan, or between the Plan and this Agreement, the provisions in the
Article of the Plan which specifically grants restricted shares shall control
those in a different Article and the provisions of the Plan shall control those
in this Agreement.
14. CHOICE OF LAW AND VENUE. This Agreement, the Plan and all related
documents shall be governed by, and construed in accordance with, the laws of
the State of California (except to the extent the provisions of Delaware
corporate law may be applicable). Acceptance of this Agreement shall be deemed
to constitute consent to the jurisdiction and venue of the Superior Court of
Page-6-
<PAGE>
Santa Barbara County, California and the United States District Court of the
Central District of California for all purposes in connection with any suit,
action or other proceeding relating to this Agreement, including the enforcement
of any rights under the Plan or any agreement or other document, and shall be
deemed to constitute consent to any process or notice of motion in connection
with such proceeding being served by certified or registered mail or personal
service within or without the State of California, provided a reasonable time
for appearance is allowed.
15. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on the continuing
force and effect of the remaining provisions.
16. ENTIRE AGREEMENT. This Agreement and the Plan contain the entire
understanding of the parties and except as provided herein and in the Plan, this
Agreement shall not be modified or amended except in writing and duly signed by
the parties hereto. No waiver by either party of any default under this
Agreement shall be deemed a waiver of any later default.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute this Stock Rights Agreement and the Holder has placed his or her
signature hereon, effective as of the Date of Grant.
Page-7-
<PAGE>
- --------------------------------------------------------------------------------
STOCK RIGHTS AGREEMENT: #SR. ____
- --------------------------------------------------------------------------------
FOR PERFORMANCE SHARES ONLY:
DATE OF GRANT: PAYMENT DATE: EXPIRATION DATE:
____________________ ____________________ ____________________
NUMBER OF PERFORMANCE SHARES: HOLDER:
___________________ __________________________________
PERFORMANCE CONDITIONS:
_______________________________________________________________________________
SIGNATURES ON NEXT PAGE
Page-8-
<PAGE>
- --------------------------------------------------------------------------------
STOCK RIGHTS AGREEMENT: #SR. ____
- --------------------------------------------------------------------------------
FOR STOCK PAYMENTS ONLY:
DATE OF GRANT: PAYMENT DATE: EXPIRATION DATE:
____________________ ____________________ ____________________
NUMBER OF SHARES: HOLDER:
___________________ _____________________________________________
RESTRICTION ON TRANSFER:
________________________________________________________________________________
SIGNATURES ON NEXT PAGE
Page-9-
<PAGE>
- --------------------------------------------------------------------------------
STOCK RIGHTS AGREEMENT: #SR. ____
- --------------------------------------------------------------------------------
FOR DIVIDEND EQUIVALENT RIGHTS ONLY:
DATE OF GRANT: TERM OF DIVIDEND EQUIVALENT RIGHT:
____________________ _________________________
NUMBER OF SHARES: HOLDER:
___________________ __________________________________________
IN TANDEM WITH ANOTHER AWARD:
_____ (IF YES--IDENTIFY OTHER AWARD) _______________________________
DATE PAYABLE:
_______________________________________
CONDITIONS:
______ PERFORMANCE OBJECTIVES
______________________________________________________
______ CONTINUED EMPLOYMENT
______________________________________________________
______ OTHER CONDITIONS
______________________________________________________
SIGNATURES ON NEXT PAGE
Page-10-
<PAGE>
THE "COMPANY"
PDT, INC.
BY: _________________________________________
GARY S. KLEDZIK, PH.D.
TITLE C.E.O. & CHAIRMAN
ADDRESS: 7408 HOLLISTER AVENUE
SANTA BARBARA, CALIFORNIA 93117
805/685-9880
ACCEPTED AND AGREED TO:
THE "HOLDER"
SIGNATURE: _____________________________________________
PRINTED NAME: ________________________________________
ADDRESS: _____________________________________________
_____________________________________________
SOCIAL SECURITY #: ___________________________________
Page-11-
<PAGE>
EXHIBIT 10.12
AMENDMENT NO. 4
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between GARY S. KLEDZIK, PH.D. (hereinafter referred to as the "Employee")
and PDT, INC., a Delaware Corporation (hereinafter referred to as the
"Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of DECEMBER 31, 1989, and Amendments No. 1 through 3 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Section 1.1 Of the Employment Agreement is hereby amended to read as
follows:
"1.1 POSITION AND DUTIES
The Corporation does hereby employ the Employee and the Employee
hereby accepts such employment as CHAIRMAN AND CHIEF EXECUTIVE OFFICER upon the
terms and provisions set forth in this Agreement. The Employee shall perform
all the duties assigned to him by the Corporation, shall observe and comply with
the Corporation's rules and regulations regarding the performance of his duties,
and shall carry out and perform all orders, directions, and policies stated to
him by the Corporation periodically, either orally or in writing. The Employee
shall carry out the duties assigned to him in a trustworthy, businesslike, and
loyal manner. The Employee agrees that this Agreement may be terminated as
provided in Paragraph 7 hereof."
2. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
3. The Effective Date of this Amendment is MAY 17, 1996.
EMPLOYER:
PDT, INC.
a Delaware Corporation
By: /s/ David E. Mai
-------------------------------
David E. Mai
President
EMPLOYEE:
/s/ Gary S. Kledzik
-----------------------------------
Gary S. Kledzik, Ph.D.
Amendment No. 4 to Employment Agreement
Page-1-
<PAGE>
EXHIBIT 10.13
AMENDMENT NO. 8
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 8 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between DAVID E. MAI (hereinafter referred to as the "Employee") and PDT
CARDIOVASCULAR, INC., a Delaware Corporation (hereinafter referred to as the
"Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of FEBRUARY 1, 1991, and Amendments No. 1 through 7 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Section 1.1 of the Employment Agreement is hereby amended to read as
follows:
"1.1 POSITION AND DUTIES
The Corporation does hereby employ the Employee and the
Employee hereby accepts such employment as PRESIDENT OF PDT CARDIOVASCULAR,
INC., EFFECTIVE AS OF SEPTEMBER 1, 1992 AND PRESIDENT OF PDT, INC. EFFECTIVE AS
OF MAY 17, 1996, upon the terms and provisions set forth in this Agreement. The
Employee shall perform all the duties assigned to him by the Corporation, shall
observe and comply with the Corporation's rules and regulations regarding the
performance of his duties, and shall carry out and perform all orders,
directions, and policies stated to him by the Corporation periodically, either
orally or in writing. The Employee shall carry out the duties assigned to him
in a trustworthy, businesslike, and loyal manner. The Employee agrees that this
Agreement may be terminated as provided in Paragraph 7 hereof."
2. Effective as of MAY 17, 1996, the Employee Compensation stated in
Exhibit A to the Agreement shall be One Hundred and Sixty Two Thousand Dollars
($162,000) per annum.
3. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
4. The Effective Date of this Amendment is MAY 17, 1996.
SIGNATURES ON NEXT PAGE
AMENDMENT NO. 8 TO EMPLOYMENT AGREEMENT
Page -1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date written above.
THE CORPORATION:
PDT, INC.
a Delaware Corporation
By: /s/ Gary S. Kledzik
-----------------------------------
Gary S. Kledzik, Ph.D.
C.E.O. and Chairman
EMPLOYEE:
/s/ David E. Mai
-----------------------------------
David E. Mai
Page -2-
<PAGE>
EXHIBIT 10.14
AMENDMENT NO. 9
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 9 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between DAVID E. MAI (hereinafter referred to as the "Employee") and PDT,
INC., a Delaware Corporation (hereinafter referred to as the "Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of FEBRUARY 1, 1991, and Amendments No. 1 through 8 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Section 1.1 of the Employment Agreement is hereby amended to read as
follows:
"1.1 POSITION AND DUTIES
The Corporation does hereby employ the Employee and the
Employee hereby accepts such employment as PRESIDENT OF PDT CARDIOVASCULAR,
INC., EFFECTIVE AS OF SEPTEMBER 1, 1992, PRESIDENT OF PDT, INC. EFFECTIVE AS OF
MAY 17, 1996 AND PRESIDENT OF PDT PHARMACEUTICALS, INC., EFFECTIVE AS OF JULY
17, 1996, upon the terms and provisions set forth in this Agreement. The
Employee shall perform all the duties assigned to him by the Corporation, shall
observe and comply with the Corporation's rules and regulations regarding the
performance of his duties, and shall carry out and perform all orders,
directions, and policies stated to him by the Corporation periodically, either
orally or in writing. The Employee shall carry out the duties assigned to him
in a trustworthy, businesslike, and loyal manner. The Employee agrees that this
Agreement may be terminated as provided in Paragraph 7 hereof."
2 In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
3 The Effective Date of this Amendment is JULY 17, 1996
SIGNATURES ON NEXT PAGE
AMENDMENT NO. 9 TO EMPLOYMENT AGREEMENT
Page -1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date written above.
EMPLOYER:
PDT, INC.
a Delaware Corporation
By: /s/ Gary S. Kledzik
----------------------------------
Gary S. Kledzik, Ph.D.
C.E.O. and Chairman
EMPLOYEE:
/s/ David E. Mai
---------------------------------------
David E. Mai
Page -2-
<PAGE>
EXHIBIT 10.15
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between JOHN M. PHILPOTT (hereinafter referred to as the "Employee") and
PDT, INC., a Delaware Corporation (hereinafter referred to as the "Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of MARCH 20, 1995 (the "Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Effective as of DECEMBER 25, 1995, the Employee Compensation stated in
Exhibit A to the Agreement shall be Ninety Thousand and One Hundred Dollars
($90,100) per annum.
2. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
3. The Effective Date of this Amendment is DECEMBER 25, 1995.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date written above.
EMPLOYER:
PDT, INC.
a Delaware Corporation
By: /s/ Gary S. Kledzik
-------------------------------
Gary S. Kledzik, Ph.D.
C.E.O. and Chairman
EMPLOYEE:
/s/ John M. Philpott
-----------------------------------
John M. Philpott
Amendment No. 1 to Employment Agreement
<PAGE>
EXHIBIT 10.16
RAMUS MEDICAL TECHNOLOGIES - PDT CARDIOVASCULAR, INC.
INVESTMENT AGREEMENT
<PAGE>
RAMUS MEDICAL TECHNOLOGIES -
PDT CARDIOVASCULAR, INC.
INVESTMENT AGREEMENT
THIS RAMUS MEDICAL TECHNOLOGIES - PDT CARDIOVASCULAR, INC. INVESTMENT
AGREEMENT (the "AGREEMENT") is made as of the 27th day of December, 1996 by and
between RAMUS MEDICAL TECHNOLOGIES, a California corporation (the "COMPANY") and
PDT CARDIOVASCULAR, INC., a Delaware corporation ("PDTC").
WHEREAS:
A. PDTC has agreed to purchase ***** shares of the Company's Series A
Preferred Stock at a price of ***** per share;
B. The Company, and its shareholders, have agreed to grant to PDTC an
option to acquire the Company for a price of ***** , as more fully described
herein (the "PDTC OPTION"); and
C. PDTC and the Company have also agreed to execute a development
agreement pursuant to which PDTC will have exclusive rights to the Company's
technology for photodynamic therapy applications, as more fully described herein
(the "CO-DEVELOPMENT AGREEMENT").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Closing (as defined below) Restated Articles
of Incorporation in the form attached hereto as ANNEX A.
(b) Subject to the terms and conditions of this Agreement, PDTC
agrees to purchase at the Closing, and the Company agrees to sell and issue
to PDTC ***** shares (the "SHARES") of the Series A Preferred Stock at a
price of ***** per share.
1.2 CLOSING. The purchase and sale of the Shares shall take place at
the offices of the Company at 10:00 a.m. on December 27, 1996, or at such
other time and place as the Company and PDTC mutually agree upon orally or
in writing (which time and place are designated as the "CLOSING"). At the
Closing, the Company shall deliver to PDTC a certificate representing the
Shares which PDTC is purchasing by delivery to the Company of a check or
wire transfer in the amount of the purchase price therefor payable to the
Company's order.
*****Confidential Treatment Requested
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to PDTC that:
2.1 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 proposed to be conducted in its
Business Plan dated July 1996 (the "BUSINESS PLAN") heretofore furnished to
PDTC. The Company is not required to be qualified as a foreign corporation
in any state in which the failure to be so qualified would have a material
adverse effect on the Company.
2.2 CAPITALIZATION. The authorized capital of the Company consists
or will consist as of the Closing of:
(a) PREFERRED STOCK. Five Million (5,000,000) shares of
preferred stock (the "PREFERRED STOCK"), of which Two Million Five Hundred
Thousand (2,500,000) such shares have been designated Shares. The rights,
privileges and preferences of the Shares are as stated in the Company's
Restated Articles of Incorporation attached hereto as ANNEX A.
(b) COMMON STOCK. Fifteen Million (15,000,000) shares of common
stock (the "COMMON STOCK") have been authorized for issuance, of which (i)
Three Million Five Hundred Thousand (3,500,000) shares are currently
outstanding and (ii) Seven Hundred Fifty Thousand (750,000) shares of which
have been reserved for issuance pursuant to the Plan (as defined below).
(c) NO OUTSTANDING OPTIONS, WARRANTS, RIGHTS OR AGREEMENTS.
Except for (i) the conversion privileges of the Series A Preferred Stock
and (ii) the rights of holders of options granted or to be granted pursuant
to the Company's 1995 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "PLAN"), in each case as specified on
SCHEDULE I hereto, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase
or acquisition from the Company of any shares of its capital stock.
2.3 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 (and all agreements referred to or
annexed hereto), the performance of all obligations of the Company
hereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Shares being sold hereunder and the Common Stock issuable
upon conversion of the Shares and the other actions and documents
contemplated hereunder have 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.
2.4 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Shares which
are being purchased by PDTC hereunder, when issued, sold and delivered in
accordance with
<PAGE>
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and non-assessable and, based in part upon the
representations of PDTC in this Agreement, will be issued in compliance
with all applicable federal and state securities laws. The Common Stock
issuable upon conversion of the Shares purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Articles of Incorporation, shall
be duly and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable securities laws, as presently in effect, of
the United States and each of the states whose securities laws govern the
offer or sale of any of the Shares.
2.5 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 state and federal securities laws, all of
which will be effected within fifteen (15) days of the sale of the Shares.
2.6 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each employee,
officer and consultant of the Company has executed the Company's standard
form of Proprietary Information and Inventions Agreement. The Company,
after reasonable investigation, is not aware that any of its employees,
officers or consultants are in violation thereof, and the Company will use
its best efforts to prevent any such violation. To the best of the
Company's knowledge, no employee, officer, director or consultant of the
Company has violated the provisions of such Proprietary Information and
Inventions Agreement to which he or she is a party and which relates to the
business or operations of the Company.
2.7 INTELLECTUAL PROPERTY, PATENTS AND TRADEMARKS. The Company has
sufficient title and ownership of all its intellectual property, including
patents, patent applications, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
as described in the Business Plan without any conflict with or infringement
of the rights of others, and there are no claims against such intellectual
property. There are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person
or entity. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity. The Company knows of no reason that the opinion of its patent
counsel, Townsend and Townsend and Crew dated November 11, 1996 previously
delivered to PDTC is not true and correct.
2.8 NO CONFLICT. None of (a) the approval by the Board of Directors
and stockholders of the Company of this Agreement, or any of the agreements
referred to herein ("RELATED DOCUMENTS"), or (b) the execution or the
delivery by the Company of this
<PAGE>
Agreement or any Related Documents, or the performance by the Company of
its obligations hereunder or thereunder or the consummation of the
transactions contemplated hereby or thereby, or (c) the issuance by the
Company of the Shares will (A) conflict with or result in any violation or
constitute a default under the Articles of Incorporation or Bylaws of the
Company or any agreement, mortgage, indenture, franchise, license, permit,
authorization, lease or other instrument, or any judgment, decree, order,
law or regulation by which the Company or any of its properties or assets
is bound, or (B) result in the creation or imposition of any lien, security
interest, charge, encumbrance, restriction or claim of any nature upon, or
give to others any interest or right, including any right of termination or
cancellation, in or with respect to, or otherwise adversely affect, any
property, asset or business of the Company, or (C) conflict with any other
restriction of any kind or character to which the Company is subject or to
which any of its properties is bound.
2.9 CORPORATE RECORDKEEPING. The corporate record and stock transfer
books of the Company are complete, accurate and up to date with all
necessary signatures and set forth all meetings and actions taken by the
respective incorporators, stockholders and directors of each such party.
2.10 COMPLIANCE WITH LAWS. To the best of the Company's knowledge,
the Company is in compliance in all material respects with all federal,
state, local and foreign statutes, laws, ordinances, regulations, rules,
judgments, orders and decrees applicable to it or its respective assets,
properties, business or operations.
2.11 DISCLOSURE. There is no material additional fact of which the
Company is aware that has not been disclosed in writing to PDTC that in the
opinion or belief of the Company materially adversely affects, or so far as
the Company can now reasonably foresee, will materially and adversely
affect the properties, business, condition (financial or otherwise) or
prospects of the Company.
2.12 CONFLICT OF INTEREST. All purchasing transactions since
inception relating to the Company have been at market prices. Except as
disclosed on SCHEDULE 2.12, no officer or director of the Company or any
affiliate of any such person has or, within the last year has had, either
directly or indirectly:
(a) any equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person which furnishes or
sells or during such period furnished or sold services or products to the
Company, or purchases or during such period purchased from the Company any
goods or services, or otherwise does or during such period did business
with the Company; or
(b) a beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under which it was
obligated or bound or to which its properties may be or may have been
subject, other than stock options and other contracts, commitments or
agreements between the Company and such persons in their capacities as
employees, independent contractors, officers or directors of the Company.
<PAGE>
2.13 NO UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due (including, without limitation,
any liability for taxes and interest, penalties and other charges payable
with respect to any such liability or obligations) which individually or in
the aggregate are material to the condition (financial or otherwise) of the
Company, or prospects of the Company, which are not disclosed in the
unaudited financial statements, or incurred in the ordinary course of
business subsequent to the latest of the unaudited financial statements.
2.14 EMPLOYEE BENEFIT PLANS. The Company has no employee benefit
plans, as defined in Section 3(3) of the Employment Retirement Income
Securities Act.
2.15 EMPLOYEE RELATIONS. The Company is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge
of the Company, sought to represent any of the employees, representatives
or agents of the Company. There is no strike or other labor dispute
involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, prospects or business (as now conducted or
as proposed to be conducted) of the Company, nor is the Company aware of
any labor organization activity involving its employees. The Company is
not aware that any officer or key employee intends to terminate his or her
employment with the Company. The Company believes its relations with its
employees are satisfactory.
2.16 USE OF PROCEEDS. The proceeds of the sale of the Common Stock to
PDTC hereunder shall be used by the Company for working capital and other
general corporate purposes.
2.17 ENVIRONMENTAL MATTERS. To the Company's best knowledge:
(a) all the assets and property currently or previously owned,
leased, operated or used by the Company in connection with its businesses
(the "ENVIRONMENTAL PROPERTY"), all current and previous conditions on and
uses of the Environmental Property and all current and previous ownership
and operations of the Environmental Property and the Company (including,
without limitation, transportation and disposal of Hazardous Materials (as
hereinafter defined) by or for the Company) comply, have at all times
complied, and will comply with, and do not cause, and have not caused,
liability to be incurred by the Company under any current or past federal
or state law relating to the protection of health or the environment,
including, without limitation, the common law, including the law of
nuisance and strict liability ("ENVIRONMENTAL LAW") except where non-
compliance has had and will have no material adverse effect on the assets,
properties, financial condition, prospects or business (as now conducted or
as proposed to be conducted) of the Company; and the Company is not in
violation of and has not violated any Environmental Law which violation has
had or will have a material adverse effect on the assets, properties,
financial condition, prospects or business (as now conducted or as proposed
to be conducted) of the Company;
<PAGE>
(b) the Company has properly obtained and is in compliance with
all necessary permits, registrations, approvals and licenses, and has
properly made all filings with and submissions to any government or other
authority, required by any Environmental Law, the failure of which to
obtain, comply with or make would have a material adverse effect on the
assets, properties, financial condition, prospects or business (as now
conducted or as proposed to be conducted) of the Company. No deficiencies
have been asserted by any such government or authority with respect to such
items which deficiencies have had or will have a material adverse effect on
the assets, properties, financial condition, prospects or business (as now
conducted or as proposed to be conducted) of the Company; and
(c) there has been no spill, discharge, leak, leaching,
emission, migration, injection, disposal, escape, dumping or release of any
kind on, beneath, above or into the Environmental Property or into the
environment surrounding the Environmental Property of any (i) pollutants or
contaminants, other than automobile emissions, (ii) hazardous, toxic,
infectious or radioactive substances, chemicals, materials or wastes
(including, without limitation, those defined as hazardous under any
Environmental Law), (iii) petroleum including crude oil or any derivative
or fraction thereof, (iv) asbestos fibers, other than contained in
automobile break linings or (v) solid wastes ((i) through (v) collectively,
the "HAZARDOUS MATERIALS") which have had or will have a material adverse
effect on the assets, properties, financial condition, prospects or
business (as now conducted or as proposed to be conducted) of the Company.
2.18 REGISTRATION RIGHTS. Except as provided in that certain
Registration Rights Agreement dated as of the date hereof to be entered
into in conjunction with this Agreement, and which is attached hereto as
ANNEX B, the Company has not granted or agreed to grant any rights to have
any security of the Company registered under any federal, state or other
securities law, including piggyback rights, to any person or entity.
2.19 BUSINESS PLAN. The Business Plan represents management's best
estimate and forecast of the Company's business requirements in all
material respects and is believed to be true and correct. The Company has
no current plans to raise additional capital, except as contemplated in
this Agreement, until approximately one (1) year from the date hereof.
3. REPRESENTATIONS AND WARRANTIES OF PDTC. PDTC hereby represents and
warrants that:
3.1 AUTHORIZATION. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms. PDTC
represents that it has full power and authority to enter into this
Agreement.
3.2 ACCREDITED INVESTOR. At the Closing, PDTC will be an
"accredited investor" within the meaning of SEC Rule 501 of Regulation D,
as presently in effect.
3.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
PDTC in reliance upon PDTC's representations to the Company, which by
PDTC's execution of this Agreement hereby confirms that the Shares to be
received by PDTC and the Common Stock
<PAGE>
issuable upon conversion of the Shares (collectively, the "SECURITIES")
will be acquired for investment for PDTC's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part
thereof, and that PDTC has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, PDTC further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer
or grant participations to such person or to any third person, with
respect to any of the Securities.
3.4 INVESTMENT EXPERIENCE. PDTC 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 Shares.
3.5 RESTRICTED SECURITIES. PDTC understands that the Shares it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company 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 Securities Act of 1933, as amended (the "ACT"), only in certain
limited circumstances. In this connection, PDTC represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Act.
3.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, PDTC further agrees not to make any
disposition of all or any portion of the Securities, unless and until the
transferee has agreed in writing for the benefit of the Company to be bound
by this SECTION 3; and
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) PDTC shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement,
reasonably satisfactory to the Company, of the circumstances surrounding
the proposed disposition, and (ii) if reasonably requested by the Company,
PDTC shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Act. It is agreed that the
Company will not require opinions of counsel for transactions made pursuant
to Rule 144, except in unusual circumstances.
3.7 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or more of the following legends as applicable:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
<PAGE>
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.
(b) Any legend required by the laws of any state, as applicable.
4. CONDITIONS OF PDTC'S OBLIGATIONS AT CLOSING. The obligations of PDTC
under Section 1.1(b) of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in SECTION 2 shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing.
4.3 QUALIFICATION. The Commissioner of Corporations of the State of
California shall have issued a permit qualifying the offer and sale of the
Securities to PDTC pursuant to this Agreement, or such offer and sale shall
be exempt from such qualification under the California Corporate Securities
Law of 1968, as amended, and the Company shall have delivered evidence of
the same to PDTC.
4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to PDTC, and PDTC shall have received all such counterpart
original and certified or other copies of such documents as they may
reasonably request.
4.5 CO-DEVELOPMENT AGREEMENT. PDTC shall have executed and delivered
to the Company the Co-Development Agreement for all photodynamic therapy
applications of the Company's technology in the form of ANNEX C attached
hereto.
4.6 OPTION TO PURCHASE THE COMPANY. The Company, and its
shareholders, shall have executed and delivered to PDTC the PDTC Option in
the form of ANNEX D attached hereto, which Option is (i) an option to
purchase the entire Company for ***** and (ii) expires (the "OPTION
EXERCISE DATE") on the later of ***** from the date hereof, or ***** after
the day on which the first surgical procedure to implant the Company's
initial product in a coronary artery in a human subject involving coronary
artery bypass surgery is completed in formally conducted clinic trials
supervised by the United States Food and Drug Administration or the
regulatory equivalent in the country in which treatment is undertaken.
*****Confidential Treatment Requested
<PAGE>
4.7 ***** DEBT. *****.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to PDTC under this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions by PDTC:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of PDTC contained in SECTION 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. PDTC shall have delivered to the
Company the purchase price as specified in SECTION 1.1 herein.
5.3 QUALIFICATION. The Commissioner of Corporations of the State of
California shall have issued a permit qualifying the offer and sale to PDTC
of the Securities, or such offer and sale shall be exempt from such
qualification under the California Corporate Securities Law of 1968, as
amended.
5.4 CO-DEVELOPMENT AGREEMENT. PDTC shall have executed and delivered
to the Company the Co-Development Agreement for all photodynamic therapy
applications of the Company's technology in the form of ANNEX C attached
hereto.
5.5 OPTION AGREEMENT. PDTC shall have executed and delivered to the
Company the PDTC Option Agreement.
6. ADDITIONAL COVENANTS OF THE COMPANY.
6.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
PDTC:
(a) as soon as practicable, but in any event within forty-five
(45) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and
statement of shareholder's equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year,
together with accompanying discussion and analysis by the Company's
management, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles
consistently applied, and audited and certified by independent public
accountants of nationally recognized standing selected by the Company AND
REASONABLY APPROVED BY PDTC; and
(b) within twenty (20) days of the end of each quarter, an
unaudited income statement, schedule as to the sources and application of
funds and a balance sheet for and as of the end of such month, in
reasonable detail.
*****Confidential Treatment Requested
<PAGE>
6.2 INSPECTION. The Company shall permit PDTC at its expense to
visit and inspect the Company's properties, to examine its books of account
and records, to discuss the Company's affairs, finances and accounts with
its officers, employees and accountants all at such reasonable times as may
be requested by PDTC, or to consult with and advise the directors and
officers of the Company on the management of its business; PROVIDED,
HOWEVER, that the Company shall not be obligated pursuant to this SECTION
6.2 to provide access to any information which it reasonably considers to
be a trade secret or similar confidential information.
6.3 BOARD OF DIRECTORS' MEETINGS. PDTC shall receive notices of any
and all Board of Directors', or any committees thereof, meetings in
accordance with the Bylaws of the Company as if PDTC were a member of such
board and each such committee, and shall be entitled to attend, as an
observer, all such Board of Directors, or any committees thereof, meetings;
PROVIDED, HOWEVER, that PDTC shall hold in confidence and trust and act in
a fiduciary manner with respect to all information so provided, which is
designated as confidential by the Company, and, PROVIDED, FURTHER, that the
Company reserves the right to withhold any information and to exclude such
information which could adversely affect the attorney-client privilege
between the Company and its counsel or if the Board of Directors has
received a written reasoned opinion from the Company's counsel to the
effect that fiduciary requirements under the California Corporations Code
would prohibit the Company from providing such information to PDTC or any
shareholder. In addition, the Company will provide PDTC with copies of any
written consents of the Board of Directors, or any committees thereof, at
the time they are first circulated to any director for consideration or
signature.
6.4 FIRST REFUSAL RIGHTS. Except for shares issued pursuant to the
Plan or to ***** pursuant to SECTION 4.7 hereof, in the event that the
Company determines to issue additional securities of the Company, of any
kind or nature, whether debt or equity, or whether Common Stock or shares
convertible into Common Stock of the Company (the "NEW ISSUE"), the Company
will deliver to PDTC a notice of its intention to do so at least ten (10)
business days prior to the date of the New Issue, describing the price per
security at which the New Issue is to be issued, the proposed issuee(s) and
all other terms and conditions of the New Issue. If PDTC so elects, it may
subscribe for the entire amount of the offering or any percentage thereof.
PDTC must give written notice to the Company of its intention to acquire
such New Issue within thirty (30) days of receipt of the foregoing notice.
If there are special terms and considerations involved in the issuance of
the security, PDTC may provide a reasonable economic equivalent of any
unique consideration being provided by the proposed purchaser(s), which
reasonable economic equivalent will constitute compliance with the first
refusal right. If PDTC does not elect to subscribe for the New Issue, the
Company shall not issue or agree to issue New Issue to any person on terms
different from those on which the Securities were offered to PDTC, without
first complying with the provisions of this SECTION 6.4. If the Company
does not effect the New Issue within sixty (60) days of the notice given by
PDTC to the Company under this SECTION 6.4, the provisions of this SECTION
6.4 shall again apply also to such offering.
*****Confidential Treatment Requested
<PAGE>
6.5 PRE-EMPTIVE RIGHTS. Except for shares issued pursuant to the
Plan, in addition to the rights described in SECTION 6.4 above, PDTC shall
be entitled to full pre-emptive rights to acquire its pro rata share of any
offering of the New Issue, whether at the time of the New Issue or upon
conversion of the New Issue into Common Stock. The Company shall deliver
to PDTC written notice of the proposed issue of New Issue at least ten (10)
business days prior to the proposed issuance describing the price per share
at which the New Issue is to be issued, the proposed issuee(s) and all
other terms and conditions of the New Issue or the conversion of the New
Issue into Common Stock. Delivery of such notice shall constitute an offer
by the Company to PDTC to purchase its pro rata share (based on the then
outstanding shares of Common Stock) of the securities being offered on the
terms set forth in the notice. If there are special terms and
consideration involved in the issuance of the New Issue, PDTC may provide a
reasonable economic equivalent of an unique consideration being provided by
the proposed purchaser(s) which reasonable economic equivalent will
constitute compliance with the pre-emptive rights.
6.6 PDTC OPTION TO ACQUIRE THE COMPANY. The Company will take no
action that would eliminate, modify or reduce the PDTC Option including,
without limitation, the sale or transfer of any material assets of the
Company, except that the Company may enter into such license agreements
which do not constitute a disguised sale of the assets of the Company.
6.7 OTHER OPERATING COVENANTS.
(a) The Company agrees not to undertake the following without
prior notice to PDTC:
(i) Increase or modify the compensation except as disclosed
in the Business Plan.
(ii) Enter into any capital expenditures in an amount
exceeding FIFTY THOUSAND DOLLARS ($50,000) except as disclosed in the
Business Plan.
(iii) Enter into any real estate or equipment lease
providing for annual payments in excess of TWENTY FIVE THOUSAND
DOLLARS ($25,000) per annum or a term of more than three (3) years
except as disclosed in the Business Plan.
(b) The Company agrees not to undertake the following without
the prior written consent of PDTC:
(i) Take any action which would adversely impact PDTC's
rights under the Co-Development Agreement or the PDTC Option.
(ii) Pay or declare any dividends of any nature.
<PAGE>
(iii) Enter into any joint venture, strategic alliance
or similar arrangement or license which would adversely impact the Co-
Development Agreement or the PDTC Option, except as expressly
permitted by the Option Agreement.
(c) The Company agrees to:
(i) Maintain key man term life insurance on the life of
Charles S. Love in an amount not less than THREE MILLION DOLLARS
($3,000,000), if available at commercially reasonable premiums.
(ii) Vigorously pursue all corporate opportunities.
(iii) Maintain suitable invention and confidentiality
agreements with all of its employees and consultants.
6.8 TERMINATION OF COVENANTS. The covenants set forth in this
SECTION 6 shall terminate as to PDTC on the earlier to occur of (i) the
effectiveness of a registration statement filed by the Company under the
Securities Act of 1933, as amended, or (ii) at the time that PDTC no longer
owns Common Stock or other securities convertible into Common Stock
equivalent to twenty percent (20%) or more of the then outstanding Common
Stock.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties and representations of
the Company and PDTC contained in or made pursuant to this Agreement shall
expire on the earlier to occur of the Option Expiration Date or the closing
date with respect to the Option Agreement and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of
PDTC or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any of the Securities sold. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other
than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not be considered in
construing or interpreting this Agreement.
7.6 NOTICES. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or
permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by recognized international courier service or
United States mail and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of a telecopy or telex or eight
(8) business days after deposit in the United States mail in the
continental United States (registered or certified, with postage prepaid
and properly addressed). For purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is delivered as provided in this
SECTION 7.6) shall be as follows:
If to Company: Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Attention: Charles S. Love, President
With a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Michael E. Flynn, Esq.
If to PDTC: PDT Cardiovascular, Inc.
7408 Hollister Avenue
Goleta, CA 93117
Attention: David Mai, President
With a copy to: Nida & Maloney, PC
801 Garden Street, Suite 201
Santa Barbara, CA 93101
Attention: Joseph E. Nida, Esq.
7.7 FINDER'S FEE. Except for the finder's fee due to HAI Financial
by the Company, each party hereto represents that it neither is, nor will
be, obligated for any finder's fee or commission in connection with this
transaction.
The Company agrees to indemnify and hold harmless PDTC from any
liability for any commission or compensation in the nature of a finder's
fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
7.8 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or the Restated
Articles of Incorporation, the
<PAGE>
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and PDTC. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement
at the time outstanding (including securities into which such securities
are convertible), each future holder of all such securities, and the
Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
7.11 AGGREGATION OF STOCK. All of the Shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
7.12 INDEMNITY.
(a) The Company shall indemnify, defend and save harmless PDTC
from, against, for and in respect of any loss which arises out of or
relates to (i) a state of facts as a result of which any representation
made by the Company in SECTION 3 hereof or in any document delivered
pursuant to this Agreement is untrue, inaccurate or misleading in any
respect as of the date hereof, or (ii) the breach of any warranty made by
the Company in SECTION 3 hereof, or (iii) any failure of the Company to
comply with, perform or observe any other term, provision or condition
contained in this Agreement or in any document delivered pursuant to this
Agreement; and any reasonable expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder including, without
limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and fees and disbursements of legal counsel, investigators,
expert witnesses, accountants and other professionals in connection
therewith.
(b) Each of the parties hereto agrees to render to the other
parties such assistance as they may reasonably require and to cooperate in
good faith with the other parties in order to ensure the proper and
adequate defense of any claim, action, suit or proceeding brought by any
third party.
(c) The remedies of the parties provided for in this SECTION
7.12 shall be cumulative, shall not preclude the assertion by any party of
any other rights such party may have under this Agreement, applicable law
or otherwise and shall survive redemption or repurchase of the Securities.
<PAGE>
7.13 LOST OR DESTROYED CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate evidencing any Securities and of a letter of
indemnity reasonably satisfactory to the Company (PROVIDED that in the case
of an institutional holder, its own letter of indemnity shall be deemed
sufficient), and upon reimbursement to the Company of all reasonable
expenses incident thereto, and upon surrender or cancellation of such
certificate, if mutilated, the Company will make and deliver a new
certificate of like tenor in lieu of such lost, stolen, destroyed or
mutilated certificate.
7.14 PUBLIC DISCLOSURE. Except as may be required to comply with
applicable law and the requirements of PDTC's parent corporation, as an
entity whose stock is publicly traded, no party to this Agreement shall
make or cause to be made any press release or similar public announcement
or communication concerning the execution or performance of this Agreement
and any of the transactions contemplated hereby, unless specifically
approved in advance and in writing by the Company and PDTC.
Notwithstanding the foregoing, unless required by an opinion of PDTC's
counsel, PDTC will not disclose the non-exercise of its Option described in
SECTION 6.6 hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
RAMUS MEDICAL TECHNOLOGIES,
a California corporation
By: /s/ CHARLES S. LOVE
----------------------------------
Title: President
ADDRESS:
6420 Via Real, Unit 8
Carpinteria, CA 93013
PDTC:
PDT CARDIOVASCULAR, INC.,
a Delaware corporation
By: /s/ GARY S. KLEDZIK
----------------------------------
Title: Chairman
ADDRESS:
7408 Hollister Avenue
Goleta, CA 93117
<PAGE>
SCHEDULE I
*****
*****Confidential Treatment Requested
<PAGE>
SCHEDULE 2.12
Michael E. Flynn, a director of the Company, is a shareholder of Stradling,
Yocca, Carlson & Rauth. During the year, Stradling, Yocca, Carlson & Rauth
has acted as corporate counsel to the Company and has received fees in
connection with the rendering of such legal services.
On November 12, 1996, Charles S. Love, President, Chief Executive Officer and
a director of the Company, borrowed $35,000 from the Company pursuant to the
terms of a Promissory Note dated such date. The principal and interest due
under such Promissory Note are due and payable on December 31, 1996.
<PAGE>
ANNEX A
RESTATED ARTICLES OF INCORPORATION
<PAGE>
FIRST RESTATED ARTICLES OF INCORPORATION
OF RAMUS MEDICAL TECHNOLOGIES,
a California corporation
The undersigned, Charles S. Love and Michael E. Flynn, hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Ramus Medical Technologies.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares that the corporation is authorized to issue is twenty
million (20,000,000) shares. Fifteen million (15,000,000) shares shall be
Common Stock and five million (5,000,000) shares shall be Preferred Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of 2,500,000 shares, are as set forth below in this
Article III(B). The Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or any series thereof in any Certificate of
Determination or the corporation's Restated Articles of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the Preferred
Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, PARI PASSU
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series A
Preferred Stock), prior or subsequent to the issue of that series, but not below
the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
<PAGE>
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $0.10 per
share per annum or, if greater (as determined on a per annum basis and on an as
converted basis for the Series A Preferred Stock), an amount equal to that paid
on any other outstanding shares of this corporation, payable quarterly when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $1.00 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") and (ii) an amount equal
to declared but unpaid dividends on each such share (such amount of declared but
unpaid dividends being referred to herein as the "Premium"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the amount of such stock owned by each
such holder.
(b) After the distribution described in subsection (a) above has
been paid, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the corporation
available for distribution to shareholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held.
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of this corporation or the effectuation
by the corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the corporation is disposed
of, shall be deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 2.
3. REDEMPTION. The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsection 4(c), each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of this
corporation or any transfer agent for the Series A Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Series A Issue Price by the Conversion Price at the
time in effect for such share. The initial
<PAGE>
Conversion Price per share for shares of Series A Preferred Stock shall be
the Original Series A Issue Price; provided, however, that the Conversion
Price for the Series A Preferred Stock shall be subject to adjustment as set
forth in subsection 4(c).
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
then in effect for such Series A Preferred Stock immediately upon the
consummation of the corporation's sale of its Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement under the
Securities Act of 1933, as amended, the public offering price of which was not
less than $5.00 per share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) and $7,500,000 in the aggregate.
(b) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock under Section 4(a)(i) and (ii) above, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series A Preferred Stock, and shall give written
notice by mail, postage prepaid, to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with any underwritten offer of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series A Preferred Stock shall
not be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of such sale of securities.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) (A) Upon each issuance by the corporation of any
Additional Stock (as defined below), after the date upon which any shares of the
Series A Preferred Stock were first issued (the "Purchase Date" with respect to
such series), without consideration or for a consideration per share less than
the greater of the Current Market Value Per Share (as defined below) or the
Conversion Price for such series in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock that the aggregate consideration received
by the corporation for such issuance would purchase at the greater of such
Current Market Value Per Share or such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock;
provided, however, that foregoing calculation shall not take into account shares
deemed issued pursuant to Section 4(c)(i)(E) on account of options, rights or
convertible or exchangeable securities (or the actual or deemed consideration
therefor), except to the extent (i) such options, rights or convertible or
exchangeable securities have been exercised, converted or exchanged or (ii) the
consideration to be paid upon such exercise, conversion or exchange per share of
underlying
<PAGE>
Common Stock is less than or equal to the per share consideration for the
Additional Stock which has given rise to the Conversion Price adjustment
being calculated. For the purpose of any computation under this subsection
4(c), "Current Market Value Per Share" shall mean the fair market value per
share of such Additional Stock as determined by the Board of Directors;
provided, however, in the event that a majority of the holders Series A
Preferred Stock disagree with the determination of Current Market Value Per
Share by the Board of Directors, such determination shall be made by an
unaffiliated investment banking firm of recognized national standing mutually
agreed to by the Board of Directors and the majority of the holders of Series
A Preferred Stock; provided, further, the fees and expenses of such
investment banking firm shall be borne by the corporation if the dollar
amount of the Current Market Value Per Share as determined by such investment
banking firm is greater than or equal to 110% of the dollar amount of the
Current Market Value Per Share as determined by the Board of Directors, but
otherwise shall be borne entirely by the holders of Series A Preferred Stock
on a pro rata basis.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments that are not required to be made by
reason of this sentence shall be carried forward and shall be either taken
into account in any subsequent adjustment made prior to 3 years from the date
of the event giving rise to the adjustment being carried forward, or shall be
made at the end of 3 years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for
in subsections 4(c)(i)(E)(3) and (E)(4) below, no adjustment of such
Conversion Price pursuant to this subsection 4(c)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined by
the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4(c)(i) and subsection 4(c)(ii):
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(c)(i)(C) and 4(c)(i)(D) above), if any, received by the
corporation upon the issuance of such options or rights plus the then applicable
exercise price provided in such options or rights for the Common Stock covered
thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but
<PAGE>
without taking into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration, if
any, received by the corporation for any such securities and related options
or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received
by the corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recompute to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
5. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(c)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(c)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E))
by this corporation after the Purchase Date other than the following:
(A) Common Stock issued pursuant to a transaction
described in subsection (4)(c)(iii) hereof, or
(B) shares of Common Stock issuable or issued to
employees, consultants or directors of this corporation directly or pursuant to
a stock option plan or restricted stock plan approved by the Board of Directors
of this corporation, or
(C) shares of Common Stock or securities convertible
into Common Stock issued to persons or entities with which the Company has
business relationships, provided such issuances are for other than primarily
equity financing purposes.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the
<PAGE>
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with number of shares
issuable with respect to Common Stock Equivalents determined from time to
time in the manner provided for deemed issuances in subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this subsection 4(d), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(e) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 5), provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
(f) NO IMPAIRMENT. This corporation will not, by any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by this corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series A Preferred Stock against
impairment. However, nothing herein shall be construed to prohibit the
corporation from soliciting consent from the holders of a majority of the then
outstanding Series A
<PAGE>
Preferred Stock to waive the Conversion Rights granted in this Section 4.
All holders of Series A Preferred Stock shall be bound by any such consent to
waive.
(g) NO FRACTIONAL SHARES AND CERTIFICATES AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 4,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
(h) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such proposes.
(j) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited with a private courier or in the United States
mail, postage prepaid, and addressed to each holder of record at his address
appearing on the books of this corporation.
5. VOTING RIGHTS. The holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded
<PAGE>
to the nearest whole share), and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with
the bylaws of this corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote.
6. PROTECTIVE PROVISIONS. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the Series A Preferred
Stock which is entitled, other than solely by law, to vote with respect to the
matter:
(a) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares;
(b) increase the authorized number of shares of Series A
Preferred Stock;
(c) increase the authorized number of shares of Preferred Stock;
(d) create any new class or series of stock or any other
securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Series A Preferred Stock;
(e) do any act or thing which would result in taxation of the
holders of shares of the Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1954, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended);
(f) make any payment of dividends (other than dividends payable
wholly in shares of Common Stock) to the holders of the Common Stock; or
(g) make any repurchase or acquisition of the shares of the
corporation other than as provided in these Articles or in accordance with the
repurchase rights of the corporation as set forth in any stock purchase
agreements between the corporation and its employees or consultants.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by the corporation. The
Articles of Incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
8. REPURCHASE OF SHARES. In connection with repurchases by this
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
<PAGE>
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
(A) The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(B) This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations code with respect
to actions for breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved by the
Board of Directors of said corporation.
FOUR: The foregoing amendment and restatement was approved by the holders
of the requisite number of shares of this corporation in accordance with
Sections 902 and 903 of the California General Corporation Law. The total
number of outstanding shares of Common Stock entitled to vote with respect to
the foregoing amendment was 3,500,000 shares and all such shares voted in favor
of such amendment. No other shares of capital stock are issued and outstanding.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
December 23, 1996.
/s/ CHARLES S. LOVE
----------------------------------
Charles S. Love
President
/s/ MICHAEL E. FLYNN
----------------------------------
Michael E. Flynn
Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing First Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at Santa Barbara, California, on December 23, 1996.
/s/ CHARLES S. LOVE
----------------------------------
Charles S. Love
President
/s/ MICHAEL E. FLYNN
----------------------------------
Michael E. Flynn
Secretary
<PAGE>
ANNEX B
REGISTRATION RIGHTS AGREEMENT
<PAGE>
SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
RAMUS MEDICAL TECHNOLOGIES
DECEMBER 27, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 REQUEST FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . 2
1.3 COMPANY REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 3
1.5 FURNISH INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 6
1.6 EXPENSES OF DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . 6
1.7 EXPENSES OF COMPANY REGISTRATION . . . . . . . . . . . . . . . . . 6
1.8 UNDERWRITING REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . 6
1.9 DELAY OF REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . 7
1.10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. . . . . . . . . . . 9
1.12 FORM S-3 REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . 10
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . 10
1.14 "MARKET STAND-OFF" AGREEMENT . . . . . . . . . . . . . . . . . . . 11
1.15 AMENDMENT OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . 11
1.16 TERMINATION OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . 11
1.17 MORE FAVORABLE REGISTRATION RIGHTS . . . . . . . . . . . . . . . . 12
2. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . 12
2.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 TITLES AND SUBTITLES . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 AGGREGATION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
THIS SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT is made as
of the 27th day of December, 1996, by and among Ramus Medical Technologies, a
California corporation (the "Company"), and PDT Cardiovascular, Inc.
("Purchaser") and ***** ("*****") (Purchaser and ***** shall be known,
collectively, as the "Investors").
WHEREAS, Purchaser is a party to the Investment Agreement with the
Company, of even date herewith (the "Investment Agreement"), pursuant to which
Purchaser has purchased shares of the Company's Series A Preferred Stock; and
WHEREAS, pursuant to the Investment Agreement, the Company has agreed
to grant Purchaser registration rights in respect of the Series A Preferred
Stock purchased by Purchaser;
WHEREAS, ***** has purchased shares of the Company's Series A
Preferred Stock as of the date hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term the "Act" shall mean the Securities Act of
1933, as amended to date, and the term the "1934 Act" shall mean the
Securities Exchange Act of 1934, as amended to date;
(b) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means the Common
Stock issuable or issued upon conversion of the Company's Series A Preferred
Stock;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(e) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.3 hereof; and
(f) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act
subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
*****Confidential Treatment Requested
<PAGE>
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after
January 1, 2002, a written request from the Holders of at least fifty percent
(50%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of at least
fifty percent (50%) of the Registrable Securities then outstanding, then the
Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations of
subsection 1.2(b), effect as soon as practicable, and in any event shall use
its best efforts to effect within 90 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within ten (10) days of the mailing of such notice by
the Company in accordance with Section 2.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section
1.2 and the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter or underwriters will be
selected by the Company and shall be reasonably acceptable to a majority in
interest of the Initiating Holders. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company as
provided in subsection 1.4(e) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to
defer taking action with respect to such filing for a period of not more than
90 days after receipt of the request of the Initiating Holders.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, or a registration on any form which does not include or incorporate
substantially the same information as would be required to be included in a
registration
<PAGE>
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within ten (10) days after
mailing of such notice by the Company in accordance with Section 2.5, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days, unless such registration is or may be effected on form S-3
(or any successor form) in which case the Company shall keep such registration
effective until such Registrable Securities are disposed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be reasonably requested by
any holder of Registrable Securities or any underwriter of Registrable
Securities or as may be necessary to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement or supplement to the
prospectus.
(c) Before filing a registration statement or prospectus
or any amendments or supplements thereto, furnish to the Holders of the
Registrable Securities covered by such registration statement and the
underwriters, if any, a copy of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters, and
the Company will not file any registration statement or amendment thereto or
any prospectus or any supplement thereto to which the Holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
registration statement or the underwriters, if any, shall reasonably object
within 10 days after receipt of such documents proposed to be filed.
(d) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(e) Prior to any public offering of Registrable
Securities, register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any, and their respective counsel
in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any seller or underwriter reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject.
(f) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing
<PAGE>
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.
(g) Notify the selling holders of Registrable Securities
and the managing underwriters, if any, promptly, and (if requested by any such
person) confirm such advice in writing,
(1) when the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the
registration statement or any post-effective amendment, when the
same has become effective,
(2) of any request by the SEC for amendments or supplements
to the registration statement or the prospectus or for additional
information,
(3) of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement or the initiation of
any proceedings for that purpose,
(4) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the registrable
securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(5) at any time when a prospectus relating to the offer or
sale of any Registrable Securities is required to be delivered under
the Act, of the existence of any fact known to the Company which
results in the registration statement, the prospectus or any
document incorporated therein by reference containing an untrue
statement of material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(h) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration statement at the
earliest possible moment.
(i) if requested by the managing underwriter or
underwriters of any holder of Registrable Securities being sold in connection
with an underwritten offering, promptly incorporate in a prospectus supplement
or post-effective amendment such information as the managing underwriters and
the holders of a majority in aggregate principal amount of the Registrable
Securities being sold agree should be included therein relating to the plan of
distribution with respect to such Registrable Securities, including without
limitation information with respect to the amount of Registrable Securities
being sold to such underwriters, the purchase price being paid therefor by
such underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be sold
in such offering; and make all required filings of such prospectus supplement
or post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment.
(j) If requested, furnish, without charge, to (i) counsel
to the selling holders of Registrable Securities and each managing
underwriter, at least one signed copy of the registration statement and (ii)
each selling holder of Registrable Securities, at least one conformed copy of
the registration statement, and, with respect to copies furnished pursuant to
both clauses (i) and (ii) hereof, any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference).
<PAGE>
(k) Cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be sold and not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two business days
prior to any sale of Registrable Securities to the underwriters.
(l) If any fact contemplated by paragraph (g)(5) above
shall exist, prepare a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading.
(m) Use its best efforts to cause all Registrable
Securities covered by the Registration statement to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed, if requested by the holders of a majority in
aggregate principal amount of such Registrable Securities or the managing
underwriters, if any.
(n) Obtain a CUSIP number for all Registrable Securities,
not later than the effective date of the registration statement;
(o) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to
their security holders, earnings statements satisfying the provisions of
Section 11(a) of the Securities Act (in accordance with Rule 158 thereunder or
otherwise), no later than 45 days after the end of any 12-month period (or 90
days, if such period is a fiscal year) (1) commencing at the beginning of the
fiscal quarter following that in which Registrable Securities are sold to
underwriters in an underwritten offering, of, if not sole to underwriters in
such an offering, (2) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the registration
statement, which statements shall cover said 12-month periods.
(p) Cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation
by an underwriter (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of the
NASD).
(q) Promptly prior to the filing of any document (other
than any document filed pursuant to Items 601 of Regulation S-K) that is to be
incorporated by reference into the registration statement or the prospects
(after initial filing of the registration statement) provide draft copies of
such document to counsel to the selling holders of Registrable Securities and
to the managing underwriters, if any, make the Company's representatives
available for discussion of such document and make such changes in such
document prior to the filing thereof as counsel for such selling holders or
underwriters may reasonably request.
1.5 FURNISH INFORMATION.
<PAGE>
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to
the Registrable Securities of any selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required under the Act to effect the registration of
such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Section 1.2 or Section 1.12 if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section1.2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses).
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.13), including (without limitation) all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not jeopardize the success of the offering by the Company. The Company shall
use its best efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit all Registrable Securities requested
to be included in the registration for such offering to include all such
Registrable Securities in such offering on the same terms and conditions as
any other securities included therein. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with
the success of the offering, then the Company shall be required to include in
the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling Holders according to the total amount
of securities entitled to be included therein owned by each selling Holder or
in such other proportions as shall mutually be agreed to by such selling
Holders) but in no event shall (i) the amount of securities of the selling
Holders included in the offering be reduced below twenty percent (20%) of the
total amount of securities included in such offering, unless such
<PAGE>
offering is the initial public offering of the Company's securities in which
case the selling Holders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are
included or (ii) notwithstanding (i) above, any shares being sold by a
shareholder exercising a demand registration right similar to that granted in
Section 1.2 or 1.3 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling Holder which
is a Holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders of such Holder,
or the estates and family members of any such partners and retired partners
and any trusts for the benefit of any of the foregoing persons shall be deemed
to be a single "selling Holder", and any pro-rata reduction with respect to
such "selling Holder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling Holder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the 1934 Act, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, or any rule or
regulation promulgated under the Act, or the 1934 Act; and the Company will
pay to each such Holder, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.10(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act, insofar
as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay
any legal or other expenses reasonably
<PAGE>
incurred by any person intended to be indemnified pursuant to this subsection
1.10(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10 (b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, the
indemnifying party(ies) shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
the payment of all reasonable expenses. Such indemnifying party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expense of such indemnifying party unless (a) the indemnifying party(ies) have
agreed to pay such fees and expenses or (b) the indemnifying party(ies) shall
have failed to employ counsel reasonably satisfactory to such indemnified
party in any such action or proceeding or (c) the named parties to any such
action or proceeding (including any impleaded parties) include such
indemnified party and the indemnifying party(ies), and such indemnified party
shall have been advised by counsel that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party(ies) (in which case,
if such indemnified party notifies the indemnifying party(ies) in writing that
it elects to employ separate counsel at the expense of the indemnifying
party(ies), the indemnifying party(ies) shall not have the right to assume the
defense of such action or proceeding on behalf of such indemnified party, it
being understood, however, that the indemnifying party(ies) shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm or
attorneys at any time for such indemnified party or any other indemnified
parties, which firm shall be designated in writing by such indemnified
parties). The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if and to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 and Rule 144A
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
<PAGE>
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act;
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form; and
(e) if the Company is not required to file reports with
the SEC under the Act or the 1934 Act, the Company will, upon the request of
any holder of Registrable Securities made after the date hereof, (i) make
publicly available such information as is necessary to permit sales pursuant
to Rule 144 under the Act and (ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the Act.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such
Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this
Section 1.12: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of
less than $500,000; (3) if the Board of Directors shall have determined, and
the Company shall furnish to the Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the
Form S-3 registration statement for a period of not more than 90 days after
receipt of the request of the Holder or Holders under this Section1.12;
provided, however, that the Company shall not utilize this right more than
once in any twelve month period; (4) if
<PAGE>
the Company has, within the twelve (12) month period preceding the date of
such request, already effected a registration on Form S-3 for the Holders
pursuant to this Section 1.12 or for any other holders of the Company's
capital stock in which the Holders shall have been granted the opportunity to
participate without limitation or has effected three (3) prior such
registrations on Form S-3 for the Holders or for any other holders of the
Company's capital stock in which the Holders shall have been granted the
opportunity to participate without limitation; (5) if less than 30% of the
Holders request such registration, or (6) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file and
cause to be effective a registration statement covering the Registrable
Securities and other securities so requested to be registered as soon as
practicable after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to
Section 1.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders, and counsel for
the Company, shall be borne by the Company. Registrations effected pursuant
to this Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Section 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee
or assignee of such securities who, after such assignment or transfer, holds
at least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided the Company is, within thirty (30) days,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall not be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is, in the written opinion of
counsel to the Company reasonably acceptable to the Holder, not restricted
under the Act. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who
would not qualify individually for assignment of registration rights shall
have a single attorney-in-fact for the purpose of exercising any rights,
receiving notices or taking any action under this Section 1.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees
that, during the period of duration specified by the Company and an
underwriter of common stock or other securities of the Company (not to exceed
180 days), following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except common stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering; and
<PAGE>
(b) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) are similarly bound.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 1 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon
each holder of any Registrable Securities then outstanding, each future holder
of all such Registrable Securities, and the Company.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after three (3)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public; provided that the Company is current in all of its reports
required to be filed with the SEC during such three-year period.
1.17 MORE FAVORABLE REGISTRATION RIGHTS. If the Company shall
grant to any party more favorable registration rights than those set forth
herein, then such more favorable registration rights shall be granted to
Investors or Holders.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series A Preferred Stock of the
Company held by Investors or any Common Stock of the Company issued upon
conversion thereof). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California.
2.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or four
days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party on the signature page hereof, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties.
<PAGE>
2.6 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.7 AGGREGATION OF STOCK. All shares of the Series A Preferred
Stock of the Company held or acquired by affiliated entities or persons shall
be aggregated together for the purpose of determining the availability of any
rights under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
RAMUS MEDICAL TECHNOLOGIES
By: /s/ CHARLES S. LOVE
------------------------------
Charles S. Love, President
Address: 6420 Via Real, Suite 8
Carpinteria, CA 93013
PDT CARDIOVASCULAR, INC.
By: /s/ GARY S. KLEDZIK
------------------------------
Title: Chairman
---------------------------
Address: 7408 Hollister Avenue
Goleta, CA 93117
/s/ *****
---------------------------------
Address: *****
*****Confidential Treatment Requested
<PAGE>
ANNEX C
CO-DEVELOPMENT AGREEMENT
<PAGE>
December 27, 1996
Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Re: CO-DEVELOPMENT AGREEMENT
Gentlemen:
By this letter we are pleased to confirm the terms of our mutual
agreements regarding the co-development between PDT Cardiovascular, Inc.
("PDTC") and Ramus Medical Technologies ("Ramus") of technology and devices for
use in applying photodynamic therapy technology to Ramus' autologous vascular
grafts for coronary arteries and for other vessels ("Ramus Products"). PDTC
(and its affiliates) is a pharmaceutical and medical device company which, using
its proprietary technology and know-how, has developed and will continue to
develop, on its own or in collaboration with third party vendors, photoreactive
drugs and related electromagnetic energy sources, whether used separately or in
combination ("Photodynamic Therapy"), for use in photodynamic therapy. Ramus is
a development stage medical device company which, using its proprietary
technology and know-how, has developed the Ramus Products and will continue to
develop the Ramus Products.
PDTC and Ramus agree to use reasonable efforts to cooperate in the
joint development of technology, instruments, devices and products for applying
PDTC's Photodynamic Therapy technology to Ramus Products. Unless otherwise
agreed to in writing by the parties, PDTC shall conduct, or arrange for one or
more a third parties to conduct, all reasonably necessary non-human tests in
preparation and support of a regulatory submission (the "Pre-Clinical Tests"),
and Ramus shall manufacture Ramus Products for use in the Pre-Clinical Tests in
quantities agreed to in writing by the parties. Unless otherwise agreed to in
writing by the parties, PDTC shall also conduct, or arrange for one or more a
third parties to conduct, all reasonably necessary tests performed on humans in
preparation and support of regulatory submissions (the "Clinical Tests") of co-
developed technology and devices.
Ramus will provide without charge reasonable quantities of Ramus
Products to PDTC for purposes of the co-development of technology and devices
and for the Pre-Clinical Tests and Clinical Tests. PDTC will provide its
photodynamic therapy technology to the co-development of technology and devices
and the Pre-Clinical Tests and Clinical Tests without charge. All other costs
of the Pre-Clinical Tests and Clinical Tests will be paid for by PDTC.
Unless otherwise agreed to in writing by the parties, PDTC will, with
counsel of its choice, prepare, file and prosecute, in the name of PDTC and at
PDTC's expense, any applicable
<PAGE>
regulatory submissions covering Co-Developed Technology (as defined below)
and instruments, devices or products, or functionally separable component
thereof, that embody, incorporate, are composed of, function or are produced
by means of, or derive utility from any Co-Developed Technology
("Co-Developed Devices"), including any "investigational device exemption"
application ("IDE"), "investigational new drug" application ("IND"),
Pre-Market Approval Application or 501(k) Application ("PMA") or New Drug
Application ("NDA") or any other application submitted to the United States
Food and Drug Administration or any successor agency ("FDA") for the purpose
of conducting clinical investigations of a drug or device, obtaining
premarket or regulatory approval for a drug or device, and any supplement or
abbreviated application relating thereto (or the equivalent in any foreign
country). The parties also agree to cooperate to secure government or
private price approvals and reimbursement qualifications in preparation for
product launch of co-developed devices in the field of photodynamic therapy.
PDTC and Ramus agree to provide each other with access to information or data
relating to Co-Developed Devices which the other may need for regulatory
submissions or compliance. The actual costs of any regulatory submission
shall be paid by PDTC.
PDTC and Ramus shall jointly own the entire right, title and interest
in and to all technology conceived, made, created, developed, produced, designed
or reduced to practice, jointly by PDTC and Ramus, or their respective
affiliates, during the course and as a result of the performance of their work
and services under this co-development agreement ("Co-Developed Technology") and
all Co-Developed Devices; provided, however, PDTC grants to Ramus an exclusive
worldwide license under PDTC's interest in the Co-Developed Technology on terms
to be agreed upon by the parties to make, use, offer for sale, import, export,
distribute and sell Co-Developed Devices outside of Photodynamic Therapy
applications. PDTC will retain all right, title and interest in and to all
ideas, concepts, inventions (whether or not patentable), discoveries,
improvements, unpublished research and development information, information
disclosed (whether or not claimed) in patent applications or unissued patents,
trade secrets, technical and other information and data, including apparatus,
compositions, methods, processes, techniques, controls, routines, systems
(including quality assurance systems), procedures, reports, operating, test and
performance data, and process, mechanical, material and product specifications
("Know-How") owned by or licensed to PDTC or any of its affiliates other than
Co-Developed Technology ("PDTC Technology"), and Ramus will retain all right,
title and interest in and to all Know-How owned by or licensed to Ramus or any
of its affiliates other than Co-Developed Technology ("Ramus Technology").
PDTC will retain the entire right, title and interest in and to any compound
owned by or licensed to PDTC or any of its affiliates, to the extent that PDTC
has the right to use, make, sell or license such compound ("PDTC Drugs"), and
nothing in this agreement shall give Ramus any rights in or to any PDTC Drugs.
Until after the expiration of the term of this agreement, except as
expressly set forth herein or otherwise agreed to in writing by the parties:
(i) neither PDTC nor Ramus shall, directly or indirectly, grant any rights in,
to or under the Co-Developed Technology to any third party; (ii) neither PDTC
nor Ramus shall, directly or indirectly, make, use, sell, distribute or license
Co-Developed Devices; (iii) Ramus shall not, directly or indirectly, make, use,
sell, distribute or license any Co-Developed Device with any Photodynamic
Therapy drugs other than PDTC Drugs; and (iv) Ramus shall not, directly or
indirectly, make, use, sell, distribute or license any Ramus Technology or any
products developed thereunder, other than as required for the manufacture, use,
sale, distribution or license of Co-Developed Devices in the field of
photodynamic therapy or involving any other form or provider of photodynamic
therapy. The terms of any commercialization of any Co-Developed Devices or Co-
Developed Technology shall be agreed by the parties in writing prior to such
commercialization.
<PAGE>
If a patentable invention embodying Co-Developed Technology, or
related to Co-Developed Devices or to photodynamic therapy using Ramus Products,
is (a) conceived in the course of this agreement and (b) reduced to practice
either during the term of this agreement or during the six (6) month period
after its termination, PDTC and Ramus shall together determine whether to file
patent applications covering the invention. Both parties agree to begin
application and prosecution in a timely manner once patentable inventions are
identified and disclosed. Any such patent applications shall be prepared by
PDTC and filed jointly in the name of PDTC and Ramus. PDTC shall prepare,
prosecute and maintain any and all United States and foreign patents embodying
Co-Developed Technology or related to Co-Developed Devices or photodynamic
therapy using Ramus Products. The reasonable costs thereof shall be shared
equally by the parties. If PDTC elects not to prepare, prosecute or maintain
any such patent, Ramus shall have the right, but not the obligation, to do so in
its own name and for its own benefit and PDTC agrees to execute an assignment of
its rights in such patent to Ramus. If PDTC and Ramus mutually agree in writing
to allow either party to utilize any Patent outside the field of photodynamic
therapy using Ramus Products, such agreement shall include, at a minimum, terms
as to the development, manufacture and royalty obligations of the parties.
In exercising the rights, and in carrying out the duties and
obligations set forth in this agreement, each party shall comply with all
applicable state, federal and country laws or rules. Each party shall also
comply to the extent of its duties hereunder with all applicable state, federal
or other rules and regulations governing the manufacture, records, distribution,
promotion, marketing and sale of Co-Developed Devices and that it shall
specifically comply with applicable current good clinical practices, good
laboratory practices and good manufacturing practices promulgated from time to
time by the FDA in accordance with the Food, Drug & Cosmetic Act (21 U.S.
Section 301, ET SEQ.) as such shall be amended from time to time and
regulations promulgated thereunder, as amended from time to time (or the
equivalent in any foreign country). PDTC and Ramus will promptly notify each
other of, and provide copies of, any correspondence and other documentation
received or prepared in connection with any FDA action or notification regarding
Co-Developed Devices.
Unless otherwise agreed to by the parties, the parties will maintain
in confidence information relating to PDTC Technology, Ramus Technology, Co-
Developed Technology or Co-Developed Devices (including without limitation,
information developed in Pre-Clinical Tests and Clinical Tests) and licenses,
patents, patent applications, technology or processes and business plans, in
each case, of the other party, including information designated as confidential
in writing from one party to another (all of the foregoing hereinafter referred
to as "Confidential Information"), disclosed to the other and shall not, during
the term of this agreement and for a period of five (5) years thereafter, use
such Confidential Information, except as permitted by this agreement or disclose
the same to anyone other than those of its officers, directors, employees,
affiliates and sublicensees as are necessary in connection with either parties'
activities as contemplated in this agreement. This obligation of
confidentiality shall not apply to the extent that (i) a party is required to
disclose information by applicable law, such as pursuant to Securities and
Exchange Commission rules and regulations, or by order of a governmental agency
or a court of competent jurisdiction; (ii) a party can demonstrate that the
disclosed information was, at the time of disclosure, already in the public
domain other than as a result of actions or failure to act of a party, its
officers, directors, employees, affiliates and sublicensees in violation hereof;
(iii) the disclosed information was rightfully known by a party or its
affiliates or sublicensees (as shown by its written records) prior to the date
of disclosure to the other party in connection with this agreement; or (iv) the
disclosed information was received by a party or its affiliates or sublicensees
on an unrestricted basis from a third party which is not the other party or an
<PAGE>
affiliate of the other party and not under a duty of confidentiality, and which
was rightfully known to said source.
This co-development agreement shall be effective as of the date
hereof, and shall continue in full force and effect for the greater of seventeen
(17) years or twelve (12) years from the date of first NDA or PMA approval for
commercial sale of Co-Developed Devices or the life of any patent issued on the
Co-Developed Technology. Provided that both parties agree in writing, at least
one hundred eighty (180) days prior to the expiration of the then existing term,
PDTC and Ramus shall have the option to extend the term of this agreement by
successive two (2) year periods.
If the foregoing correctly sets forth our agreement with respect to
the matters set forth herein, please so indicate by signing two copies of this
agreement and returning one of such signed copies to PDTC, whereupon this
agreement will constitute our binding agreement with respect to the matters set
forth herein.
Very truly yours,
PDT CARDIOVASCULAR, INC.
By: /s/ GARY S. KLEDZIK
-------------------------------
Title: Chairman
Accepted and agreed to as of
the 27th day of December 1996
RAMUS MEDICAL TECHNOLOGIES
By: /s/ CHARLES S. LOVE
--------------------------------
Title: President
<PAGE>
ANNEX D
PDTC OPTION
<PAGE>
OPTION TO PURCHASE
RAMUS MEDICAL TECHNOLOGIES
THIS OPTION TO PURCHASE RAMUS MEDICAL TECHNOLOGIES (the "OPTION AGREEMENT")
is made and entered into on the date hereinafter set forth by and among RAMUS
MEDICAL TECHNOLOGIES, a California corporation ("RAMUS"), PDT CARDIOVASCULAR,
INC., a Delaware corporation ("PDTC"), and the other shareholders of Ramus
identified in SCHEDULE 1 hereto (collectively, the "SHAREHOLDERS").
WHEREAS:
A. PDTC and Ramus are entering into an Investment Agreement of even date
(the "INVESTMENT AGREEMENT");
B. The Shareholders own all of the outstanding shares of capital stock of
Ramus or hold all of the outstanding options, rights or other securities to
acquire the shares of capital stock of Ramus;
C. The Investment Agreement contemplates Ramus granting to PDTC an option
to purchase Ramus as set forth herein; and
D. The Shareholders have also agreed to join in this Option Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. OPTION.
1.1 OPTION TO PURCHASE RAMUS. In consideration of the execution and
performance of the Investment Agreement, Ramus and the Shareholders hereby agree
that PDTC has fully complied with all obligations in the Investment Agreement as
required to date, Ramus and the Shareholders do hereby grant to PDTC an option
(the "OPTION") to purchase Ramus for the purchase price set forth in SECTION 1.2
below.
1.2 PURCHASE PRICE. Subject to the provisions of SECTION 4 with
respect to the issuance of PDT Shares, the purchase price for all of Ramus shall
be equal to ***** (the "PURCHASE PRICE").(1) The Purchase Price will be
distributed on a pro rata basis to the holders of outstanding Ramus common stock
(the "COMMON STOCK"). Each Shareholder agrees to convert any convertible
securities into Common Stock and to exercise any options, rights or other
securities granting the right to acquire shares of Common Stock upon notice by
PDTC of the exercise of the Option; PROVIDED, HOWEVER, PDTC hereby expressly
acknowledges and agrees that, as provided in the option agreements of those
Shareholders who are option holders, such option holders may provide for the
exchange of their options for their applicable portion of the Purchase Price
having a value equal to the difference, or spread, between (i) their applicable
portion of the Purchase Price issuable upon exercise of the option had the
option been exercised immediately prior to the closing and (ii) the applicable
exercise price of the option.
*****Confidential Treatment Requested
- -------------------
(1) PDTC's Shares shall not be subject to the Option, and the Purchase Price
shall be reduced accordingly. For example, if at the Closing of the Option
purchase, PDTC owns thirty percent (30%) of the PDT Shares, the Purchase
Price would be seventy percent (70%) of *****.
<PAGE>
2. TERM OF THE OPTION. The Option shall commence as of the execution of
this Option Agreement and shall expire (the "EXPIRATION DATE") on the later of
***** from the execution of this Option Agreement, or ***** after the day on
which the first surgical procedure to implant the Company's initial product in a
coronary artery in a human subject involving coronary artery bypass surgery is
completed in its formally conducted clinical trials supervised by the United
States Food and Drug Administration, or the regulatory equivalent in the country
in which treatment is undertaken. Ramus covenants to give notice to PDTC, as
provided herein, of the first human implant by Ramus, as set forth in the
preceding sentence, within ten (10) days of the date that such human implant is
first undertaken.
3. NOTICE OF EXERCISE. Notice of exercise of the Option (the "NOTICE")
shall be accomplished in writing on or prior to the Expiration Date. The Notice
shall include an executed Purchase and Sale Agreement for the purchase and sale
of Ramus (the "PURCHASE AND SALE AGREEMENT"). The Purchase and Sale Agreement
shall be in the form attached hereto as EXHIBIT A, with such changes therein as
the parties reasonably determine are necessary to implement the desired forms
and transaction (sale of shares or a merger), and shall provide for a closing
within ninety (90) days of the date of the Notice. After delivery of the
Notice, if requested by Ramus, PDTC will provide the loan described in the Stock
Purchase Agreement.
4. PAYMENT OF PURCHASE PRICE.
(a) The Purchase Price will be payable in cash and the stock of
PDTC's parent corporation, PDT, Inc. (the "PDT SHARES"), or entirely in cash or
entirely in PDT Shares, at the option of PDTC. PDTC cannot convert this from a
stock sale to an asset sale without the prior written consent of Ramus and its
Shareholders.
(b) If PDTC elects to deliver the PDT Shares, it will deliver a
sufficient percentage of the Purchase Price to the Shareholders to permit them
to receive the PDT Shares as part of a tax-free reorganization as determined by
PDTC's independent auditors. ***** In the event that any of the Purchase Price
is to be payable in PDT Shares, each of the following conditions shall have been
satisfied on or prior to the closing contemplated by this Option Agreement:
(i) PDT, Inc. shall have had declared effective by the Securities and Exchange
Commission a registration statement covering the resale by all of the
Shareholders of the PDT Shares received by such Shareholders, in form and
substance reasonably satisfactory to Ramus, and Ramus and the Shareholders will
cooperate with PDT, Inc. in registering said PDT Shares; and (ii) *****; and
(iii) the PDT Shares shall be listed for trading on the NASDAQ National Market
System (NMS) or a national securities exchange.
(c) The aggregate number of PDT Shares to be delivered by PDTC shall
be increased by ***** for each ***** of the Purchase Price paid for in PDT
Shares in consideration of the following agreement of the Shareholders:
(i) the Shareholders agree not to sell more than the greater of
***** the PDT Shares owned by them, or ***** during any five (5) trading
day period, unless the PDT Shares are sold to PDT or the PDT Employee Stock
Ownership Plan.
(ii) the Shareholders may sell the PDT Shares in a private
transaction occurring off market and not reported in National Market
Systems (NMS) or other national securities exchange which is either
approved by PDT or which is included in the limitations of (i) above.
*****Confidential Treatment Requested
<PAGE>
(iii) each share certificate representing the PDT Shares will
contain a legend reflecting the foregoing.
5. ADDITIONAL SHAREHOLDERS. Ramus shall not issue any capital stock or
any securities convertible into, exchangeable for or exercisable for capital
stock of Ramus (whether preferred, common or otherwise) unless the purchaser,
grantee or other recipient thereof shall have executed a Joinder Agreement to
this Option Agreement in the form of EXHIBIT B at the time that they first
become a holder of or entitled to such securities. Ramus shall use its best
efforts to secure the execution by its existing option holders of the Joinder
Agreement and will not issue new options that do not include a condition of
executing the Joinder Agreement.
6. EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS. Ramus shall have
entered into Employment Agreements and Consulting Agreements to the satisfaction
of Ramus. Employment Agreements would be required for ***** if they are still
employed by Ramus at the time that this Option is exercised and provided that
they will agree to the compensation terms in effect immediately preceding the
exercise of the Option, together with any other managers that PDTC wishes to
retain. The Employment Agreements will provide for customary provisions and
shall include six (6) months' severance for termination without cause, and no
severance if termination is for cause. *****. Any of the foregoing agreements
will be terminable in the event of a breach of the covenants not to compete by
that party.
7. PROXY; LEGENDS. Each Shareholder, by signing this Option Agreement,
and each person who shall execute a Joinder Agreement by signing such Joinder
Agreement, grants PDTC an irrevocable proxy with respect to all of such person's
securities in Ramus, whether now or hereafter held by such person, for the
purpose of voting, converting, exchanging, exercising or transferring such
securities in connection with any exercise of the Option by PDTC. The parties
agree and acknowledge that such proxy is irrevocable by the existing
Shareholders and other persons who join this Option Agreement in accordance with
Section 705(e) of the California Corporations Code. Each outstanding security
of Ramus (including any right to acquire a security) and each security or other
right thereafter issued by Ramus shall bear a legend reflecting the granting of
such proxy and the existence of the Option in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN OPTION AGREEMENT AMONG RAMUS MEDICAL
TECHNOLOGIES ("RAMUS"), PDT CARDIOVASCULAR, INC. ("PDTC") AND CERTAIN
OTHER PERSONS PURSUANT TO WHICH THIS SECURITY IS SUBJECT TO AN OPTION
TO PURCHASE GRANTED IN FAVOR OF PDTC. PURSUANT TO SUCH OPTION
AGREEMENT, THE HOLDERS OF THIS SECURITY HAS GRANTED AN IRREVOCABLE
PROXY IN FAVOR OF PDTC WITH RESPECT TO CERTAIN MATTERS RELATING TO
SUCH OPTION. A COPY OF THE OPTION AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL EXECUTIVE OFFICES OF RAMUS.
8. ROLE OF HAI FINANCIAL. Ramus and the Shareholders hereby acknowledge
that HAI Financial ("HAI") is acting as an advisor to Ramus and will be entitled
to be paid a fee upon the exercise of the Option by PDTC and upon funding of
PDTC's investment in Ramus. Ramus and the Shareholders further acknowledge that
the principal of HAI, Charles T. Foscue ("FOSCUE"), is a director and
shareholder of PDTC's parent corporation, PDT, Inc. After consultation with
counsel and with full knowledge of the relationship and possible conflict of
interest, Ramus and the Shareholders agree that
*****Confidential Treatment Requested
<PAGE>
HAI or Charles T. Foscue's involvement in this transaction shall in no way
invalidate the Option or serve as an excuse for non-performance by either
Ramus or the Shareholders for performing their obligations hereunder. The
following waiver and release is not intended to apply to claims which Ramus
may have against HAI or Foscue, nor is it intended to apply to any breach of
the Investment Agreement or this Option Agreement, by PDTC. However, an
assertion of a breach of the Investment Agreement or this Option Agreement
shall not excuse Ramus and the Shareholders from performing their obligations
under the Option. Ramus and the Shareholders irrevocably and unconditionally
waive and release any and all claims against PDTC, PDT, their respective
officers, directors, employees, agents and insureds from HAI's involvement
with Ramus, the Shareholders or this transaction, whether now existing or
hereafter arising.
Ramus and the Shareholders acknowledge that they are aware of, understand
and hereby waive the rights of Section 1542 of the California Civil Code, which
provides:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor."
9. NO SOLICITATION. The Shareholders will not take, nor will they permit
Ramus, or authorize or permit any investment banker, financial advisor,
attorney, accountant or other person retained by or acting for or on behalf of
any Shareholder or Ramus to take, directly or indirectly, any action to solicit,
encourage, receive, negotiate, assist or otherwise facilitate (including by
furnishing confidential information with respect to Ramus or permitting access
to the assets and properties and books and records of Ramus), any offer or
inquiry from any person concerning a proposed sale or license of Ramus'
technology or a proposed sale of the shares of Ramus or a merger or other
business combination between Ramus and a third-party. The foregoing shall not
preclude the sale of securities which does not result in a change of control and
which otherwise complies with this Option Agreement. Unless PDTC refuses to
provide financing in accordance with Sections 6.4 or 6.5 of the Investment
Agreement, Ramus will be permitted to negotiate a proposed license of Ramus's
technology to an entity not affiliated with Ramus or its shareholders, officers
or directors after *****, so long as PDTC shall approve the license. If PDTC
refuses to approve the license within ten (10) days of submission of the license
(the "LICENSE REVIEW PERIOD") by Ramus to PDTC, PDTC will purchase ***** in
***** at a price of ***** per share, payable in cash, within ten (10) business
days of the expiration of the License Review Period. If any Shareholder or
Ramus (or any such person acting for or on their behalf) receives from any
person any offer, inquiry or informational request referred to above, such
Shareholder or Ramus, as applicable, will promptly advise such person, by
written notice, of the terms of this SECTION 9 and will promptly, orally and in
writing, advise PDTC of such offer, inquiry or request and deliver a copy
thereof and of such notice to PDTC.
10. MISCELLANEOUS.
10.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Option Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties. Nothing
in this Option Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto or their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Option Agreement, except as expressly provided in this Option Agreement.
*****Confidential Treatment Requested
<PAGE>
10.2 SPECIFIC PERFORMANCE. PDTC shall be entitled to all rights
available under law, as well as injunctive relief, including the right to demand
specific performance of the Option by Ramus and the Shareholders.
10.3 GOVERNING LAW. This Option Agreement shall be governed by and
construed under the laws of the State of California.
10.4 COUNTERPARTS. This Option Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Option Agreement are used for convenience only and are not be considered in
construing or interpreting this Option Agreement.
10.6 NOTICES. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or permitted to
be given shall be in writing and may be personally served, telecopied, telexed
or sent by recognized international courier service or United States mail and
shall be deemed to have been given when delivered in person or by courier
service, upon receipt of a telecopy or telex or five (5) business days after
deposit in the United States mail in the continental United States (registered
or certified, with postage prepaid and properly addressed). For purposes
hereof, the addresses of the parties hereto (until notice of a change thereof is
delivered as provided in this SECTION 10.6) shall be as follows:
If to Company: Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Attention: Charles S. Love, President
With a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Michael E. Flynn, Esq.
If to PDTC: PDT Cardiovascular, Inc.
7408 Hollister Avenue
Goleta, CA 93117
Attention: David Mai, President
With a copy to: Nida & Maloney, PC
801 Garden Street, Suite 201
Santa Barbara, CA 93101
Attention: Joseph E. Nida, Esq.
10.7 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Option Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
10.8 AMENDMENTS AND WAIVERS. Any term of this Option Agreement may be
amended and the observance of any term of this Option Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Ramus and
<PAGE>
PDTC. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the parties, their successors and assigns.
10.9 SEVERABILITY. If one or more provisions of this Option
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Option Agreement and the balance of the Option
Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
10.10 TERMINATION. This Option Agreement, and the obligations of
the parties with respect thereto, shall terminate on the Option Termination
Date.
10.11 PUBLIC DISCLOSURE. Except as may be required to comply with
applicable law, and the requirements of PDTC's parent corporation, as an
entity whose stock is publicly traded, no party this Option Agreement shall
make or cause to be made any press release or similar public announcement or
communication concerning the execution or performance of this Option
Agreement and any of the transactions contemplated hereby, unless
specifically approved in advance and in writing by Ramus and PDTC.
Notwithstanding the foregoing, unless required by an opinion of PDTC's
counsel, PDTC will not disclose the non-exercise of its Option described in
this Option Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
this 27th day of December, 1996.
RAMUS
RAMUS MEDICAL TECHNOLOGIES,
a California corporation
By: /s/ CHARLES S. LOVE
---------------------------------
Title: President
PDTC
PDT CARDIOVASCULAR, INC.,
a Delaware corporation
By: /s/ GARY S. KLEDZIK
---------------------------------
Title: Chairman
SHAREHOLDERS
/s/ CHARLES S. LOVE
------------------------------------
/s/ *****
------------------------------------
*****Confidential Treatment Requested
<PAGE>
EXHIBIT A
Purchase and Sale Agreement
<PAGE>
FORM OF
STOCK PURCHASE AGREEMENT
dated as of ________________
by and between
PDT CARDIOVASCULAR, INC.
and
THE SELLERS IDENTIFIED ON SCHEDULE 1 HERETO
with respect to all
outstanding capital stock of
RAMUS MEDICAL TECHNOLOGIES
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
PAGE
NO.
----
ARTICLE I - SALE OF SHARES AND CLOSING
1.01 PURCHASE AND SALE 1
1.02 PURCHASE PRICE 1
1.03 CLOSING 2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLERS
2.01 ORGANIZATION OF SELLER 2
2.02 AUTHORITY 2
2.03 ORGANIZATION OF THE COMPANY 3
2.04 CAPITAL STOCK 3
2.05 SUBSIDIARIES 3
2.06 NO CONFLICTS 4
2.07 GOVERNMENTAL APPROVALS AND FILINGS 4
2.08 BOOKS AND RECORDS 4
2.09 FINANCIAL STATEMENTS 5
2.10 ABSENCE OF CHANGES 5
2.11 NO UNDISCLOSED LIABILITIES 7
2.12 TAXES 8
2.13 LEGAL PROCEEDINGS 9
2.14 COMPLIANCE WITH LAWS AND ORDERS 9
2.15 BENEFIT PLANS; ERISA 9
2.16 REAL PROPERTY 12
2.17 TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS 13
2.18 INTELLECTUAL PROPERTY RIGHTS 13
2.19 CONTRACTS 14
2.20 LICENSES 15
2.21 INSURANCE 16
2.22 AFFILIATE TRANSACTIONS 16
2.23 EMPLOYEES; LABOR RELATIONS 17
2.24 ENVIRONMENTAL MATTERS 17
2.25 SUBSTANTIAL CUSTOMERS AND SUPPLIERS 18
2.26 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS 19
2.27 NO POWERS OF ATTORNEY 19
2.28 ACCOUNTS RECEIVABLE 19
2.29 BROKERS 19
2.30 DISCLOSURE 19
2.31 INCORPORATION BY REFERENCE 20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 ORGANIZATION 20
3.02 AUTHORITY 20
3.03 NO CONFLICTS 20
3.04 GOVERNMENTAL APPROVALS AND FILINGS 21
<PAGE>
PAGE
NO.
----
3.05 LEGAL PROCEEDINGS 21
3.06 PURCHASE FOR INVESTMENT 21
3.07 ACCREDITED INVESTOR 21
3.08 PURCHASE ENTIRELY FOR OWN ACCOUNT 21
3.09 INVESTMENT EXPERIENCE 21
3.10 PDT SHARES 21
ARCTICLE IV - COVENANTS OF SELLERS
4.01 REGULATORY AND OTHER APPROVALS 22
4.02 HSR FILINGS 22
4.03 INVESTIGATION BY PURCHASER 22
4.04 NO SOLICITATIONS 23
4.05 CONDUCT OF BUSINESS 23
4.06 EMPLOYEE MATTERS 24
4.07 CERTAIN RESTRICTIONS 24
4.08 AFFILIATE TRANSACTIONS 26
4.09 BOOKS AND RECORDS 26
4.10 NONCOMPETITION 26
4.11 NOTICE AND CURE 27
4.12 FULFILLMENT OF CONDITIONS 27
ARTICLE V - COVENANTS OF PURCHASER
5.01 REGULATORY AND OTHER APPROVALS 28
5.02 HSR FILINGS 28
5.03 NOTICE AND CURE 28
5.04 FULFILLMENT OF CONDITIONS 28
5.05 REGISTRATION OF PDT SHARES 29
5.06 ADVANCE BY PURCHASER TO THE COMPANY 29
ARTICLE VI - CONDITIONS TO OBLIGATIONS OF PURCHASER
6.01 REPRESENTATIONS AND WARRANTIES 29
6.02 PERFORMANCE; NO DEFAUL 29
6.03 OFFICERS' CERTIFICATES 29
6.04 ORDERS AND LAWS 29
6.05 REGULATORY CONSENTS AND APPROVALS 30
6.06 THIRD PARTY CONSENTS 30
6.07 OPINION OF COUNSEL 30
6.08 GOOD STANDING CERTIFICATES 30
6.09 SPECIAL PROCEDURES REPORT 30
6.10 RESIGNATIONS OF DIRECTORS AND OFFICERS 31
6.11 ENVIRONMENTAL SURVEY 31
6.12 PROCEEDINGS 31
6.13 EMPLOYMENT AND NONCOMPETITION AGREEMENTS 31
6.14 EQUITY RIGHTS 31
6.15 RELEASES 31
6.16 COMPLETION OF DUE DILIGENCE; FINANCIAL STATEMENTS 31
<PAGE>
PAGE
NO.
----
6.17 JOINDER 31
6.18 AUDITED FINANCIAL STATEMENTS 31
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF SELLERS
7.01 REPRESENTATIONS AND WARRANTIES 32
7.02 PERFORMANCE 32
7.03 OFFICERS' CERTIFICATES 32
7.04 ORDERS AND LAWS 32
7.05 REGULATORY CONSENTS AND APPROVALS 32
7.06 THIRD PARTY CONSENTS 32
7.07 OPINION OF COUNSEL 33
7.08 PROCEEDINGS 33
7.09 GOOD STANDING CERTIFICATES 33
7.10 EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS 33
ARTICLE VIII - TAX MATTERS AND POST-CLOSING TAXES
8.01 INDEMNIFICATION 33
8.02 CONTROL OF CONTEST 33
8.03 ACCESS TO INFORMATION 34
8.04 RETENTION OF RECORDS 34
8.05 RESOLUTION OF DISAGREEMENTS AMONG PARTIES 34
8.06 TAX RETURNS 34
8.07 PRE-FILING APPROVAL OF TAX RETURNS AND REPORTS 34
8.08 COMPANY'S FINAL RETURNS 35
ARTICLE IX - SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS 35
ARTICLE X - INDEMNIFICATION
10.01 TAX INDEMNIFICATION 35
10.02 OTHER INDEMNIFICATION 36
10.03 METHOD OF ASSERTING CLAIMS 36
ARTICLE XI - TERMINATION AND DEFAULT
11.01 TERMINATION 39
11.02 EFFECT OF TERMINATION 40
ARTICLE XII - DEFINITIONS
12.01 DEFINITIONS 40
ARTICLE XIII - MISCELLANEOUS
13.01 NOTICES 48
13.02 ENTIRE AGREEMENT 49
13.03 EXPENSES 49
13.04 PUBLIC ANNOUNCEMENTS 49
<PAGE>
PAGE
NO.
----
13.05 CONFIDENTIALITY 49
13.06 FURTHER ASSURANCES; POST-CLOSING COOPERATION 50
13.07 WAIVER 51
13.08 AMENDMENT 51
13.09 NO THIRD PARTY BENEFICIARY 51
13.10 NO ASSIGNMENT; BINDING EFFECT 51
13.11 HEADINGS 51
13.12 ARBITRATION 51
13.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS 52
13.14 INVALID PROVISIONS 52
13.15 AGENT 53
13.16 GOVERNING LAW 53
13.17 COUNTERPARTS 53
13.18 SIGNATURES 53
<PAGE>
EXHIBITS
--------
EXHIBIT A Escrow Agreement
EXHIBIT B Officer's Certificate of Sellers
EXHIBIT C Opinion of Counsel to Sellers and Company
EXHIBIT D Special Procedures Report
EXHIBIT E Officer's Certificate of Purchaser
EXHIBIT F Secretary's Certificate of Purchaser
EXHIBIT G Opinion of Counsel to Purchaser
SCHEDULES
---------
SCHEDULE 1 List of Sellers
<PAGE>
FORM OF
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of _______________ is made and
entered into by and between PDT CARDIOVASCULAR, INC., a Delaware corporation
("PURCHASER"), and each of the shareholders of RAMUS MEDICAL TECHNOLOGIES., a
California corporation, listed on SCHEDULE 1 hereto (each a "SELLER" and
collectively, "SELLERS"). Capitalized terms not otherwise defined herein have
the meanings set forth in SECTION 12.01.
WHEREAS, Sellers own _____________________________________ (________)
shares of common stock, no par value, of Ramus Medical Technologies, a
California corporation (the "COMPANY"), constituting all issued and outstanding
shares of capital stock of the Company, or the rights to acquire such shares as
indicated on SCHEDULE 1, excluding shares owned by Purchaser prior to the
execution of this Agreement (such shares being referred to herein as the
"SHARES");
WHEREAS, Charles S. Love ("LOVE") is a Seller and owns _________
percent (___%) of the Shares owned by the Sellers; and
WHEREAS, Sellers desire to sell, and Purchaser desires to purchase,
the Shares on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 PURCHASE AND SALE. Each Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase from each Seller, all of the right, title and
interest of such Seller in and to the Shares owned by such Seller at the
Closing, as hereinafter defined, on the terms and subject to the conditions set
forth in this Agreement.
1.02 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE
PRICE") for the Shares and for the covenant of the Sellers contained in Section
4.11 is as follows:
(a) *****(1)
(b) The Purchase Price will be payable at the option of the Purchaser
in immediately available United States funds or in the shares of Common Stock of
the Purchaser's parent corporation, PDT, Inc., a Delaware corporation (the "PDT
SHARES") or any combination thereof, provided that the PDT Shares must be
received on a tax-free basis in the opinion of PDT's auditors, and subject to
Sellers cooperating and agreeing to all conditions necessary to create a tax-
free exchange for PDT Shares. *****.
(1) The Purchase price will be reduced by the percentage ownership of the
Shares already owned by PDTC at the time of the Closing.
*****Confidential Treatment Requested
<PAGE>
(c) The Purchase Price will be payable pro rata to the Sellers with
***** of the Purchase Price being paid in cash and PDT Shares to the Sellers and
***** of cash and PDT Shares will be transferred immediately to ________________
(the "ESCROW AGENT") under an escrow agreement substantially in the form
attached hereto as EXHIBIT A (the "ESCROW AGREEMENT") to be retained by the
Escrow Agent for a period of one year as provided in the Escrow Agreement. Any
payments due under SECTION 2.29 hereof to HAI Financial will be reduced from
the sums due the Sellers and will be payable to HAI Financial as if it were a
Seller.
1.03 CLOSING. The Closing will take place at the offices of
Purchaser, or at such other place as Purchaser and Sellers mutually agree, at
10:00 a.m. local time, on the Closing Date. Purchaser will pay the installments
of the Purchase Price payable under clauses (b) and (c) of SECTION 1.02 by
checks payable in United States funds to the order of the Agent, as hereinafter
defined. Such checks shall be delivered to the Agent.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Love, jointly and severally as to all warranties and representations,
and the remaining Sellers on an individual basis as to SECTIONS 2.01, 2.02 AND
2.04 hereof, represent and warrant to Purchaser as follows:
2.01 ORGANIZATION OF SELLER. Each Seller is (a) an individual acting
on its own behalf, (b) an individual acting as trustee of a trust that is duly
organized, validly existing and in good standing under the Law of the
jurisdiction set forth in SCHEDULE 1 or (c) a corporation duly organized,
validly existing and in good standing under the Law of the jurisdiction of its
organization as set forth in SCHEDULE 1. Each Seller has full individual,
trustee or corporate power and authority to execute and deliver this Agreement
and the Operative Agreements to which it is a party and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, including to own, hold, sell and transfer
(pursuant to this Agreement) the Shares.
2.02 AUTHORITY. The execution and delivery by each Seller of this
Agreement and the Operative Agreements to which it is a party, and the
performance by each Seller of its obligations hereunder, and thereunder, have
been duly and validly authorized by any trustee, beneficiary, board, stockholder
or other Person whose authorization is required, except as provided in SECTION
2.07 OF THE DISCLOSURE SCHEDULE, no other action on the part of any Seller or
any trustee, beneficiary, board, stockholder or other Person being necessary.
This Agreement has been duly and validly executed and delivered by each Seller
and constitutes, and upon the execution and delivery by each Seller of the
Operative Agreements to which it is a party, such Operative Agreements will
constitute legal, valid and binding obligations of each Seller enforceable
against each Seller in accordance with their terms.
2.03 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized, validly existing and in good standing under the Law of the
State of California, and has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
Assets and Properties. SECTION 2.03 OF THE DISCLOSURE SCHEDULE lists all
lines of business in which the Company is participating or engaged. The
Company is duly qualified, licensed or admitted to do business and is in good
standing in those jurisdictions specified in SECTION 2.03 OF THE DISCLOSURE
SCHEDULE, which are the only jurisdictions in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission
*****Confidential Treatment Requested
<PAGE>
necessary, except for those jurisdictions in which the adverse effects of all
such failures by the Company and the Subsidiaries to be qualified, licensed
or admitted and in good standing can in the aggregate be eliminated without
material cost or expense by the Company or a Subsidiary, as the case may be,
becoming qualified or admitted and in good standing. The name of each
director and officer of the Company on the date hereof, and the position with
the Company held by each, are listed in SECTION 2.03 OF THE DISCLOSURE
SCHEDULE. Love has, prior to the execution of this Agreement, delivered to
Purchaser true and complete copies of the articles of incorporation and
by-laws of the Company as in effect on the date hereof.
2.04 CAPITAL STOCK. The authorized capital stock of the Company
consists solely of ________________________ (__________) shares of Common Stock
and ____________________ (________) shares of Preferred Stock, of which only the
Shares have been issued. The Shares are duly authorized, validly issued,
outstanding, fully paid and nonassessable. Sellers own the Shares, beneficially
and of record, free and clear of all Liens, in the manner and as set forth in
SECTION 2.04 OF THE DISCLOSURE SCHEDULE. Except for this Agreement and as
disclosed in SECTION 2.04 OF THE DISCLOSURE SCHEDULE, there are no outstanding
Options with respect to the Company. The delivery of a certificate or
certificates at the Closing representing the Shares in the manner provided in
SECTION 1.03 will transfer to Purchaser good and valid title to the Shares, free
and clear of all Liens.
2.05 SUBSIDIARIES. SECTION 2.05 OF THE DISCLOSURE SCHEDULE lists the
name of each Subsidiary and all lines of business in which each Subsidiary is
participating or engaged. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the Law of its jurisdiction of
incorporation identified in SECTION 2.05 OF THE DISCLOSURE SCHEDULE, and has
full corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its Assets and Properties. Each
Subsidiary is duly qualified, licensed or admitted to do business and is in good
standing in those jurisdictions specified in SECTION 2.05 OF THE DISCLOSURE
SCHEDULE, which are the only jurisdictions in which the ownership, use or
leasing of such Subsidiary's Assets and Properties, or the conduct or nature of
its business, makes such qualification, licensing or admission necessary, except
for those jurisdictions in which the adverse effects of all such failures by the
Company and the Subsidiaries to be qualified, licensed or admitted and in good
standing can in the aggregate be eliminated without material cost or expense by
the Company or a Subsidiary, as the case may be, becoming qualified, licensed or
admitted and in good standing. SECTION 2.05 OF THE DISCLOSURE SCHEDULE lists
for each Subsidiary the amount of its authorized capital stock, the amount of
its outstanding capital stock and the record owners of such outstanding capital
stock. Except as disclosed in SECTION 2.05 OF THE DISCLOSURE SCHEDULE, all of
the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned,
beneficially and of record, by the Company or Subsidiaries wholly owned by the
Company free and clear of all Liens. Except as disclosed in SECTION 2.05 OF THE
DISCLOSURE SCHEDULE, there are no outstanding Options with respect to any
Subsidiary. The name of each director and officer of each Subsidiary on the
date hereof, and the position with such Subsidiary held by each, are listed in
SECTION 2.05 OF THE DISCLOSURE SCHEDULE. Love has prior to the execution of
this Agreement delivered to Purchaser true and complete copies of the
certificate or articles of incorporation and by-laws (or other comparable
corporate charter documents) of each of the Subsidiaries as in effect on the
date hereof.
2.06 NO CONFLICTS. The execution and delivery by Love of this
Agreement do not, and the execution and delivery by Love of the Operative
Agreements to which it is a party, the performance by Love of his obligations
under this Agreement and such Operative Agreements and the consummation of the
transactions contemplated hereby, and thereby, will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or
<PAGE>
provisions of the certificate or articles of incorporation or by-laws (or
other comparable corporate charter documents) of the Company or any
Subsidiary or Love or of any trust agreement (or other comparable governing
documents) of Love;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in SECTION 2.07 OF THE DISCLOSURE
SCHEDULE, conflict with or result in a violation or breach of any term or
provision of any material Law or Order applicable to Love, the Company or any
Subsidiary or any of their respective Assets and Properties; or
(c) except as disclosed in SECTION 2.06 OF THE DISCLOSURE SCHEDULE,
(i) conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require Love,
the Company or any Subsidiary to obtain any consent, approval or action of, make
any filing with or give any notice to any Person as a result or under the terms
of, (iv) result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon Love, the Company or any Subsidiary or any of their
respective Assets and Properties under, any material Contract or License to
which Love, the Company or any Subsidiary is a party or by which any of their
respective Assets and Properties is bound.
2.07 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SECTION 2.07 OF THE DISCLOSURE SCHEDULE, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
Love, the Company or any Subsidiary is required in connection with the
execution, delivery and performance of this Agreement or any of the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby.
2.08 BOOKS AND RECORDS. The minute books and other similar records of
the Company and the Subsidiaries as made available to Purchaser prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all action taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company and the Subsidiaries. The stock transfer
ledgers and other similar records of the Company and the Subsidiaries as made
available to Purchaser prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this Agreement in the
capital stock of the Company and the Subsidiaries. Except as set forth in
SECTION 2.08 OF THE DISCLOSURE SCHEDULE, neither the Company nor any Subsidiary
has any of its Books and Records recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or a Subsidiary.
2.09 FINANCIAL STATEMENTS. Prior to the execution of this Agreement,
Love has delivered to Purchaser true and complete copies of the following
financial statements:
(a) the audited balance sheets of the Company and its consolidated
subsidiaries as of __________________________, and the related audited
consolidated statements of operations, stockholders' equity and cash flows for
each of the fiscal years then ended, together with a true and correct copy of
the unqualified report with no exceptions or modifications, but with allowable
explanatory language with respect to the Company's ability to continue as a
going concern, on such audited information by _____________________, and all
letters from such accountants with respect to the results of such audits; and
<PAGE>
(b) the unaudited balance sheets of the Company and its consolidated
subsidiaries as of _________________, and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows for the portion of
the fiscal year then ended.
Except as set forth in the notes thereto and as disclosed in SECTION 2.09 OF THE
DISCLOSURE SCHEDULE, all such financial statements (i) were prepared in
accordance with GAAP on a consistent basis, (ii) fairly present the consolidated
financial condition and results of operations of the Company and its
consolidated subsidiaries as of the respective dates thereof and for the
respective periods covered thereby, and (iii) were compiled from the Books and
Records of the Company and the Subsidiaries regularly maintained by management
and used to prepare the financial statements of the Company and the Subsidiaries
in accordance with the principles stated therein. The Company and the
Subsidiaries have maintained their respective Books and Records in a manner
sufficient to permit the preparation of financial statements in accordance with
GAAP, such Books and Records fairly reflect, in all material respects, the
income, expenses, assets and liabilities of the Company and the Subsidiaries and
the Books and Records provided a fair and accurate basis for the preparation of
the Audited Financial Statements and the Unaudited Financial Statements. Except
for those Subsidiaries listed in SECTION 2.09 OF THE DISCLOSURE SCHEDULE, the
financial condition and results of operations of each Subsidiary are, and for
all periods referred to in this SECTION 2.09 have been, consolidated with those
of the Company.
2.10 ABSENCE OF CHANGES. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, since the Audited Financial Statement Date there has not been
any material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change, in the Business or Condition of the Company. Without
limiting the foregoing, except as disclosed in SECTION 2.10 OF THE DISCLOSURE
SCHEDULE, there has not occurred between the Audited Financial Statement Date
and the date hereof:
(i) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
Subsidiary not wholly owned by the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company or any Subsidiary
of any such capital stock of or any Option with respect to the Company or
any Subsidiary not wholly owned by the Company;
(ii) any authorization, issuance, sale or other disposition by the
Company or any Subsidiary of any shares of capital stock of or Option with
respect to the Company or any Subsidiary, or any modification or amendment
of any right of any holder of any outstanding shares of capital stock of or
Option with respect to the Company or any Subsidiary;
(iii) (x) any increase in the salary, wages or other compensation of
any officer, employee or consultant of the Company or any Subsidiary whose
annual salary is, or after giving effect to such change would be, $100,000
or more, except increases in the ordinary course of business, consistent
with past practice; (y) any establishment or modification of (A) targets,
goals, pools or similar provisions in respect of any fiscal year under any
Benefit Plan, employment-related Contract or other employee compensation
arrangement or (B) salary ranges, increase guidelines or similar provisions
in respect of any Benefit Plan, employment-related Contract or other
employee compensation arrangement, except for changes in the ordinary
course of business, consistent with past practice; or (z) any adoption,
entering into or becoming bound by any Benefit Plan, employment-related
Contract or collective bargaining agreement, or amendment, modification or
termination (partial or complete) of any Benefit Plan, employment-related
Contract or collective bargaining agreement not in the ordinary course of
business, except to the extent required by applicable Law and, in the event
compliance with legal requirements
<PAGE>
presented options, only to the extent the option which the Company or
Subsidiary reasonably believed to be the least costly was chosen; other
than such bonus payments permitted under SECTION 4.07(b);
(iv) (A) incurrences by the Company or any Subsidiary of Indebtedness
in an aggregate principal amount exceeding $25,000 (net of any amounts
discharged during such period), or (B) any voluntary purchase,
cancellation, prepayment or complete or partial discharge in advance of a
scheduled payment date with respect to, or waiver of any right of the
Company or any Subsidiary under, any Indebtedness of or owing to the
Company or any Subsidiary; other than borrowings by the Company in the
ordinary course of business.
(v) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the plant, real or personal
property or equipment of the Company or any Subsidiary in an aggregate
amount exceeding $10,000;
(vi) any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy
of the Company or any Subsidiary, (y) any method of calculating any bad
debt, contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or Tax purposes, or any change in the
fiscal year of the Company or any Subsidiary or (z) the financial
projections of the Company or any Subsidiary;
(vii) any write-off or write-down of or any determination to
write-off or write-down, not in the ordinary course or business, any of the
Assets and Properties of the Company or any Subsidiary in an aggregate
amount exceeding $10,000;
(viii) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of the Company
or any Subsidiary, other than in the ordinary course of business consistent
with past practice;
(ix) any (x) amendment of the certificate or articles of incorporation
or by-laws (or other comparable corporate charter documents) of the Company
or any Subsidiary, (y) recapitalization, reorganization, liquidation or
dissolution of the Company or any Subsidiary or (z) merger or other
business combination involving the Company or any Subsidiary and any other
Person;
(x) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver under or giving any consent with
respect to (A) any material Contract which is required (or had it been in
effect on the date hereof would have been required) to be disclosed in the
Disclosure Schedule pursuant to SECTION 2.19(a) or (B) any material License
held by the Company or any Subsidiary, except for amendments,
modifications, terminations, waivers or consents in the ordinary course of
business;
(xi) capital expenditures or commitments for additions to property,
plant or equipment of the Company and the Subsidiaries constituting capital
assets in an aggregate amount exceeding $50,000 without Purchaser's consent
which shall not unreasonably be withheld;
(xii) any commencement or termination by the Company or any Subsidiary
of any new line of business;
<PAGE>
(xiii) any transaction by the Company or any Subsidiary with Love, any
officer, director, Affiliate (other than the Company or any Subsidiary) or
Associate of Love or any Associate of any such officer, director or
Affiliate (A) outside the ordinary course of business consistent with past
practice or (B) other than on an arm's-length basis, other than pursuant to
any Contract in effect on the Audited Financial Statement Date and
disclosed pursuant to SECTION 2.19(a)(vii) OF THE DISCLOSURE SCHEDULE;
(xiv) any entering into of a Contract to do or engage in any of the
foregoing after the date hereof; or
(xv) any other transaction involving or development affecting the
Company or any Subsidiary outside the ordinary course of business
consistent with past practice.
2.11 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheet included in the Audited Financial Statements or in
the notes thereto or as disclosed in SECTION 2.11 OF THE DISCLOSURE SCHEDULE or
any other Section of the Disclosure Schedule, there are no Liabilities against,
relating to or affecting the Company or any Subsidiary or any of their
respective Assets and Properties, other than Liabilities incurred in the
ordinary course of business consistent with past practice which in the aggregate
are not material to the Business or Condition of the Company.
2.12 TAXES.
(a) Except to the extent that any such failure would not have a
material adverse effect on the Company, the Company and each of its Subsidiaries
have (i) timely filed all Tax Returns required to be filed in any jurisdiction
to which it is subject, except as disclosed in SECTION 2.12 OF THE DISCLOSURE
SCHEDULE, (ii) either timely paid in full all Taxes due to be paid or collected
by it and all Taxes claimed to be due from it by each such jurisdiction (except
for any such Taxes as are being contested in good faith by appropriate
proceedings), and any interest, additions to Tax and penalties with respect
thereto, or provided adequate reserves for the payment thereof (which reserves
are reflected in the Company's Audited Financial Statements), and (iii) fully
accrued on its Audited Financial Statements and Books and Records all Taxes, and
any interest, additions to Tax and penalties with respect thereto, for any
period through the date hereof which are not yet due, including such as are
being contested. There are no agreements for extension of the time of
assessment or payment of any Taxes of the Company or any of its Subsidiaries.
No waiver of any statute of limitations has been executed by or on behalf of the
Company or any of its Subsidiaries. There are no examinations by the IRS of or
relating to the Company or any of its Subsidiaries presently in process, or, to
the Knowledge of Love, threatened against the Company or any of its
Subsidiaries. Neither the IRS nor any other taxing authority is now asserting
or, to the Knowledge of Love, threatening to assert, any deficiency or
assessment for additional Taxes, including any interest, penalties or fines,
against the Company or any of its Subsidiaries. No federal income tax returns
of the Company or any of its Subsidiaries have been audited by the IRS. Except
as set forth in SCHEDULE 2.12 OF THE DISCLOSURE SCHEDULE, state, local and
foreign income tax returns of the Company and its Subsidiaries have never been
audited by the appropriate tax authorities for the jurisdictions indicated in
SECTION 2.12 OF THE DISCLOSURE SCHEDULE. None of the Company or any of its
Subsidiaries has incurred any liability for Taxes other than in the ordinary
course of business and none of the Company or any of its Subsidiaries has
incurred any liability for Taxes which, in the aggregate, would result in a
material decrease in the net worth of the Company or any of its Subsidiaries.
Love has provided or made available to Purchaser or its authorized
representative complete and correct copies of all income Tax, franchise or
capital stock Tax, sales, occupational, employment, personal property, real
property or other Tax Returns related to the Company or any of its Subsidiaries
and its business for each of the __________ fiscal years of the Company ended
_______________________________, respectively, together with complete and
correct copies of any
<PAGE>
reports of Tax authorities relating to examination of such returns and all
prior returns for the __________ fiscal years prior to
_______________________, respectively, that have been audited, together with
any elections to adopt any particular method of treating an item for Tax
purposes and any closing agreements applicable to the Company or any of its
Subsidiaries.
(b) No election under Section 341(f) of the Code has been made by
Love to treat the Company as a "consenting corporation" as defined therein.
(c) None of the Company or any of its Subsidiaries has been formed or
availed of for the purpose of avoiding the Tax with respect to its shareholders
or the shareholders of any other corporation by permitting earnings on profits
to be accumulated instead of being divided or distributed.
(d) No compensation or benefits paid by the Company or any of its
Subsidiaries or payable by the Company or any of its Subsidiaries in connection
with the transactions contemplated by or effected in connection with this
Agreement has been or will be nondeductible by the Company or any such
Subsidiary or subject to any excise or penalty payable under the Code, including
Sections 280G or 4999 thereof.
2.13 LEGAL PROCEEDINGS. Except as disclosed in SECTION 2.13 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set forth
below):
(a) there are no Actions or Proceedings pending or, to the Knowledge
of Love, threatened against, relating to or affecting Love, the Company or any
Subsidiary or any of their respective Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or any of the Operative
Agreements or otherwise result in a material diminution of the benefits
contemplated by this Agreement or any of the Operative Agreements to Purchaser,
or (ii) if determined adversely to Love, the Company or a Subsidiary, could
reasonably be expected to result in (x) any injunction or other equitable relief
against the Company or any Subsidiary that would interfere in any material
respect with its business or operations or (y) Losses by the Company or any
Subsidiary, individually or in the aggregate with Losses in respect of other
such Actions or Proceedings, exceeding $25,000;
(b) there are no facts or circumstances Known to Love that could
reasonably be expected to give rise to any Action or Proceeding that would be
required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against the Company or any
Subsidiary.
Prior to the execution of this Agreement, Love has delivered to Purchaser all
responses of counsel for the Company and the Subsidiaries to auditors' requests
for information delivered in connection with the Audited Financial Statements
(together with any updates provided by such counsel) regarding Actions or
Proceedings pending or threatened against, relating to or affecting the Company
or any Subsidiary.
2.14 COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in
SECTION 2.14 OF THE DISCLOSURE SCHEDULE, neither the Company nor any Subsidiary
is or has at any time within the last five (5) years been, or has received any
notice that it is or has at any time within the last five (5) years been, in
violation of or in default under, in any material respect, any Law or Order
applicable to the Company or any Subsidiary or any of their respective Assets
and Properties.
2.15 BENEFIT PLANS; ERISA.
<PAGE>
(a) SECTION 2.15(a) OF THE DISCLOSURE SCHEDULE (i) contains a true
and complete list and description of each of the Benefit Plans, (ii) identifies
each of the Benefit Plans that is a Qualified Plan, (iii) identifies each
Benefit Plan which at any time during the five-year period preceding the date of
this Agreement was a Defined Benefit Plan and (iv) lists, describes and
identifies each other Plan maintained, established, sponsored or contributed to
by an ERISA Affiliate, or any predecessor thereof, which, during the five-year
period preceding the date of this Agreement, was at any time a Defined Benefit
Plan. Neither the Company nor any Subsidiary has scheduled or agreed upon
future increases of benefit levels (or creations of new benefits) with respect
to any Benefit Plan, and no such increases or creation of benefits have been
proposed, made the subject of representations to employees or requested or
demanded by employees under circumstances which make it reasonable to expect
that such increases will be granted. Except as disclosed in SECTION 2.15(a) OF
THE DISCLOSURE SCHEDULE, no loan is outstanding between the Company or any
Subsidiary and any Benefit Plan.
(b) Neither the Company nor any Subsidiary maintains or is obligated
to provide benefits under any life, medical or health plan (other than as an
incidental benefit under a Qualified Plan) which provides benefits to retirees
or other terminated employees other than benefit continuation rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(c) Except as set forth in SECTION 2.15(c) OF THE DISCLOSURE
SCHEDULE, each Benefit Plan covers only employees who are employed by the
Company or a Subsidiary (or former employees or beneficiaries with respect to
service with the Company or a Subsidiary), so that the transactions contemplated
by this Agreement will require no spin-off of assets and liabilities or other
division or transfer of rights with respect to any such plan.
(d) Neither the Company, any Subsidiary, any ERISA Affiliate nor any
other corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA has at any time
contributed to any "multiemployer plan," as that term is defined in Section 4001
of ERISA.
(e) Each of the Benefit Plans is, and its administration is and has
been since inception, in all material respects in compliance with, and neither
the Company nor any Subsidiary has received any claim or notice that any such
Benefit Plan is not in compliance with, all applicable Laws and Orders and
prohibited transactions exemptions, including the requirements of ERISA, the
Code, the Age Discrimination in Employment Act, the Equal Pay Act and Title VII
of the Civil Rights Act of 1964. Each Qualified Plan is qualified under Section
401(a) of the Code, and, if applicable, complies with the requirements of
Section 401(k) of the Code. Each Benefit Plan which is intended to provide for
the deferral of income, the reduction of salary or other compensation or to
afford other Tax benefits complies with the requirements of the applicable
provisions of the Code or other Laws required in order to provide such Tax
benefits.
(f) Neither the Company nor any Subsidiary is in default in
performing any of its contractual obligations under any of the Benefit Plans or
any related trust agreement or insurance contract. All contributions and other
payments required to be made by the Company or any Subsidiary to any Benefit
Plan with respect to any period ending before or at or including the Closing
Date have been made or reserves adequate for such contributions or other
payments have been or will be set aside therefor and have been or will be
reflected in Financial Statements in accordance with GAAP. There are no
material outstanding liabilities of any Benefit Plan other than liabilities for
benefits to be paid to participants in such Benefit Plan and their beneficiaries
in accordance with the terms of such Benefit Plan.
<PAGE>
(g) No event has occurred, and there exists no condition or set of
circumstances in connection with any Benefit Plan, under which the Company or
any Subsidiary, directly or indirectly (through any indemnification agreement or
otherwise), could reasonably be expected to be subject to any risk of material
liability under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA
or Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in
liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of
ERISA, or otherwise, with respect to the Company, any Subsidiary, Purchaser or
any corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA, and no event or
condition exists or has existed which could reasonably be expected to result in
any such liability with respect to Purchaser, the Company, any Subsidiary or any
such corporation or organization. No "reportable event" within the meaning of
Section 4043 of ERISA has occurred with respect to any Defined Benefit Plan. No
termination re-establishment or spin-off re-establishment transaction has
occurred with respect to any Subject Defined Benefit Plan. No Subject Defined
Benefit Plan has incurred any accumulated funding deficiency whether or not
waived. No filing has been made and no proceeding has been commenced for the
complete or partial termination of, or withdrawal from, any Benefit Plan which
is a Pension Benefit Plan.
(i) Except as described in SECTION 2.15(i) OF THE DISCLOSURE
SCHEDULE, no benefit under any Benefit Plan, including any severance or
parachute payment plan or agreement, will be established or become accelerated,
vested, funded or payable by reason of any transaction contemplated under this
Agreement.
(j) To the Knowledge of Love, there are no pending or threatened
claims by or on behalf of any Benefit Plan, by any Person covered thereby, or
otherwise, which allege violations of Law which could reasonably be expected to
result in liability on the part of Purchaser, the Company, any Subsidiary or any
fiduciary of any such Benefit Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(l) The fair market value of the assets of each Subject Defined
Benefit Plan, as determined as of the last day of the plan year of such plan
which coincides with or first precedes the date of this Agreement, was not less
than the present value of the projected benefit obligations under such plan at
such date as established on the basis of the actuarial assumptions applicable
under such Subject Defined Benefit Plan at said date and, to the Knowledge of
Love, there have been no material changes in such values since said date.
(m) Complete and correct copies of the following documents have been
furnished to Purchaser prior to the execution of this Agreement:
(i) the Benefit Plans and any predecessor plans referred to therein,
any related trust agreements, and service provider agreements, insurance
contracts or agreements with investment managers, including all amendments
thereto;
(ii) current summary Plan descriptions of each Benefit Plan subject to
ERISA, and any similar descriptions of all other Benefit Plans;
(iii) the most recent Form 5500 and Schedules thereto for each Benefit
Plan subject to ERISA reporting requirements;
<PAGE>
(iv) the most recent determination of the IRS with respect to the
qualified status of each Qualified Plan;
(v) the most recent accountings with respect to any Benefit Plan
funded through a trust;
(vi) the most recent actuarial report of the qualified actuary of any
Subject Defined Benefit Plan or any other Benefit Plan with respect to
which actuarial valuations are conducted; and
(vii) all qualified domestic relations orders or other orders
governing payments from any Benefit Plan.
2.16 REAL PROPERTY.
(a) SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE contains a true and
correct list of (i) each parcel of real property owned by the Company or any
Subsidiary, (ii) each parcel of real property leased by the Company or any
Subsidiary (as lessor or lessee) and (iii) all Liens (other than Permitted
Liens) relating to or affecting any parcel of real property referred to in
clause (i).
(b) Except as disclosed in SECTION 2.16(a) OF THE DISCLOSURE
SCHEDULE, the Company or a Subsidiary has good and marketable fee simple title
to each parcel of real property owned by it, free and clear of all Liens other
than Permitted Liens. Except for the real property leased to others referred to
in clause (ii) of paragraph (a) above, the Company or a Subsidiary is in
possession of each parcel of real property owned by it, together with all
buildings, structures, facilities, fixtures and other improvements thereon. The
Company and the Subsidiaries have adequate rights of ingress and egress with
respect to the real property listed in SECTION 2.16(a) OF THE DISCLOSURE
SCHEDULE and all buildings, structures, facilities, fixtures and other
improvements thereon. None of such real property, buildings, structures,
facilities, fixtures or other improvements, or the use thereof, contravenes or
violates any building, zoning, administrative, occupational safety and health or
other applicable Law in any material respect (whether or not permitted on the
basis of prior nonconforming use, waiver or variance).
(c) The Company or a Subsidiary has a valid and subsisting leasehold
estate in and the right to quiet enjoyment of the real properties leased by it
for the full term of the lease thereof. Each lease referred to in clause (ii)
of paragraph (a) above is a legal, valid and binding agreement, enforceable in
accordance with its terms, of the Company or a Subsidiary and of each other
Person that is a party thereto, and except as set forth in SECTION 2.16(c) OF
THE DISCLOSURE SCHEDULE, there is no, and neither the Company nor any Subsidiary
has received notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder.
Neither the Company nor any Subsidiary owes any brokerage commissions with
respect to any such leased space.
(d) Love has delivered to Purchaser prior to the execution of this
Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds of
trust, certificates of occupancy, title insurance policies, title reports,
surveys and similar documents, and all amendments thereof, with respect to the
real property owned by the Company and the Subsidiaries, and (ii) all leases
(including any amendments and renewal letters) and, to the extent reasonably
available, all other documents referred to in clause (i) of this paragraph (d)
with respect to the real property leased by the Company and the Subsidiaries.
(e) Except as disclosed in SECTION 2.16(e) OF THE DISCLOSURE
SCHEDULE, no tenant or
<PAGE>
other party in possession of any of the real properties owned by the Company
and the Subsidiaries, has any right to purchase, or holds any right of first
refusal to purchase, such properties.
(f) Except as disclosed in SECTION 2.16(f) OF THE DISCLOSURE
SCHEDULE, the improvements on the real property identified in SECTION 2.16(a) OF
THE DISCLOSURE SCHEDULE are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purposes for which they are presently being used and, to the
Knowledge of Love, there are no condemnation or appropriation proceedings
pending or threatened against any of such real property or the improvements
thereon.
(g) Neither the Company nor any Subsidiary is or has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(i)(A)(ii).
2.17 TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS.
(a) The Company or a Subsidiary is in possession of and has good
title to, or has valid leasehold interests in or valid rights under Contract to
use, all tangible personal property used in or reasonably necessary for the
conduct of their business, including all tangible personal property reflected on
the balance sheet included in the Unaudited Financial Statements and tangible
personal property acquired since the Unaudited Financial Statement Date other
than property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free and
clear of all Liens, other than Permitted Liens and Liens disclosed in
SECTION 2.17(a) OF THE DISCLOSURE SCHEDULE, and as of Closing, is in good
working order and condition, ordinary wear and tear excepted, and its use
complies in all material respects with all applicable Laws.
(b) SECTION 2.17(b) OF THE DISCLOSURE SCHEDULE describes each
Investment Asset owned by the Company or any Subsidiary on the date hereof.
Except as disclosed in SECTION 2.17(b) OF THE DISCLOSURE SCHEDULE, all such
Investment Assets are owned by the Company or a Subsidiary free and clear of all
Liens other than Permitted Liens.
2.18 INTELLECTUAL PROPERTY RIGHTS. The Company and the Subsidiaries
have interests in or use only the Intellectual Property disclosed in
SECTION 2.18 OF THE DISCLOSURE SCHEDULE, each of which the Company or a
Subsidiary either has all right, title and interest in or a valid and binding
rights under Contract to use. No other Intellectual Property is used or
necessary in the conduct of the business of the Company or any Subsidiary.
Except as disclosed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE, (i) the Company
or a Subsidiary has the exclusive right to use the Intellectual Property
disclosed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE, (ii) all registrations
with and applications to Governmental or Regulatory Authorities in respect of
such Intellectual Property are valid and in full force and effect and are not
subject to the payment of any Taxes or maintenance fees or the taking of any
other actions by the Company or a Subsidiary to maintain their validity or
effectiveness, (iii) there are no restrictions on the direct or indirect
transfer of any Contract, or any interest therein, held by the Company or any
Subsidiary in respect of such Intellectual Property, (iv) Love has delivered to
Purchaser prior to the execution of this Agreement documentation with respect to
any invention, process, design, computer program or other know-how or trade
secret included in such Intellectual Property, which documentation is accurate
in all material respects and reasonably sufficient in detail and content to
identify and explain such invention, process, design, computer program or other
know-how or trade secret and to facilitate its full and proper use without
reliance on the special knowledge or memory of any Person, (v) the Company and
the Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their trade secrets, (vi) neither the Company nor
any Subsidiary is, or has received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
Contract to
<PAGE>
use such Intellectual Property, (vii) to the Knowledge of Love, no such
Intellectual Property is being infringed by any other Person, and (viii)
there are no claims by third parties against the Intellectual Property.
Neither Love, the Company nor any Subsidiary has received notice that the
Company or any Subsidiary is infringing any Intellectual Property of any
other Person, no claim is pending or, to the Knowledge of Love, has been made
to such effect that has not been resolved and, to the Knowledge of Love,
neither the Company nor any Subsidiary is infringing any Intellectual
Property of any other Person.
2.19 CONTRACTS.
(a) SECTION 2.19(a) OF THE DISCLOSURE SCHEDULE (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each of the following Contracts or other arrangements (true and complete
copies or, if none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto and all waivers of
any terms thereof, have been delivered to Purchaser prior to the execution of
this Agreement), to which the Company or any Subsidiary is a party or by which
any of their respective Assets and Properties is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or independent
contracting or the termination of employment or independent contracting,
the name, position and rate of compensation of each Person party to such a
Contract and the expiration date of each such Contract; and (B) any written
or unwritten representations, commitments, promises, communications or
courses of conduct (excluding Benefit Plans and any such Contracts referred
to in clause (A)) involving an obligation of the Company or any Subsidiary
to make payments in any year, other than with respect to salary or
incentive compensation payments in the ordinary course of business, to any
employee exceeding $50,000 or any group of employees exceeding $100,000 in
the aggregate;
(ii) all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of the Company or any
Subsidiary to engage in any business activity or compete with any Person
or, except as provided in SECTION 4.11, prohibiting or limiting the ability
of any Person to compete with the Company or any Subsidiary;
(iii) all partnership, joint venture, shareholders' or other similar
Contracts with any Person;
(iv) all Contracts relating to Indebtedness of the Company or any
Subsidiary in excess of $10,000 or to preferred stock issued by the Company
or any Subsidiary;
(v) all material Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees;
(vi) all Contracts relating to (A) the future disposition or
acquisition of any Assets and Properties, other than dispositions or
acquisitions in the ordinary course of business consistent with past
practice, and (B) any merger or other business combination;
(vii) all Contracts between or among the Company or any Subsidiary, on
one part, and Love, any officer, director, Affiliate (other than the
Company or any Subsidiary) or Associate of Love or any Associate of any
such officer, director or Affiliate, on another part;
(viii) all collective bargaining or similar labor Contracts;
<PAGE>
(ix) all Contracts that (A) limit or contain restrictions on the
ability of the Company or any Subsidiary to declare or pay dividends on, to
make any other distribution in respect of or to issue or purchase, redeem
or otherwise acquire its capital stock, to incur Indebtedness, to incur or
suffer to exist any Lien, to purchase or sell any Assets and Properties, to
change the lines of business in which it participates or engages or to
engage in any Business Combination or (B) require the Company or any
Subsidiary to maintain specified financial ratios or levels of net worth or
other indicia of financial condition; and
(x) all other Contracts (other than Benefit Plans, leases listed in
SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE and insurance policies listed in
SECTION 2.21 OF THE DISCLOSURE SCHEDULE) that (A) involve the payment or
potential payment, pursuant to the terms of any such Contract, by or to the
Company or any Subsidiary of more than $10,000 annually and (B) cannot be
terminated within thirty (30) days after giving notice of termination
without resulting in any material cost or penalty to the Company or any
Subsidiary.
(b) Each Contract required to be disclosed in SECTION 2.19(a) OF THE
DISCLOSURE SCHEDULE is in full force and effect and constitutes a legal, valid
and binding agreement, enforceable in accordance with its terms, of each party
thereto; and except as disclosed in SECTION 2.19(b) OF THE DISCLOSURE SCHEDULE
neither the Company, any Subsidiary nor, to the Knowledge of Love, any other
party to such Contract is, or has received notice that it is, in violation or
breach of or default under any such Contract (or with notice or lapse of time or
both, would be in violation or breach of or default under any such Contract) in
any material respect.
(c) Except as disclosed in SECTION 2.19(c) OF THE DISCLOSURE
SCHEDULE, neither the Company nor any Subsidiary is a party to or bound by any
Contract that has been or could reasonably be expected to be, individually or in
the aggregate with any other such Contracts, materially adverse to the Business
or Condition of the Company.
2.20 LICENSES. SECTION 2.20 OF THE DISCLOSURE SCHEDULE contains a
true and complete list of all Licenses used in and material, individually or in
the aggregate, to the business or operations of the Company or any Subsidiary
(and all pending applications for any such Licenses), setting forth the grantor,
the grantee, the function and the expiration and renewal date of each. Prior to
the execution of this Agreement, Love has delivered to Purchaser true and
complete copies of all such Licenses. Except as disclosed in SECTION 2.20 OF
THE DISCLOSURE SCHEDULE:
(i) the Company and each Subsidiary owns or validly holds all
Licenses that are material, individually or in the aggregate, to its
business or operations;
(ii) each License listed in SECTION 2.20 OF THE DISCLOSURE SCHEDULE is
valid, binding and in full force and effect; and
(iii) neither the Company nor any Subsidiary is, or has received
any notice that it is, in default (or with the giving of notice or lapse of
time or both, would be in default) under any such License.
2.21 INSURANCE. SECTION 2.21 OF THE DISCLOSURE SCHEDULE contains a
true and complete list (including the names and addresses of the insurers, the
names of the Persons to whom such Policies have been issued, the expiration
dates thereof, the annual premiums and payment terms thereof, whether it is a
"claims made" or an "occurrence" policy and a brief description of the interests
insured thereby) of all liability, property, workers' compensation, directors'
and officers' liability and other insurance policies
<PAGE>
currently in effect that insure the business, operations or employees of the
Company or any Subsidiary or affect or relate to the ownership, use or
operation of any of the Assets and Properties of the Company or any
Subsidiary and that (i) have been issued to the Company or any Subsidiary or
(ii) have been issued to any Person (other than the Company or any
Subsidiary) for the benefit of the Company or any Subsidiary. The insurance
coverage provided by any of the policies described in clause (i) above will
not terminate or lapse by reason of the transactions contemplated by this
Agreement. Each policy listed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE is
valid and binding and in full force and effect, no premiums due thereunder
have not been paid and neither the Company, any Subsidiary nor the Person to
whom such policy has been issued has received any notice of cancellation or
termination in respect of any such policy or is in default thereunder. The
insurance policies listed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE are
placed with insurers that are, to the Knowledge of Love, financially sound
and reputable and, in light of the respective business, operations and Assets
and Properties of the Company and the Subsidiaries, are in amounts and have
coverages that are reasonable and customary for Persons engaged in such
businesses and operations and having such Assets and Properties. Neither the
Company, any Subsidiary nor the Person to whom such policy has been issued
has received notice that any insurer under any policy referred to in this
Section is denying liability with respect to a claim thereunder or defending
under a reservation of rights clause.
2.22 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION
2.19(a)(vii) OR SECTION 2.22(a) OF THE DISCLOSURE SCHEDULE, (i) there are no
intercompany Liabilities between the Company or any Subsidiary, on one part,
and Love, any officer, director, Affiliate (other than the Company or any
Subsidiary) or Associate of Love or any Associate of any such officer,
director or Affiliate, on another part; (ii) Love, nor such officer,
director, Affiliate or Associate provides or causes to be provided any
assets, services or facilities to the Company or any Subsidiary, (iii)
neither the Company nor any Subsidiary provides or causes to be provided any
assets, services or facilities to Love or any such officer, director,
Affiliate or Associate and (iv) neither the Company nor any Subsidiary
beneficially owns, directly or indirectly, any Investment Assets issued by
Love or any such officer, director, Affiliate or Associate. Except as
disclosed in SECTION 2.22(b) OF THE DISCLOSURE SCHEDULE, each of the
Liabilities and transactions listed in SECTION 2.22(a) OF THE DISCLOSURE
SCHEDULE was incurred or engaged in, as the case may be, on an arm's-length
basis. Except as disclosed in SECTION 2.22(c) OF THE DISCLOSURE SCHEDULE,
since the Audited Financial Statement Date, all settlements of intercompany
Liabilities between the Company or any Subsidiary, on one part, and Love or
any such officer, director, Affiliate or Associate, on another part, have
been made, and all allocations of intercompany expenses have been applied, in
the ordinary course of business consistent with past practice.
2.23 EMPLOYEES; LABOR RELATIONS.
(a) SECTION 2.23 OF THE DISCLOSURE SCHEDULE contains a list of the
name of each officer and employee of the Company and the Subsidiaries at the
date hereof, together with each such person's position or function, annual base
salary or wages and any incentive or bonus arrangement with respect to such
person in effect on such date. To the Knowledge of Love, the Company has not
received and Love has not received any information that would lead it to believe
that a material number of such person will or may cease to be employees, or
will refuse offers of employment from Purchaser, because of the consummation of
the transactions contemplated by this Agreement.
(b) Except as disclosed in SECTION 2.23 OF THE DISCLOSURE SCHEDULE,
(i) no employee of the Company or any Subsidiary is presently a member of a
collective bargaining unit and, to the Knowledge of Love, there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of the Company or any Subsidiary, and (ii) no
unfair labor practice complaint or sex, age, race or other discrimination claim
has been brought during the last five (5) years against the Company or any of
the Subsidiaries before the National Labor Relations Board, the
<PAGE>
Equal Employment Opportunity Commission or any other Governmental or
Regulatory Authority. Since _____________, there has been no work stoppage,
strike or other concerted action by employees of the Company or any
Subsidiary. During that period, the Company and the Subsidiaries have
complied in all material respects with all applicable Laws relating to the
employment of labor, including those relating to wages, hours and collective
bargaining. Except as disclosed in SECTION 2.23 OF THE DISCLOSURE SCHEDULE,
no loan is outstanding between the Company or any Subsidiary and any employee.
2.24 ENVIRONMENTAL MATTERS. Each of the Company and the Subsidiaries
has obtained all Licenses which are required under applicable Environmental Laws
in connection with the conduct of the business or operations of the Company or
such Subsidiary. Each of such Licenses is in full force and effect and each of
the Company and the Subsidiaries is in compliance in all material respects with
the terms and conditions of all such Licenses and with any applicable
Environmental Law. In addition, except as set forth in SECTION 2.24 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set forth
below):
(a) No Order has been issued, no Environmental Claim has been filed,
no penalty has been assessed and no investigation or review is pending or, to
the Knowledge of Love, threatened by any Governmental or Regulatory Authority
with respect to any alleged failure by the Company or any Subsidiary to have any
License required under applicable Environmental Laws in connection with the
conduct of the business or operations of the Company or any of the Subsidiaries
or with respect to any generation, treatment, storage, recycling,
transportation, discharge, disposal or Release of any Hazardous Material
generated by the Company or any Subsidiary, and to the Knowledge of Love, there
are no facts or circumstances in existence which could reasonably be expected to
form the basis for any such Order, Environmental Claim, penalty or
investigation.
(b) Neither the Company nor any Subsidiary owns, operates or leases a
treatment, storage or disposal facility requiring a permit under the Resource
Conservation and Recovery Act, as amended, or under any other comparable state
or local Law; and, without limiting the foregoing, (i) no polychlorinated
biphenyl is or has been present, (ii) no asbestos or asbestos-containing
material is or has been present, (iii) there are no underground storage tanks or
surface impoundments for Hazardous Materials, active or abandoned, and (iv) no
Hazardous Material has been Released in a quantity reportable under, or in
violation of, any Environmental Law or otherwise Released, in the cases of
clauses (i) through (iv), at, on or under any site or facility now or previously
owned, operated or leased by the Company or any Subsidiary.
(c) Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location that
is (i) listed on the NPL under CERCLA, (ii) listed for possible inclusion on the
NPL by the Environmental Protection Agency in CERCLIS or on any similar state or
local list or (iii) the subject of enforcement actions by federal, state or
local Governmental or Regulatory Authorities that may lead to Environmental
Claims against the Company or any Subsidiary.
(d) No Hazardous Material generated by the Company or any Subsidiary
has been recycled, treated, stored, disposed of or Released by the Company or
any Subsidiary at any location.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any Subsidiary and, to
the Knowledge of Love, no site or facility now or previously owned, operated or
leased by the Company or any Subsidiary is listed or proposed for listing on the
NPL, CERCLIS or any similar state or local list of sites requiring investigation
or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Law
on any site or facility owned, operated or leased by the Company or any
Subsidiary, and no federal, state or local
<PAGE>
Governmental or Regulatory Authority action has been taken or, to the Knowledge
of Love, is in process that could subject any such site or facility to such
Liens, and neither the Company nor any Subsidiary would be required to place
any notice or restriction relating to the presence of Hazardous Materials at
any site or facility owned by it in any deed to the real property on which such
site or facility is located.
(g) Except as disclosed in SECTION 2.24(g) OF THE DISCLOSURE
SCHEDULE, there have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
Love, the Company or any Subsidiary in relation to any site or facility now or
previously owned, operated or leased by the Company or any Subsidiary which have
not been delivered to Purchaser prior to the execution of this Agreement.
2.25 SUBSTANTIAL CUSTOMERS AND SUPPLIERS. SECTION 2.25(a) OF THE
DISCLOSURE SCHEDULE lists the five (5) largest customers of the Company and the
Subsidiaries, on the basis of revenues for goods sold or services provided for
the most recently-completed fiscal year. SECTION 2.25(b) OF THE DISCLOSURE
SCHEDULE lists the five (5) largest suppliers of the Company and the
Subsidiaries, on the basis of cost of goods or services purchased for the most
recently-completed fiscal year. Except as disclosed in SECTION 2.25(c) OF THE
DISCLOSURE SCHEDULE, no such customer or supplier has ceased or materially
reduced its purchases from, use of the services of, sales to or provision of
services to the Company and the Subsidiaries since the Audited Financial
Statement Date, or to the Knowledge of Love, has threatened to cease or
materially reduce such purchases, use, sales or provision of services after the
date hereof. Except as disclosed in SECTION 2.25(d) OF THE DISCLOSURE SCHEDULE,
to the Knowledge of Love, no such customer or supplier is threatened with
bankruptcy or insolvency.
2.26 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS. SECTION 2.26 OF
THE DISCLOSURE SCHEDULE sets forth (a) a true and complete list of the names and
locations of all banks, trust companies, securities brokers and other financial
institutions at which the Company or any Subsidiary has an account or safe
deposit box or maintains a banking, custodial, trading or other similar
relationship; (b) a true and complete list and description of each such account,
box and relationship, indicating in each case the account number and the names
of the respective officers, employees, agents or other similar representatives
of the Company or any Subsidiary having signatory power with respect thereto;
and (c) a list of each Investment Asset, the name of the record and beneficial
owner thereof, the location of the certificates, if any, therefor, the maturity
date, if any, and any stock or bond powers or other authority for transfer
granted with respect thereto.
2.27 NO POWERS OF ATTORNEY. Except as set forth in SECTION 2.27 OF
THE DISCLOSURE SCHEDULE, neither the Company nor any Subsidiary has any powers
of attorney or comparable delegations of authority outstanding.
2.28 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 2.28 OF THE
DISCLOSURE SCHEDULE, the accounts and notes receivable of the Company and the
Subsidiaries reflected on the balance sheet included in the Unaudited Financial
Statements, and all accounts and notes receivable arising subsequent to the
Unaudited Financial Statement Date, (i) arose from BONA FIDE sales transactions
in the ordinary course of business and are payable on ordinary trade terms, (ii)
are legal, valid and binding obligations of the respective debtors enforceable
in accordance with their terms, (iii) are not subject to any valid set-off or
counterclaim, (iv) do not represent obligations for goods sold on consignment,
on approval or on a sale-or-return basis or subject to any other repurchase or
return arrangement and (v) are not the subject of any Actions or Proceedings
brought by or on behalf of the Company or any Subsidiary. SECTION 2.28 OF THE
DISCLOSURE SCHEDULE sets forth a description of any security arrangements and
collateral securing the repayment or other satisfaction of receivables of the
Company and the Subsidiaries. To the Knowledge of Love, all steps necessary to
render all such security arrangements legal, valid, binding and enforceable, and
to give and maintain for the Company or a
<PAGE>
Subsidiary, as the case may be, a perfected security interest in the related
collateral, have been taken.
2.29 BROKERS. Except for the HAI Financial agreement, whose
obligation is to be assumed by Love as to this transaction, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by Love directly with Purchaser without the intervention of any
Person on behalf of Love in such manner as to give rise to any valid claim by
any Person against Purchaser, the Company or any Subsidiary for a finder's fee,
brokerage commission or similar payment.
2.30 DISCLOSURE. All material facts relating to the Business or
Condition of the Company have been disclosed to Purchaser in or in connection
with this Agreement. No representation or warranty contained in this Agreement,
and no statement contained in the Disclosure Schedule or in any certificate,
list or other writing furnished to Purchaser pursuant to any provision of this
Agreement (including the Financial Statements), contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
2.31 INCORPORATION BY REFERENCE. Love hereby incorporates by
reference all representations and warranties of the Company made in the
Investment Agreement as if set forth in this Agreement in full and made by Love
as of the date hereof and as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.01 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware.
Purchaser has full corporate power and authority to execute and deliver this
Agreement and the Operative Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
3.02 AUTHORITY. The execution and delivery by Purchaser of this
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of its obligations hereunder and thereunder, have been
duly and validly authorized by the Board of Directors of Purchaser, no other
corporate action on the part of Purchaser or its stockholders being necessary.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes, and upon the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, such Operative Agreements will constitute,
legal, valid and binding obligations of Purchaser enforceable against Purchaser
in accordance with their terms.
3.03 NO CONFLICTS. The execution and delivery by Purchaser of this
Agreement do not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
(or other comparable corporate charter document) of Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and
<PAGE>
giving the notices disclosed in SCHEDULE 3.04 hereto, conflict with or result
in a violation or breach of any term or provision of any Law or Order
applicable to Purchaser or any of its Assets and Properties; or
(c) except as disclosed in SCHEDULE 3.03 hereto, (i) conflict with or
result in a violation or breach of, (ii) constitute (with or without notice or
lapse of time or both) a default under, (iii) require Purchaser to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, (iv) result in or give to any Person
any right of termination, cancellation, acceleration or modification in or with
respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments under,
or (vi) result in the creation or imposition of any Lien upon Purchaser or any
of its Assets or Properties under, any Contract or License to which Purchaser is
a party or by which any of its Assets and Properties is bound.
3.04 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SCHEDULE 3.04 hereto, no consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority on the part of Purchaser is required
in connection with the execution, delivery and performance of this Agreement or
the Operative Agreements to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
3.05 LEGAL PROCEEDINGS. There are no Actions or Proceedings pending
or, to the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Assets and Properties which could reasonably be expected
to result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
3.06 PURCHASE FOR INVESTMENT. The Shares will be acquired by
Purchaser (or, if applicable, its assignee pursuant to SECTION 13.10(b)(i)) for
its own account for the purpose of investment, it being understood that the
right to dispose of such Shares shall be entirely within the discretion of
Purchaser (or such assignee, as the case may be). Purchaser (or such assignee,
as the case may be) will refrain from transferring or otherwise disposing of any
of the Shares, or any interest therein, in such manner as to cause Seller to be
in violation of the registration requirements of the Securities Act of 1933, as
amended, or applicable state securities or blue sky laws.
3.07 ACCREDITED INVESTOR. At the Closing, Purchaser will be an
"accredited investor" within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.
3.08 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representations to the Company, which by
Purchaser's execution of this Agreement hereby confirms that the Shares will be
acquired for investment for Purchaser's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, Purchaser further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Shares.
3.09 INVESTMENT EXPERIENCE. Purchaser 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 Shares.
3.10 PDT SHARES. The PDT Shares to be delivered by Purchaser at the
Closing will be duly authorized, validly issued and outstanding, fully paid and
non-assessable. All necessary
<PAGE>
corporate action on the part of PDT has been taken in order to issue the PDT
Shares.
ARTICLE IV
COVENANTS OF SELLERS
The Company and Love jointly and severally, and Sellers severally,
where specifically indicated, covenant and agree with Purchaser that, at all
times from and after the date hereof until the Closing and, with respect to any
covenant or agreement by its terms to be performed in whole or in part after the
Closing, for the period specified herein, the Company and Love will comply with
all covenants and provisions of this ARTICLE IV, except to the extent Purchaser
may otherwise consent in writing.
4.01 REGULATORY AND OTHER APPROVALS. Love will, and will cause the
Company and the Subsidiaries to, (a) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to give all
notices to Governmental or Regulatory Authorities or any other Person required
of Love, the Company or any Subsidiary to consummate the transactions
contemplated hereby and by the Operative Agreements, including those described
in SECTIONS 2.06 AND 2.07 OF THE DISCLOSURE SCHEDULE, (b) provide such other
information and communications to such Governmental or Regulatory Authorities or
other Persons as Purchaser or such Governmental or Regulatory Authorities or
other Persons may reasonably request in connection therewith and (c) cooperate
with Purchaser as promptly as practicable in obtaining all consents, approvals
or actions of, making all filings with and giving all notices to Governmental or
Regulatory Authorities or other Persons required of Purchaser to consummate the
transactions contemplated hereby and by the Operative Agreements. Love will
provide prompt notification to Purchaser when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise Purchaser of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement or any of the
Operative Agreements.
4.02 HSR FILINGS. In addition to and not in limitation of Love's
covenants contained in SECTION 4.01, if required under applicable Law, the
Company and Love will (a) take promptly all actions necessary to make the
filings required of Love or his Affiliates under the HSR Act, (b) comply at the
earliest practicable date with any request for additional information received
by the Company, Love or their Affiliates from the Federal Trade Commission or
the Antitrust Division of the Department of Justice pursuant to the HSR Act and
(c) cooperate with Purchaser in connection with Purchaser's filing under the HSR
Act and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced by either
the Federal Trade Commission or the Antitrust Division of the Department of
Justice or state attorneys general.
4.03 INVESTIGATION BY PURCHASER. The Company will, and will cause the
Subsidiaries to, (a) provide Purchaser and its respective officers, directors,
employees, agents, counsel, accountants, financial advisors, consultants and
other representatives (together "REPRESENTATIVES") with full access, upon
reasonable prior notice and during normal business hours, to all officers,
employees, agents and accountants of the Company and the Subsidiaries and their
Assets and Properties and Books and Records, and (b) furnish Purchaser and such
other Persons with all such information and data (including copies of Contracts,
Benefit Plans and other Books and Records) concerning the business and
operations of the Company and the Subsidiaries as Purchaser or any of such other
Persons may reasonably request in connection with such investigation.
<PAGE>
4.04 NO SOLICITATIONS. Love will not take, nor will he permit the
Company, the Subsidiaries or any Affiliate of Love (or authorize or permit any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of Love, the Company, the Subsidiaries or
any such Affiliate) to take, directly or indirectly, any action to solicit,
encourage, receive, negotiate, assist or otherwise facilitate (including by
furnishing confidential information with respect to the Company or any
Subsidiary or permitting access to the Assets and Properties and Books and
Records of the Company or any Subsidiary) any offer or inquiry from any Person
concerning an Acquisition Proposal. If Love, the Company, any Subsidiary or any
such Affiliate (or any such Person acting for or on their behalf) receives from
any Person any offer, inquiry or informational request referred to above, Love
will promptly advise such Person, by written notice, of the terms of this
SECTION 4.04 and will promptly, orally and in writing, advise Purchaser of such
offer, inquiry or request and deliver a copy of such notice to Purchaser.
4.05 CONDUCT OF BUSINESS. Love will cause the Company and the
Subsidiaries to conduct business only in the ordinary course consistent with
past practice. Without limiting the generality of the foregoing, Love will:
(a) cause the Company and the Subsidiaries to use commercially
reasonable efforts to (i) preserve intact the present business organization and
reputation of the Company and the Subsidiaries, (ii) take no action (subject to
dismissals and retirements in the ordinary course of business consistent with
past practice) to cause the services of the present officers, employees and
consultants of the Company and the Subsidiaries not to be available to the
Company after the Closing, (iii) maintain the Assets and Properties of the
Company and the Subsidiaries in good working order and condition, ordinary wear
and tear excepted, (iv) maintain the good will of customers, suppliers, lenders
and other Persons to whom the Company or any Subsidiary sells goods or provides
services or with whom the Company or any Subsidiary otherwise has significant
business relationships and (v) continue all current sales, marketing and
promotional activities relating to the business and operations of the Company
and the Subsidiaries;
(b) except to the extent required by applicable Law, (i) cause the
Books and Records to be maintained in the usual, regular and ordinary manner,
(ii) not permit any material change in (A) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy of
the Company or any Subsidiary, or (B) any method of calculating any bad debt,
contingency or other reserve of the Company or any Subsidiary for accounting,
financial reporting or Tax purposes and (iii) not permit any change in the
fiscal year of the Company or any Subsidiary;
(c) (i) use, and will cause the Company and the Subsidiaries to use,
commercially reasonable efforts to maintain in full force and effect until the
Closing substantially the same levels of coverage as the insurance afforded
under the Contracts listed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE, (ii) to
the extent requested by Purchaser prior to the Closing Date, use all
commercially reasonable efforts to cause such insurance coverage held by any
Person (other than the Company or any Subsidiary) for the benefit of the Company
or any Subsidiary to continue to be provided at the expense of the Company and
the Subsidiaries for at least 90 days after the Closing on substantially the
same terms and conditions as provided on the date of this Agreement and (iii)
cause any and all benefits under such Contracts paid or payable (whether before
or after the date of this Agreement) with respect to the business, operations,
employees or Assets and Properties of the Company and the Subsidiaries to be
paid to the Company and the Subsidiaries; and
(d) cause the Company and the Subsidiaries to comply, in all material
respects, with all Laws and Orders applicable to the business and operations of
the Company and the Subsidiaries, and promptly following receipt thereof to give
Purchaser copies of any notice received from any
<PAGE>
Governmental or Regulatory Authority or other Person alleging any violation
of any such Law or Order.
4.06 EMPLOYEE MATTERS. Except as may be required by Law, Love will
refrain, and will cause the Company and the Subsidiaries to refrain, from
directly or indirectly:
(a) making any representation or promise, oral or written, to any
officer, employee or consultant of the Company or any Subsidiary concerning any
Benefit Plan, except for statements as to the rights or accrued benefits of any
officer, employee or consultant under the terms of any Benefit Plan;
(b) materially increasing the annual level of compensation of any
employee, and not increasing, except in amounts in keeping with past practices,
the annual level of compensation of any person whose compensation from the
Company in the last preceding fiscal year exceeded $100,000, and not granting
any unusual or extraordinary bonuses, benefits or other forms of direct or
indirect compensation to any employee, officer, director or consultant, except
in amounts in keeping with past practices by formulas or otherwise.
(c) adopting, entering into or becoming bound by any Benefit Plan,
employment-related Contract or collective bargaining agreement, or amending,
modifying or terminating (partially or completely) any Benefit Plan, employment-
related Contract or collective bargaining agreement, except to the extent
required by applicable Law and, in the event compliance with legal requirements
presents options, only to the extent that the option which the Company or
Subsidiary reasonably believes to be the least costly is chosen; or
(d) establishing or modifying any (i) targets, goals, pools or
similar provisions in respect of any fiscal year under any Benefit Plan,
employment-related Contract or other employee compensation arrangement or (ii)
salary ranges, increase guidelines or similar provisions in respect of any
Benefit Plan, employment-related Contract or other employee compensation
arrangement.
Love will cause the Company and the Subsidiaries to administer each
Benefit Plan, or cause the same to be so administered, in all material respects
in accordance with the applicable provisions of the Code, ERISA and all other
applicable Laws. Love will promptly notify Purchaser in writing of each receipt
by Love, the Company or any Subsidiary (and furnish Purchaser with copies) of
any notice of investigation or administrative proceeding by the IRS, Department
of Labor, PBGC or other Person involving any Benefit Plan.
4.07 CERTAIN RESTRICTIONS. Love will cause the Company and the
Subsidiaries to refrain from:
(a) amending their certificates or articles of incorporation or by-
laws (or other comparable corporate charter documents) or taking any action with
respect to any such amendment or any recapitalization, reorganization,
liquidation or dissolution of any such corporation;
(b) authorizing, issuing, selling or otherwise disposing of any
shares of capital stock of or any Option with respect to the Company or any
Subsidiary, or modifying or amending any right of any holder of outstanding
shares of capital stock of or Option with respect to the Company or any
Subsidiary, other than the issuance of options under the Company's option plan;
(c) declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of the Company or any Subsidiary
not wholly owned by the Company, or directly or indirectly redeeming, purchasing
or otherwise acquiring any capital stock of or any Option with respect to the
Company or any Subsidiary not wholly owned by the Company;
<PAGE>
(d) acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on, any Assets and Properties, other than in the ordinary course
of business consistent with past practice;
(e) (i) except in the ordinary course of business, consistent with
past practice, entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with respect to (A)
any Contract that would, if in existence on the date of this Agreement, be
required to be disclosed in the Disclosure Schedule pursuant to SECTION 2.19(a)
or (B) any material License or (ii) granting any irrevocable powers of attorney;
(f) violating, breaching or defaulting under in any material respect,
or taking or failing to take any action that (with or without notice or lapse of
time or both) would constitute a material violation or breach of, or default
under, any term or provision of any material License held or used by the
Company or any Subsidiary or any material Contract to which the Company or any
Subsidiary is a party or by which any of their respective Assets and Properties
is bound;
(g) (i) incurring Indebtedness in an aggregate principal amount
exceeding $100,000 (net of any amounts of Indebtedness discharged during such
period), except as reasonably necessary for the ordinary operation of the
Company's or its Subsidiaries' business in a manner, and in amounts, consistent
with historical practice, or (ii) voluntarily purchasing, canceling, prepaying
or otherwise providing for a complete or partial discharge in advance of a
scheduled payment date with respect to, or waiving any right of the Company or
any Subsidiary under, any Indebtedness of or owing to the Company or any
Subsidiary;
(h) engaging with any Person in any merger or other business
combination;
(i) making capital expenditures or commitments for additions to
property, plant or equipment constituting capital assets in an aggregate amount
exceeding $50,000, without Purchaser's consent which shall not be unreasonably
withheld;
(j) making any change in the lines of business in which they
participate or are engaged;
(k) writing off or writing down any of their Assets and Properties
outside the ordinary course of business consistent with past practice; or
(l) entering into any Contract to do or engage in any of the
foregoing.
4.08 AFFILIATE TRANSACTIONS. Except as set forth in SECTION 4.08 OF
THE DISCLOSURE SCHEDULE, immediately prior to the Closing, all Indebtedness and
other amounts owing under Contracts between Love, any officer, director,
Affiliate (other than the Company or any Subsidiary) or Associate of Love or any
Associate of any such officer, director or Affiliate, on one part, and the
Company or any of the Subsidiaries, on another part, will be paid in full, and
Love will terminate and will cause any such officer, director, Affiliate or
Associate to terminate each Contract with the Company or any Subsidiary, without
expense or liability to the Company. Prior to the Closing, neither the Company
nor any Subsidiary will enter into any Contract or amend or modify any existing
Contract, and will not engage in any transaction outside the ordinary course of
business consistent with past practice or not on an arm's-length basis (other
than pursuant to Contracts disclosed pursuant to SECTION 2.19(a)(vii) OF THE
DISCLOSURE SCHEDULE), with Love or any such officer, director, Affiliate or
Associate.
4.09 BOOKS AND RECORDS. On the Closing Date, Love will deliver or
make available to Purchaser at the offices of the Company and the Subsidiaries
all of the Books and Records, and if at any
<PAGE>
time after the Closing Love discovers in its possession or under its control
any other Books and Records, it will forthwith deliver such Books and Records
to Purchaser. Love shall also cooperate with Purchaser in including
financial statements of the Company and its Subsidiaries for the fiscal years
ending in ________________ via the Purchaser's parent corporation's filings
with the Securities and Exchange Commission.
4.10 NONCOMPETITION.
(a) Each Seller who owns at least three percent (3%) of the
outstanding capital stock of the Company will, for a period of five (5) years
from the Closing Date, refrain from, either alone or in conjunction with any
other Person, or directly or indirectly through its present or future
Affiliates:
(i) employing, engaging or seeking to employ or engage any Person who
within the prior twenty-four (24) months had been an officer or employee of
the Company or a Subsidiary, unless such officer or employee (A) resigns
voluntarily (without any solicitation from any Seller or any of their
Affiliates) or (B) is terminated by the Company or any Subsidiary or
Purchaser other than for cause after the Closing Date;
(ii) causing or attempting to cause (A) any client, customer or
supplier of the Company or any Subsidiary to terminate or materially reduce
its business with the Company and the Subsidiaries or (B) any officer,
employee or consultant of the Company or any Subsidiary to resign or sever
a relationship with the Company or a Subsidiary;
(iii) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the
Company or any of the Subsidiaries or any of their respective clients,
customers or suppliers; or
(iv) participating or engaging in (other than through the ownership of
five percent (5%) or less of any class of securities registered under the
Securities Exchange Act of 1934, as amended), or otherwise lending
assistance (financial or otherwise) to any Person participating or engaged
in, any of the lines of business in which the Company or any of the
Subsidiaries is participating or engaged on the Closing Date in any
jurisdiction.
(b) The parties hereto recognize that the Laws and public policies of
the various states of the United States and foreign jurisdictions may differ as
to the validity and enforceability of covenants similar to those set forth in
this Section. It is the intention of the parties that the provisions of this
Section be enforced to the fullest extent permissible under the Laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such Laws or policies) of
any provisions of this Section shall not render unenforceable, or impair, the
remainder of the provisions of this Section. Accordingly, if any provision of
this Section shall be determined to be invalid or unenforceable, such invalidity
or unenforceability shall be deemed to apply only with respect to the operation
of such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy at Law
for any breach of the provisions of this Section would be inadequate, and each
Seller hereby consents to the granting by any court of an injunction or other
equitable relief, without the necessity of actual monetary loss being proved, in
order that the breach or threatened breach of such provisions may be effectively
restrained.
4.11 NOTICE AND CURE. Love will notify Purchaser in writing (where
appropriate,
<PAGE>
through updates to the Disclosure Schedule) of, and contemporaneously will
provide Purchaser with true and complete copies of any and all information or
documents relating to, and will use all commercially reasonable efforts to
cure before the Closing, any event, transaction or circumstance, as soon as
practicable after it becomes Known to Love, occurring after the date of this
Agreement that causes or will cause any covenant or agreement of any Seller
under this Agreement to be breached or that renders or will render untrue any
representation or warranty of any Seller contained in this Agreement as if
the same were made on or as of the date of such event, transaction or
circumstance. Love also will notify Purchaser in writing (where appropriate,
through updates to the Disclosure Schedule) of, and will use all commercially
reasonable efforts to cure, before the Closing, any violation or breach, as
soon as practicable after it becomes Known to Love, of any representation,
warranty, covenant or agreement made by any Seller in this Agreement, whether
occurring or arising before, on or after the date of this Agreement. No
notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein or shall in any way limit Purchaser's right to seek indemnity under
ARTICLE XI.
4.12 FULFILLMENT OF CONDITIONS. Love will each execute and deliver at
the Closing each Operative Agreement that such Seller is required hereby to
execute and deliver as a condition to the Closing, will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each other condition to the obligations of Purchaser contained in
this Agreement and will not, and will not permit the Company or any Subsidiary
to, take or fail to take any action that could reasonably be expected to result
in the nonfulfillment of any such condition.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Sellers that, at all times from
and after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this ARTICLE V, except to the extent any Seller may
otherwise consent in writing.
5.01 REGULATORY AND OTHER APPROVALS. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby and by the Operative Agreements, including those described in SECTIONS
3.03 AND 3.04 OF THE DISCLOSURE SCHEDULE hereto, (b) provide such other
information and communications to such Governmental or Regulatory Authorities or
other Persons as Sellers or such Governmental or Regulatory Authorities or other
Persons may reasonably request in connection therewith and (c) cooperate with
Sellers, the Company and the Subsidiaries as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authorities or other Persons
required of Sellers, the Company or any Subsidiary to consummate the
transactions contemplated hereby and by the Operative Agreements. Purchaser
will provide prompt notification to Sellers when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise Sellers of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement or any of the
Operative Agreements.
5.02 HSR FILINGS. In addition to and without limiting Purchaser's
covenants
<PAGE>
contained in SECTION 5.01, if required under applicable Law, Purchaser will
(a) take promptly all actions necessary to make the filings required of
Purchaser or its Affiliates under the HSR Act, (b) comply at the earliest
practicable date with any request for additional information received by
Purchaser or its Affiliates from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act and
(c) cooperate with Sellers in connection with Sellers' filing under the HSR
Act and in connection with resolving any investigation or other regulatory
inquiry concerning the transactions contemplated by this Agreement commenced
by either the Federal Trade Commission or the Antitrust Division of the
Department of Justice or state attorneys general.
5.03 NOTICE AND CURE. Purchaser will notify Sellers in writing of,
and contemporaneously will provide Sellers with true and complete copies of any
and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance, as soon as practicable after it becomes known to Purchaser,
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Purchaser under this Agreement to be breached or that
renders or will render untrue any representation or warranty of Purchaser
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. Purchaser also will notify Sellers in
writing of, and will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach, as soon as practicable after it becomes known
to Purchaser, of any representation, warranty, covenant or agreement made by
Purchaser in this Agreement, whether occurring or arising before, on or after
the date of this Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or agreements contained
in this Agreement for purposes of determining satisfaction of any condition
contained herein or shall in any way limit Seller's right to seek indemnity
under ARTICLE XI.
5.04 FULFILLMENT OF CONDITIONS. Purchaser will execute and deliver at
the Closing each Operative Agreement that Purchaser is hereby required to
execute and deliver as a condition to the Closing, will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each other condition to the obligations of Seller contained in this
Agreement and will not take or fail to take any action that could reasonably be
expected to result in the nonfulfillment of any such condition.
5.05 REGISTRATION OF PDT SHARES. Purchaser will cause the resale of
the PDT Shares by the Sellers to be registered with the Securities and Exchange
Commission and listed on the NASDAQ National Market System, or the then-
applicable exchange, prior to the Closing.
5.06 ADVANCE BY PURCHASER TO THE COMPANY. After execution of this
Agreement, Purchaser agrees to advance to the Company sufficient funds for its
working capital needs for the period preceding the Closing. The advance will be
reflected in a Promissory Note at the Purchaser's bank borrowing rate, plus one
percent (1%). If this transaction does not close through the fault of the
Sellers, the Promissory Note will be due and payable within ninety (90) days of
the termination of this Agreement. If this transaction does not close through
the fault of the Purchaser, the Promissory Note will be due and payable one
hundred eighty (180) days of the date of Closing.
<PAGE>
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Shares are
subject to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Purchaser
in its sole discretion):
6.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Company and Sellers in this Agreement (other than those
made as of a specified date earlier than the Closing Date) shall be true and
correct in all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and any
representation or warranty made as of a specified date earlier than the Closing
Date shall have been true and correct in all material respects on and as of such
earlier date.
6.02 PERFORMANCE; NO DEFAULT. The Company and Sellers shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
the Company and any Seller at or before the Closing and no Default shall have
occurred and be continuing.
6.03 OFFICERS' CERTIFICATES. Each Seller shall have delivered to
Purchaser a certificate, dated the Closing Date (and executed by the Chairman of
the Board or the President of any corporate Seller and by all trustees of any
trust with respect to any trustee Seller), substantially in the form and to the
effect of EXHIBIT B hereto.
6.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or any of the Operative Agreements or which could reasonably be
expected to otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement or any of the Operative Agreements
to Purchaser, and there shall not be pending or threatened on the Closing Date
any Action or Proceeding or any other action in, before or by any Governmental
or Regulatory Authority which could reasonably be expected to result in the
issuance of any such Order or the enactment, promulgation or deemed
applicability to Purchaser, the Company, any Subsidiary or the transactions
contemplated by this Agreement or any of the Operative Agreements of any such
Law.
6.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Purchaser and Sellers to perform their obligations under
this Agreement and the Operative Agreements and to consummate the transactions
contemplated hereby and thereby (a) shall have been duly obtained, made or
given, (b) shall be in form and substance reasonably satisfactory to Purchaser,
(c) shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (d) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Operative Agreements, including under the
HSR Act, if applicable, shall have occurred.
6.06 THIRD PARTY CONSENTS. The consents (or in lieu thereof waivers)
listed in SECTION 6.06 OF THE DISCLOSURE SCHEDULE and all other consents (or in
lieu thereof waivers) to the performance by Purchaser and Sellers of their
obligations under this Agreement and the Operative Agreements or to the
consummation of the transactions contemplated hereby and thereby as are required
<PAGE>
under any Contract to which Purchaser, any Seller, the Company or any Subsidiary
is a party or by which any of their respective Assets and Properties are bound
(a) shall have been obtained, (b) shall be in form and substance reasonably
satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect, except where the failure to obtain any such consent (or in lieu
thereof waiver) could not reasonably be expected, individually or in the
aggregate with other such failures, to materially adversely affect Purchaser or
the Business or Condition of the Company or otherwise result in a material
diminution of the benefits of the transactions contemplated by this Agreement
and the Operative Agreements to Purchaser.
6.07 OPINION OF COUNSEL. Purchaser shall have received the opinion of
Stradling, Yocca, Carlson and Rauth, counsel to Sellers and the Company, dated
the Closing Date, substantially in the form and to the effect of EXHIBIT C
hereto, and to such further effect as Purchaser may reasonably request.
6.08 GOOD STANDING CERTIFICATES. Sellers shall have delivered to
Purchaser (a) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto, of
the Company and each Subsidiary certified by the Secretary of State or other
appropriate official of the jurisdiction of incorporation, (b) certificates from
the Secretary of State or other appropriate official of the respective
jurisdictions of incorporation to the effect that each of the Company and the
Subsidiaries is in good standing or subsisting in such jurisdiction, listing all
charter documents of the Company and such Subsidiaries on file and attesting to
its payment of all franchise or similar Taxes, and (c) a certificate from the
Secretary of State or other appropriate official in each jurisdiction in which
the Company and the Subsidiaries are qualified or admitted to do business to the
effect that the Company or the applicable Subsidiary is duly qualified or
admitted and in good standing in such jurisdiction.
6.09 SPECIAL PROCEDURES REPORT. Purchaser shall have received the
Audited Financial Statements of the Company as of ________________ and for the
year then ended, together with the unqualified opinion of ____________________
thereon (but with explanatory language with respect to the Company's ability to
continue as a going concern), and the Company shall have received, and shall
deliver to the Purchaser a copy of, a special procedures report, dated the
Closing Date, of ______________________________, substantially in the form and
to the effect of EXHIBIT D hereto.
6.10 RESIGNATIONS OF DIRECTORS AND OFFICERS. Such members of the
boards of directors and such officers of the Company and the Subsidiaries as are
designated in a written notice delivered at least two (2) Business Days prior to
the Closing Date by Purchaser to Seller shall have tendered, effective at the
Closing, their resignations as such directors and officers.
6.11 ENVIRONMENTAL SURVEY. Purchaser shall have received an
environmental survey and assessment in form and substance reasonably
satisfactory to Purchaser prepared by a firm of licensed engineers (familiar
with the identification of Hazardous Materials) reasonably satisfactory to
Purchaser, such environmental survey and assessment to be based upon physical
on-site inspections by such firm of each of the existing sites and facilities
owned, operated and leased by the Company and the Subsidiaries, as well as a
historical review of the uses of such sites and facilities and of the business
and operations of the Company and the Subsidiaries (including any former
Subsidiaries or divisions of the Company or any Subsidiary which have been
disposed of prior to the date of such survey and assessment and with respect to
which the Company or any Subsidiary may have retained liability for
environmental matters).
6.12 PROCEEDINGS. All proceedings to be taken on the part of Sellers
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser, and Purchaser shall have received copies of
<PAGE>
all such documents and other evidences as Purchaser may reasonably request in
order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
6.13 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Purchaser shall have
received the Employment Agreements and the noncompetition agreements listed in
SECTION 6.13 OF THE DISCLOSURE SCHEDULE in form and content acceptable to
Purchaser, duly signed by the respective parties thereto.
6.14 EQUITY RIGHTS. Purchaser shall have received satisfactory
evidence of the exercise, termination or cancellation of all Options identified
in SECTION 2.04 OF THE DISCLOSURE SCHEDULE.
6.15 RELEASES. Purchaser shall have received satisfactory evidence of
the termination of all Contracts identified in SECTION 4.09 OF THE DISCLOSURE
SCHEDULE, including releases in favor of the Company and its Subsidiaries in
form and substance and from such Person as is satisfactory to Purchaser.
6.16 COMPLETION OF DUE DILIGENCE; FINANCIAL STATEMENTS. Purchaser
shall have completed its due diligence investigation of the Company, the
Business or Condition of the Company, the Audited Financial Statements and
Sellers to its satisfaction.
6.17 JOINDER. All holders of Options relating to the Company's
securities shall have executed and delivered such documents joining in and
becoming a party to this Agreement as Purchaser shall reasonably request.
6.18 AUDITED FINANCIAL STATEMENTS. Purchaser shall have received a
satisfactory undertaking of ______________________ to the effect that they shall
provide manually signed Audited Financial Statements of the Company for the
years ended _________________________________ when reasonably requested by
Purchaser.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers hereunder to sell the Shares are subject to
the fulfillment, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by Sellers in their sole
discretion):
7.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by Purchaser in this Agreement (other than those made as of a
specified date earlier than the Closing Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date, and any representation or
warranty made as of a specified date earlier than the Closing Date shall have
been true and correct in all material respects on and as of such earlier date.
7.02 PERFORMANCE. Purchaser shall have performed and complied with,
in all material respects, each agreement, covenant and obligation required by
this Agreement to be so performed or complied with by Purchaser at or before the
Closing.
7.03 OFFICERS' CERTIFICATES. Purchaser shall have delivered to Seller
a certificate, dated the Closing Date and executed by the Chairman of the Board,
the President, the Chief Financial Officer or any Vice President of Purchaser,
substantially in the form and to the effect of EXHIBIT E hereto, and a
certificate, dated the Closing Date and executed by the Secretary or any
Assistant Secretary of
<PAGE>
Purchaser, substantially in the form and to the effect of EXHIBIT F hereto.
7.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law that became effective after the date of this Agreement
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or any of
the Operative Agreements.
7.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Sellers and Purchaser to perform their obligations under
this Agreement and the Operative Agreements to which they are a party and to
consummate the transactions contemplated hereby and thereby (a) shall have been
duly obtained, made or given, (b) shall be in form and substance reasonably
satisfactory to the Agent, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement and the Operative Agreements,
including, if applicable, under the HSR Act, shall have occurred.
7.06 THIRD PARTY CONSENTS. All consents (or in lieu thereof waivers)
to the performance by Sellers of their obligations hereunder and to the
consummation of the transactions contemplated hereby as are required under the
Contracts listed in SECTION 7.06 OF THE DISCLOSURE SCHEDULE (a) shall have been
obtained, (b) shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and (c) shall be in full force and effect.
7.07 OPINION OF COUNSEL. Sellers shall have received the opinion of
counsel, Nida & Maloney, to Purchaser, dated the Closing Date, substantially in
the form and to the effect of EXHIBIT G hereto.
7.08 PROCEEDINGS. All proceedings to be taken on the part of
Purchaser in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Sellers, and Sellers shall have received copies of all such
documents and other evidences as Sellers may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.09 GOOD STANDING CERTIFICATES. Purchaser shall have delivered to
Sellers (a) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto, of
Purchaser certified by the Secretary of State or other appropriate official of
the jurisdiction of incorporation, (b) certificates from the Secretary of State
or other appropriate official of the respective jurisdictions of incorporation
to the effect that Purchaser is in good standing or subsisting in such
jurisdiction, listing all charter documents of Purchaser on file and attesting
to its payment of all franchise or similar Taxes, and (c) a certificate from the
Secretary of State or other appropriate official in each jurisdiction in which
Purchaser is qualified or admitted to do business to the effect that Purchaser
is duly qualified or admitted and in good standing in such jurisdiction.
7.10 EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS. The Company
shall have entered into Employment Agreements and Consulting Agreements to the
satisfaction of the Company. Employment Agreements would be required for *****
if they are still employed by the Company at the time that this Agreement is
executed, together with any other managers that Purchaser wishes to retain.
*****Confidential Treatment Requested
<PAGE>
The Employment Agreements will provide for customary provisions and shall
include six (6) months' severance for termination without cause, and no
severance if termination is for cause. *****. Any of the foregoing agreements
will be terminable in the event of a breach of the covenants not to compete.
ARTICLE VIII
TAX MATTERS AND POST-CLOSING TAXES
8.01 INDEMNIFICATION. Love jointly and severally indemnifies, defends
and holds harmless Purchaser Indemnified Parties in accordance with Section
10.01.
8.02 CONTROL OF CONTEST. Each party shall have the right, at its own
expense, to control any audit or determination by any authority, initiate any
claim for refund or amended return, and contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment of
Taxes for any taxable period for which that party (or any of its Affiliates) is
charged with responsibility for filing a Tax Return and paying Taxes under this
Agreement; provided, however, that neither party shall have the right to agree
to any assessment, deficiency, settlement or other adjustment or proposed
adjustment of Taxes that would adversely affect the interests of the other party
without such other party's written consent, which consent shall not be
unreasonably withheld, and provided, further, that in the event that a party not
charged with the responsibility for filing a Tax Return under this Agreement is
paid a refund, such party shall pay such refund to the party so charged within
seven (7) days of receipt of such refund by the first party. Purchaser shall
promptly forward to Sellers all written notifications and other written
communications from any taxing authority received by the Company relating to any
liability for Taxes for any taxable period for which Sellers are charged with
payment responsibility under this Agreement and Purchaser shall execute or cause
to be executed any powers of attorney or other documents reasonably requested by
Sellers to enable Sellers to take any and all necessary actions with respect to
any proceedings for any such period.
8.03 ACCESS TO INFORMATION. Each of Purchaser and Sellers will
provide the other, and Purchaser shall cause the Company to provide Sellers,
with the right, at reasonable times and upon reasonable notice, to have access
to, and to copy and use, any records or information and personnel which may be
relevant in connection with the preparation of any Tax Returns, any audit or
other examination by any authority, or any judicial or administrative
proceedings relating to liability for Taxes. The party requesting assistance
hereunder shall reimburse the other party for reasonable expenses incurred in
providing such assistance. Any information obtained pursuant to this SECTION
8.03 shall be held in strict confidence and shall be used solely in connection
with the reason for which it was requested.
8.04 RETENTION OF RECORDS. For a period of four (4) years from the
Closing Date, Sellers shall not dispose of or destroy any of the business
records and files of Sellers or the Company relating to Taxes in existence on
the Closing Date without first offering to turn over possession thereof to
Purchaser by written notice to Purchaser at least thirty (30) days prior to the
proposed date of such disposition or destruction.
8.05 RESOLUTION OF DISAGREEMENTS AMONG PARTIES. If Sellers and
Purchaser disagree as to the matters governed by this ARTICLE VIII, Sellers and
Purchaser shall promptly consult with each other in an effort to resolve such
dispute. If any such disagreement cannot be resolved within fifteen (15) days,
either party shall assert in writing that such dispute cannot be resolved by
arbitration as set forth in SECTION 10.03(d) hereof.
*****Confidential Treatment Requested
<PAGE>
8.06 TAX RETURNS. Without limiting the foregoing, Sellers shall be
fully responsible for the filing of all Tax Returns, including delinquent Tax
Returns with respect to any period ending on or before the Closing Date, and
will pay all fines and penalties due in connection with such Tax Returns.
8.07 PRE-FILING APPROVAL OF TAX RETURNS AND REPORTS. For any period
that includes days on or before the Closing, Tax Returns and reports prepared or
caused to be prepared by Purchaser for the Company or the Subsidiaries, shall be
prepared in accordance with generally accepted tax accounting principles and in
a manner consistent with past tax filing practices of the Company and the
subsidiaries, to the extent not inconsistent with the Code, state and local tax
statutes, and the applicable regulations. Purchaser shall supply copies of the
Tax Returns to Agent within ten (10) days of filing. Any Tax Return or report
which relates to any period that includes days on or before the Closing prepared
or caused to be prepared by Purchaser for Company or the Subsidiaries, shall
also be subject to pre-filing approval by Agent, for and on behalf of Seller.
Unless otherwise agreed to by the parties, Tax Returns and reports subject to
pre-filing approval shall be submitted by Purchaser to Agent at least forty-five
(45) days prior to the due date (including extensions) of the Tax Return or
report, and Seller shall either approve or provide written comment on the Tax
Return or report within fifteen (15) days of receipt of the Tax Return or
report. In the event Sellers shall dispute any determination by the accountants,
Sellers shall notify (through the Agent) Purchaser within a reasonable time not
to exceed 10 days (taking into account the deadline for filing the Tax Return or
report) of such dispute. In such event, such dispute shall be submitted by
Purchaser to an independent certified public accountant of recognized national
standing not performing services for Purchaser, Sellers, the Company or any of
their respective Affiliates. Such accountant's determination shall be final and
binding. In the event the tax liability for the periods on or before the
Closing, as determined by such accountants, are materially different than that
determined by Purchaser's auditors (plus or minus more than five percent), then
the costs and expenses of such accountants shall be borne by Purchaser. In the
event the tax liability for the periods on or before the Closing as determined
by such accountants are not materially different than that determined by
Purchaser's auditors, then the costs and expenses of such accountants shall be
borne by Sellers.
8.08 COMPANY'S FINAL RETURNS. Purchaser files consolidated returns
with its subsidiaries and as of the date of closing, the Company will become
part of Purchaser's consolidated group. The Company and its Subsidiaries will
be required to file returns for the fiscal year ending the day before the
Closing. Notwithstanding the provisions of SECTION 8.06, it is Sellers'
responsibility to prepare such returns and the Company will pay the costs
therefor. The Company will make its personnel reasonably available, after the
Closing, for such return preparation.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding any right of Purchaser (whether or not exercised)
to investigate the affairs of the Company and the Subsidiaries or any right of
any party (whether or not exercised) to investigate the accuracy of the
representations and warranties of the other party contained in this Agreement,
Sellers and Purchaser have the right to rely fully upon the representations,
warranties, covenants and agreements of the other contained in this Agreement.
The representations, warranties, covenants and agreements of Sellers and
Purchaser contained in this Agreement will survive the Closing for two (2)
years.
<PAGE>
ARTICLE X
INDEMNIFICATION
10.01 TAX INDEMNIFICATION. Love shall, jointly and severally,
indemnify, defend and hold harmless the Purchaser Indemnified Parties from and
against any and all Losses arising from or incurred as a result of Taxes owed by
the Company (or any Subsidiary) with respect to any taxable period ending on or
prior to the Closing Date in excess of the amount accrued for taxes on the
Company's Audited Financial Statements, provided that the Sellers shall have
received an Indemnity Notice from Purchaser in a timely manner enabling Sellers
to investigate and defend any alleged Tax Losses, or if they so elect, assume
control of the defense of any claim, action or proceeding with respect thereto.
10.02 OTHER INDEMNIFICATION.
(a) Subject to the other Sections of this ARTICLE X and excluding the
indemnity under SECTION 10.01 above, Love shall jointly and severally, and the
remaining Sellers on an individual basis shall severally, indemnify the
Purchaser Indemnified Parties in respect of, and hold each of them harmless from
and against, any and all Losses suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement made by such Seller contained in
this Agreement.
(b) Subject to the other Sections of this ARTICLE X, Purchaser shall
indemnify the Seller Indemnified Parties in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to any misrepresentation, breach of warranty or nonfulfillment of
or failure to perform any covenant or agreement on the part of Purchaser
contained in this Agreement.
10.03 METHOD OF ASSERTING CLAIMS. All claims for indemnification
by any Indemnified Party under SECTION 10.02 will be asserted and resolved as
follows:
(a) No claims will be made hereunder unless the total amount of such
claims exceeds $100,000 at which time claims in excess of such amount will be
subject to indemnification.
(b) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under SECTION 10.02 is asserted against
or sought to be collected from such Indemnified Party by a Person other than
Sellers, the Company, any Subsidiary, Purchaser or any Affiliate of any Seller
or Purchaser (a "THIRD PARTY CLAIM"), the Indemnified Party shall deliver a
Claim Notice with reasonable promptness to the Indemnifying Party. If the
Indemnified Party fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third Party Claim, the
Indemnifying Party will not be obligated to indemnify the Indemnified Party with
respect to such Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such failure of the
Indemnified Party. The Indemnifying Party will notify the Indemnified Party as
soon as practicable within the Dispute Period whether the Indemnifying Party
disputes its liability to the Indemnified Party under SECTION 10.02 and whether
the Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
SECTION 10.03(a), then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party, at
the sole cost
<PAGE>
and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
will be settled at the discretion of the Indemnifying Party (but only
with the consent of the Indemnified Party in the case of any settlement
that provides for any relief other than the payment of monetary damages).
The Indemnifying Party will have full control of such defense and
proceedings, including any compromise or settlement thereof; PROVIDED,
HOWEVER, that the Indemnified Party may, at the sole cost and expense of
the Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this clause
(i), file any motion, answer or other pleadings or take any other action
that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and PROVIDED FURTHER, that if
requested by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim
that the Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this clause
(i), and except as provided in the preceding sentence, the Indemnified
Party will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may
take over the control of the defense or settlement of a Third Party Claim
at any time if it irrevocably waives its right to indemnity under SECTION
10.02 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to SECTION 10.03(a), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and diligently or
settle the Third Party Claim, or if the Indemnifying Party fails to give
any notice whatsoever within the Dispute Period, then the Indemnified Party
will have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings will be prosecuted by the Indemnified Party in a
reasonable manner and in good faith or will be settled at the discretion of
the Indemnified Party (with the consent of the Indemnifying Party, which
consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including any compromise
or settlement thereof; PROVIDED, HOWEVER, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying
Party in connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this clause (ii), and the Indemnifying
Party will bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with
respect to the Third Party Claim under SECTION 10.02 or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability to the Indemnified Party with respect to such Third
Party Claim, the Loss in
<PAGE>
the amount specified in the Claim Notice will be conclusively deemed a
liability of the Indemnifying Party under SECTION 10.02 and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. In the event any payments under this Agreement are then
due by the Indemnified Party to the Indemnifying Party (whether as a
direct obligation or a joint and several obligation together with other
Persons), then the Indemnified Party may, at its election, set off
amounts payable under this ARTICLE X against such amounts as they become
due. If the Indemnifying Party has timely disputed its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the Resolution Period, such
dispute shall be resolved by arbitration in accordance with paragraph (c)
of this SECTION 10.03.
(c) In the event any Indemnified Party should have a claim under
SECTION 10.02 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that an Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under SECTION 10.02
and the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. In the event any payments under this Agreement, including any
installments payable under clauses (b), (c) OR (d) OF SECTION 1.02, are then or
thereafter due by the Indemnified Party to the Indemnifying Party (whether as a
direct obligation or a joint and several obligation together with other
Persons), then the Indemnified Party may, at its election, set off amounts
payable under this ARTICLE X against such amounts as they become due. If the
Indemnifying Party has timely disputed its liability with respect to such claim,
the Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by arbitration in
accordance with paragraph (c) of this SECTION 10.03.
(d) Any dispute submitted to arbitration pursuant to this
SECTION 10.03 shall be finally and conclusively determined by the decision of a
single arbitrator through Jams Endispute (hereinafter sometimes called the
"ARBITRATOR") selected as hereinafter provided. The arbitrator shall be
selected by Jams Endispute upon application made to it for such purpose by the
Indemnified Party. The arbitrability of any dispute, claim or controversy shall
likewise be determined in such arbitration. Such arbitration proceeding shall
be conducted in as expedited a manner as is then permitted by the commercial
arbitration rules (formal or informal) of Jams Endispute. The Arbitrator shall
conduct its hearings in Santa Barbara, California, and shall reach and render a
decision in writing with respect to the amount, if any, which the Indemnifying
Party is required to pay to the Indemnified Party in respect of a claim filed by
the Indemnified Party. In connection with rendering its decisions, the
Arbitrator shall adopt and follow such rules and procedures as it deems
necessary or appropriate. To the extent practical, decisions of the Arbitrator
shall be rendered no more than thirty (30) days following commencement of
proceedings with respect thereto. The Arbitrator shall cause its written
decision to be delivered to the Indemnified Party and the Indemnifying Party.
Any decision made by the Arbitrator (either prior to or after the expiration of
such thirty (30) calendar day period) shall be final, binding and conclusive on
the Indemnified Party and the Indemnifying Party and entitled to be enforced to
the fullest extent permitted by law and entered in any court of competent
jurisdiction. Until any award of costs or expenses, including reasonable
attorneys' fees, by the Arbitrator, each party to any arbitration shall bear its
own expense in relation thereto, including but not limited to such party's
attorneys' fees, if any, and one-half of the expenses and fees of the Arbitrator
(which shall be a joint and several obligation of multiple
<PAGE>
Indemnifying or Indemnified Parties, as the case may be). The parties and the
Arbitrator shall have all of the rights and duties relating to discovery
provided by Section 1283.05 of the California Code of Civil Procedure, which
is hereby made a part of this Agreement, except that the Arbitrator shall have
the right to disapprove or to limit any discovery which such Arbitrator deems
to be for purposes of delay or otherwise unnecessarily burdensome or
oppressive.
(e) The maximum amount of claims made hereunder shall not exceed the
lesser of: (i) the Purchaser's total investment in the Company (including loans
or advances), or (ii) $5,000,000, except in the case of fraud by the Sellers, in
which case there is no maximum. The maximum liability of any Seller, other than
Love, shall be the portion of the Purchase Price received by such Seller.
(f) No claim may be made more than two (2) years from the date of the
Closing.
ARTICLE XI
TERMINATION AND DEFAULT
11.01 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of
Sellers and Purchaser;
(b) at any time before the Closing, by Sellers or Purchaser, in the
event (i) of a material breach hereof by the non-terminating party if such non-
terminating party fails to cure such breach within five (5) Business Days
following notification thereof by the terminating party or (ii) upon
notification of the non-terminating party by the terminating party that the
satisfaction of any condition to the terminating party's obligations under this
Agreement becomes impossible or impracticable with the use of commercially
reasonable efforts if the failure of such condition to be satisfied is not
caused by a breach hereof by the terminating party;
(c) at any time after ninety (90) days from exercise by Sellers or
Purchaser upon notification of the non-terminating party by the terminating
party if the Closing shall not have occurred on or before such date and such
failure to consummate is not caused by a breach of this Agreement by the
terminating party; or
(d) by Purchaser if there shall have occurred (i) any general
suspension of, or limitation on prices for, trading in securities on the New
York Stock Exchange, (ii) a declaration of a banking, moratorium or any
suspension of payments in respect to banks in the United States, (iii) a
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (iv) any limitation
by federal or state authorities on the extension or credit by lending
institutions which materially and adversely affects Purchaser or (v) in the case
of any of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof, upon notification of the non-terminating
party by the terminating party.
11.02 EFFECT OF TERMINATION.
(a) If this Agreement is validly terminated pursuant to SECTION
11.01, this Agreement will forthwith become null and void, and there will be no
liability or obligation on the part of Sellers or Purchaser (or any of their
respective officers, directors, employees, agents or other
<PAGE>
representatives or Affiliates), except as provided in this SECTION 11.02 and
except that the provisions with respect to expenses in SECTION 13.03 and
confidentiality in SECTION 13.05 will continue to apply following any such
termination and except that the covenants contained in SECTION 4.04 will
continue to apply until thirty (30) days following such termination.
Notwithstanding any other provision in this Agreement to the contrary, upon
termination of this Agreement pursuant to SECTION 11.01(b), (c) or (d),
Sellers will remain liable to Purchaser for any breach of this Agreement by
Sellers existing at the time of such termination, and Purchaser will remain
liable to Sellers for any breach of this Agreement by Purchaser existing at
the time of such termination, and Sellers or Purchaser may seek such remedies,
including damages and fees of attorneys, against the other with respect to any
such breach as are provided in this Agreement or as are otherwise available at
Law or in equity.
(b) In the event the Sellers or the Company breaches SECTION 4.04
and, within twelve (12) months after such breach, Sellers or the Company closes
a transaction relating to the acquisition of a material portion of the Shares,
the Company, its assets, securities or its business, in whole or in part,
whether through direct purchase, merger, consolidation or other business
combination (other than sales of inventory or immaterial portions of the
Company's assets in the ordinary course), then, immediately upon any such
closing, the Company and Sellers shall pay to Purchaser the sum of Two Million
Dollars ($2,000,000).
ARTICLE XII
DEFINITIONS
12.01 DEFINITIONS.
(a) DEFINED TERMS. As used in this Agreement, the following defined
terms have the meanings indicated below:
"ACQUISITION PROPOSAL" means any proposal for a merger or other
business combination to which the Company or any Subsidiary is a party or the
direct or indirect acquisition of any equity interest in, or a substantial
portion of the assets of, the Company or any Subsidiary, other than the
transactions contemplated by this Agreement.
"ACTIONS OR PROCEEDINGS" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"AFFILIATE" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent (10%) or more of the voting securities of another Person shall be deemed
to control that Person.
"AGENT" means Charles S. Love appointed as agent of the Sellers
pursuant to SECTION 13.15.
"AGREEMENT" means this Stock Purchase Agreement and the Exhibits, the
Disclosure Schedule and the Schedules hereto and the certificates delivered in
accordance with SECTIONS 6.03 and 7.03, as the same shall be amended from time
to time.
"ARBITRATOR" has the meaning ascribed to it in SECTION 10.03(d).
<PAGE>
"ASSETS AND PROPERTIES" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including cash, cash
equivalents, Investment Assets, accounts and notes receivable, chattel paper,
documents, instruments, general intangibles, real estate, equipment, inventory,
goods and Intellectual Property.
"ASSOCIATE" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"AUDITED FINANCIAL STATEMENT DATE" means the last day of the most
recent fiscal year of the Company for which Financial Statements are delivered
to Purchaser pursuant to SECTION 2.09.
"AUDITED FINANCIAL STATEMENTS" means the Financial Statements for the
most recent fiscal year of the Company delivered to Purchaser pursuant to
SECTION 2.09.
"BENEFIT PLAN" means any Plan established by the Company or any
Subsidiary, or any predecessor or Affiliate of any of the foregoing, existing at
the Closing Date or prior thereto, to which the Company or any Subsidiary
contributes or has contributed, or under which any employee, former employee or
director of the Company or any Subsidiary or any beneficiary thereof is covered,
is eligible for coverage or has benefit rights.
"BOOKS AND RECORDS" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of the Company,
including financial statements, Tax Returns and related work papers and letters
from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates and books, stock transfer ledgers,
Contracts, Licenses, customer lists, computer files and programs, retrieval
programs, operating data and plans and environmental studies and plans.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or obligated to
close.
"BUSINESS OR CONDITION OF THE COMPANY" means the business, condition
(financial or otherwise), results of operations, Assets and Properties and
prospects of the Company and the Subsidiaries taken as a whole.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. Section 300.5.
"CLAIM NOTICE" means written notification pursuant to SECTION 10.03(a)
of a Third Party Claim as to which indemnity under SECTION 10.02 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under SECTION 10.02, together with
the amount
<PAGE>
or, if not then reasonably ascertainable, the estimated amount, determined in
good faith, of such Third Party Claim.
"CLOSING" means the closing of the transactions contemplated by
SECTION 1.03.
"CLOSING DATE" means (a) the fifth Business Day after the day on which
the last of the consents, approvals, actions, filings, notices or waiting
periods described in or related to the filings described in SECTIONS 6.04
through 6.07 and SECTIONS 7.04 through 7.07 has been obtained, made or given or
has expired, as applicable, or (b) such other date as Purchaser and Seller
mutually agree upon in writing.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMMON STOCK" means the common stock, no par value, of the Company.
"COMPANY" has the meaning ascribed to it in the forepart of this
Agreement.
"CONTRACT" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
"DEFINED BENEFIT PLAN" means each Benefit Plan which is subject to
Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"DISCLOSURE SCHEDULE" means the record delivered to Purchaser by
Seller herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Seller pursuant to this Agreement.
"DISPUTE PERIOD" means the period ending ninety (90) days following
receipt by an Indemnifying Party of either a Claim Notice or an Indemnity
Notice.
"EMPLOYMENT AGREEMENTS" shall mean the employment agreements between
the Company and the Persons identified in SECTION 6.15 OF THE DISCLOSURE
SCHEDULE, in form and substance acceptable to Purchaser.
"ENVIRONMENTAL CLAIM" means, with respect to any Person, any written
or oral notice, claim, demand or other communication (collectively, a "CLAIM")
by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, Governmental or Regulatory Authority
response costs, damages to natural resources or other property, personal
injuries, fines or penalties arising out of, based on or resulting from (a) the
presence, or Release into the environment, of any Hazardous Material at any
location, whether or not owned by such Person, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law. The
term "Environmental Claim" shall include any claim by any Governmental or
Regulatory Authority for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"ENVIRONMENTAL LAW" means any Law or Order relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
<PAGE>
environment (including ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any Person who is in the same controlled group
of corporations or who is under common control with Seller or, before the
Closing, the Company or any Subsidiary (within the meaning of Section 414 of the
Code).
"ESTOPPEL CERTIFICATE" means the written certification, issued not
more than twenty (20) days prior to the Closing Date by a lessor, sublessor or
other party to a lease or occupancy agreement, stating (a) that such lease or
occupancy agreement is (i) in full force and effect and (ii) has not been
modified or amended except as described therein, (b) the date to which rental
has been paid, (c) that no default or event of default exists thereunder and (d)
that to the best of the knowledge of the issuer thereof, no event has occurred
which, with the giving of notice or lapse of time or both, would be a default or
event of default thereunder.
"FINANCIAL STATEMENTS" means the consolidated financial statements of
the Company and its consolidated Subsidiaries delivered to Purchaser pursuant to
SECTION 2.09 or 4.06.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"HAZARDOUS MATERIAL" means (A) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(C) any other chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated by any Governmental or Regulatory
Authority under any Environmental Law.
"HSR ACT" means Section 7A of the Clayton Act (Title II of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules and
regulations promulgated thereunder.
"INDEBTEDNESS" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"INDEMNIFIED PARTY" means any Person claiming indemnification under
any provision of ARTICLE X, including a Person asserting a claim pursuant to
paragraph (c) of SECTION 10.03.
<PAGE>
"INDEMNIFYING PARTY" means any Person against whom a claim for
indemnification is being asserted under any provision of ARTICLE X, including a
Person against whom a claim is asserted pursuant to paragraph (c) of
SECTION 10.03.
"INDEMNITY NOTICE" means written notification pursuant to SECTION
10.03(b) of a claim for indemnity under ARTICLE X by an Indemnified Party,
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim.
"INTELLECTUAL PROPERTY" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"INVESTMENT ASSETS" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any Subsidiary and issued by any Person other than the Company or any Subsidiary
(other than trade receivables generated in the ordinary course of business of
the Company and the Subsidiaries).
"IRS" means the United States Internal Revenue Service.
"LAWS" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"LIABILITIES" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"LICENSES" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"LIENS" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"LOSS" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including interest, court costs, fees of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment).
"NPL" means the National Priorities List under CERCLA.
"OPERATIVE AGREEMENTS" means the Option Agreement, the Investment
Agreement, the Employment Agreements and any support or other agreements to be
entered into in connection with the transaction.
<PAGE>
"OPTION" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity or income of such Person or to
participate in or direct the election of any directors or officers of such
Person or the manner in which any shares of capital stock of such Person are
voted.
"ORDER" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
"PENSION BENEFIT PLAN" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
"PERMITTED LIEN" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
business of the Company or any Subsidiary.
"PERSON" means any natural person, corporation, limited liability
company, general partnership, limited partnership, proprietorship, other
business organization, trust, union, association or Governmental or Regulatory
Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
"PURCHASE PRICE" has the meaning ascribed to it in SECTION 1.02.
"PURCHASER" has the meaning ascribed to it in the forepart of this
Agreement.
"PURCHASER INDEMNIFIED PARTIES" means Purchaser and its officers,
directors, employees, agents and Affiliates.
"QUALIFIED PLAN" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Hazardous Materials
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata.
<PAGE>
"REPRESENTATIVES" has the meaning ascribed to it in SECTION 4.03 and
shall apply to both Purchaser's Representatives and Sellers' Representatives.
"RESOLUTION PERIOD" means the period ending thirty (30) days following
receipt by an Indemnified Party of a written notice from an Indemnifying Party
stating that it disputes all or any portion of a claim set forth in a Claim
Notice or an Indemnity Notice.
"SELLER" and "SELLERS" have the meanings ascribed to such terms in the
forepart of this Agreement.
"SELLER INDEMNIFIED PARTIES" means each Seller and its officers,
directors, trustees, employees, agents and Affiliates.
"SHARES" has the meaning ascribed to it in the forepart of this
Agreement.
"SUBJECT DEFINED BENEFIT PLAN" means each Defined Benefit Plan listed
and described in SECTION 2.15(a) OF THE DISCLOSURE SCHEDULE.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interests in, or the voting control of, such
Person.
"TAX" means any foreign, federal, state, county or local income, gross
receipt, capital stock, production, business and occupation, net proceeds,
alternative or add on minimum, ad valorem, value added, turnover, sales, use,
real property, personal property (tangible and intangible), stamp, leasing,
excise, duty, disability, franchise, transfer, license, withholding, payroll,
severance, employment, fuel, excess profits, environmental, occupational,
interest equalization, windfall profits and severance taxes, and all other like
governmental charges and any deficiencies, penalties, assessments and interest
thereon.
"TAX RETURNS" means any foreign, federal, state, county or local tax
report, form, return, information return or other related document required to
be filed by any relevant Tax authority.
"THIRD PARTY CLAIM" has the meaning ascribed to it in SECTION
10.03(a).
"UNAUDITED FINANCIAL STATEMENT DATE" means the last day of the most
recent fiscal quarter of the Company for which Financial Statements are
delivered to Purchaser pursuant to SECTION 2.09.
"UNAUDITED FINANCIAL STATEMENTS" means the Financial Statements for
the most recent fiscal quarter of the Company delivered to Purchaser pursuant to
SECTION 2.09.
(b) CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context of
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) references
to Articles, Sections (or subdivisions of Sections), Exhibits, Annexes or
Schedules are to this Agreement; and (v) the phrases "ordinary course of
business" and "ordinary course of business consistent with past practice" refer
to the business and practice of the Company or a Subsidiary; (vi) references to
agreements and other contractual instruments shall be deemed to include all
subsequent
<PAGE>
amendments, extensions and other modifications to such instruments (without,
however, limiting any prohibition on any such amendments, extensions and other
modifications by the terms of this Agreement); (vii) references to statutes or
regulations are to be construed as including all statutory or regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to; (viii) references to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible visible form;
(ix) the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; and (x) references to Persons
include their respective permitted successors and assigns and, in the case of
Governmental or Regulatory Authorities, Governmental or Regulatory Authorities
succeeding to their respective functions and capacities. Whenever this
Agreement refers to a number of days, such number shall refer to calendar days
unless Business Days are specified. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
ARTICLE XIII
MISCELLANEOUS
13.01 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
PDT Cardiovascular, Inc.
7408 Hollister Avenue
Goleta, CA 93117
Facsimile No.: 805-685-6038
Attention: Gary S. Kledzik, Ph.D.
with a copy to:
Nida & Maloney
801 Garden Street, Suite 201
Santa Barbara, CA 93101
Facsimile No.: 805-568-1955
Attention: Joseph E. Nida, Esq.
If to any Seller:
Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Facsimile No.: 805-684-7276
Attention: Charles S. Love, President
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
<PAGE>
Facsimile No.: 714-725-4100
Attention: Michael E. Flynn
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto; PROVIDED, HOWEVER, that
in no event shall Sellers have more than one address or facsimile number for the
purpose of notices to any or all Sellers.
13.02 ENTIRE AGREEMENT. This Agreement and the Operative
Agreements supersede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof, including the Letter of
Intent, and contain the sole and entire agreement between the parties hereto
with respect to the subject matter hereof and thereof.
13.03 EXPENSES. Except as otherwise expressly provided in this
Agreement (including as provided in SECTION 11.02), if the transactions
contemplated hereby are consummated, each party will pay its own costs and
expenses, and the Company shall pay the costs and expenses of the Company and
the Subsidiaries, incurred in connection with the negotiation, execution and
closing of this Agreement, the Operative Agreements and the transactions
contemplated hereby and thereby.
13.04 PUBLIC ANNOUNCEMENTS. At all times at or before the
Closing, Sellers will not issue or make any reports, statements or releases to
the public or generally to the employees, customers, suppliers or other Persons
to whom the Company and the Subsidiaries sell goods or provide services or with
whom the Company and the Subsidiaries otherwise have significant business
relationships with respect to this Agreement or the transactions contemplated
hereby without the consent of Purchaser, which consent shall not be unreasonably
withheld. Sellers and Purchaser will obtain the other party's prior approval of
any press release to be issued immediately following the Closing announcing the
consummation of the transactions contemplated by this Agreement.
13.05 CONFIDENTIALITY. Each party hereto will hold, and will use
its best efforts to cause its Affiliates, and in the case of Purchaser, any
Person who has provided, or who is considering providing, financing to Purchaser
to finance all or any portion of the Purchase Price, and their respective
Representatives to hold, in strict confidence from any Person (other than any
such Affiliate, Person who has provided, or who is considering providing,
financing or Representative), unless (i) compelled to disclose by judicial or
administrative process (including in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; PROVIDED that following the Closing the
foregoing restrictions will not apply to Purchaser's
<PAGE>
use of documents and information concerning the Company and the Subsidiaries
furnished by Seller hereunder. In the event the transactions contemplated
hereby are not consummated, upon the request of the other party, each party
hereto will, and will cause its Affiliates, any Person who has provided, or
who is considering providing, financing to such party and their respective
Representatives to, promptly (and in no event later than five (5) Business
Days after such request) redeliver or cause to be redelivered all copies of
documents and information furnished by the other party in connection with this
Agreement or the transactions contemplated hereby and destroy or cause to be
destroyed all notes, memoranda, summaries, analyses, compilations and other
writings related thereto or based thereon prepared by the party furnished such
documents and information or its Representatives.
13.06 FURTHER ASSURANCES; POST-CLOSING COOPERATION.
(a) At any time or from time to time after the Closing, Sellers shall
execute and deliver to Purchaser such other documents and instruments, provide
such materials and information and take such other actions as Purchaser may
reasonably request more effectively to vest title to the Shares in Purchaser
and, to the full extent permitted by Law, to put Purchaser in actual possession
and operating control of the Company and the Subsidiaries and their Assets and
Properties and Books and Records, and otherwise to cause Seller to fulfill its
obligations under this Agreement and the Operative Agreements to which they are
a party.
(b) Following the Closing, each party will afford the other party,
its counsel and its accountants, during normal business hours, reasonable access
to the books, records and other data relating to the Business or Condition of
the Company in its possession with respect to periods prior to the Closing and
the right to make copies and extracts therefrom, to the extent that such access
may be reasonably required by the requesting party in connection with (i) the
preparation of Tax Returns, (ii) the determination or enforcement of rights and
obligations under this Agreement, (iii) compliance with the requirements of any
Governmental or Regulatory Authority, (iv) the determination or enforcement of
the rights and obligations of any Indemnified Party or (v) in connection with
any actual or threatened Action or Proceeding. Further, each party agrees for a
period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of any such books, records and other data unless such party
shall first offer in writing to surrender such books, records and other data to
the other party and such other party shall not agree in writing to take
possession thereof during the ten (10) day period after such offer is made.
(c) If, in order properly to prepare its Tax Returns, other documents
or reports required to be filed with Governmental or Regulatory Authorities or
its financial statements or to fulfill its obligations hereunder, it is
necessary that a party be furnished with additional information, documents or
records relating to the Business or Condition of the Company not referred to in
paragraph (b) above, and such information, documents or records are in the
possession or control of the other party, such other party shall use its best
efforts to furnish or make available such information, documents or records (or
copies thereof) at the recipient's request, cost and expense. Any information
obtained by Sellers in accordance with this paragraph shall be held confidential
by Sellers in accordance with SECTION 13.05.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
13.07 WAIVER. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
<PAGE>
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by Law or otherwise afforded, will be cumulative
and not alternative.
13.08 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
13.09 NO THIRD PARTY BENEFICIARY. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under ARTICLE X.
13.10 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder (including its rights under ARTICLE X) to (i) a wholly-
owned subsidiary, provided that any such subsidiary agrees in writing to be
bound by all of the terms, conditions and provisions contained herein or (ii)
any financial institution providing purchase money or other financing to
Purchaser or the Company from time to time as collateral security for such
financing, but no such assignment referred to in clause (ii) shall relieve
Purchaser of its obligations hereunder. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
13.11 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
13.12 ARBITRATION. Subject to and without limitation on SECTION
10.03 hereof, in the event of any dispute, claim or controversy between the
parties arising out of or relating to this Agreement or any of the documents
executed pursuant to this Agreement, whether in contract, tort, equity or
otherwise, and whether relating to the meaning, interpretation, effect,
validity, performance or enforcement of this Agreement or any of the documents
executed pursuant to this Agreement, such dispute, claim or controversy shall be
resolved by and through an arbitration proceeding before a single arbitrator to
be conducted under the auspices and the commercial arbitration rules (formal or
informal) of ___________ (or any like organization successor thereto) at Santa
Barbara, California. The arbitrability of such dispute, claim or controversy
shall likewise be determined in such arbitration. Such arbitration proceeding
shall be conducted in as expedited a manner as is then permitted by the
commercial arbitration rules (formal or informal) of _____________. Both the
foregoing agreement of the parties to arbitrate any and all such disputes,
claims and controversies, and the results, determinations, findings, judgments
and/or awards rendered through any such arbitration shall be final and binding
on the parties hereto and may be specifically enforced by legal proceedings.
Subject to and without limitation on SECTION 10.03 hereof, such arbitration may
be initiated by written notice from either party to the other setting forth a
demand for arbitration and detailing with specificity the nature of the dispute,
claim or controversy to be arbitrated. Time is of the essence of this
arbitration procedure, and the arbitrator shall be instructed and required to
render its decision within ten (10) days following completion of the
arbitration. The parties and arbitrator shall have all of the rights and duties
relating to discovery provided by Section 1283.05 of the California Code of
Civil Procedure, which is hereby made a part of this Agreement, except that the
arbitrator shall have the right to disapprove or to limit any discovery which
such arbitrator deems to be for purposes of delay or otherwise unnecessarily
burdensome or oppressive.
<PAGE>
13.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Each Seller
hereby irrevocably appoints its lawful agent and attorney-in-fact to accept and
acknowledge service of any and all process against it in any action, suit or
proceeding arising out of or relating to this Agreement or any of the Operative
Agreements or any of the transactions contemplated hereby or thereby and upon
whom such process may be served, with the same effect as if such party were a
resident of the State of California and had been lawfully served with such
process in such jurisdiction, and waives all claims of error by reason of such
service, PROVIDED that in the case of any service upon such agent and attorney-
in-fact, the party effecting such service shall also deliver a copy thereof to
the other party at the address and in the manner specified in SECTION 13.01.
Each Seller will enter into such agreements with such agent as may be necessary
to constitute and continue the appointment of such agent hereunder. In the
event that such agent and attorney-in-fact resigns or otherwise becomes
incapable of acting as such, such party will appoint a successor agent and
attorney-in-fact in Santa Barbara, California, reasonably satisfactory to
Purchaser, with like powers. Each party hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court for the Central
District of California or any court of the State of California located in the
City of Santa Barbara, County of Santa Barbara, in any action, suit or
proceeding arising out of or relating to this Agreement or any of the Operative
Agreements or any of the transactions contemplated hereby or thereby, and agrees
that any such action, suit or proceeding shall be brought only in such court,
PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the purpose
referred to in this SECTION 13.13 and shall not be deemed to be a general
submission to the jurisdiction of said courts or in the State of California
other than for such purpose and PROVIDED FURTHER, that such consent to
jurisdiction and agreement shall not limit the parties' agreement to arbitrate
disputes under this Agreement pursuant to SECTIONS 10.03 OR 13.12. Each party
hereby irrevocably waives, to the fullest extent permitted by Law, any objection
that it may now or hereafter have to the laying of the venue of any such action,
suit or proceeding brought in such a court and any claim that any such action,
suit or proceeding brought in such a court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by Law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction.
13.14 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
13.15 AGENT. Each Seller hereby irrevocably appoints and
authorizes the Agent to act as its agent under this Agreement and the other
Operative Documents with such powers as are specifically delegated to the Agent
by the terms of the Operative Documents, together with such other powers as are
reasonably incidental to such powers. Purchaser shall be entitled to rely upon
any certification, notice or other communication (including any made by
telephone, telecopy, telex, telegram or cable) made by Agent and believed by
Purchaser to be genuine and correct and to have been signed or sent by or on
behalf of Sellers. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement or under any Operative
Document in accordance with instructions given by Sellers holding a majority of
the Shares on the date hereof, and such instructions of such Sellers and any
action taken or failure to act pursuant to such instructions shall be binding on
all of the Sellers.
<PAGE>
13.16 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Law of the State of California applicable to a
Contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
13.17 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
13.18 SIGNATURES. The signatures by a party constituting one of
the Sellers in their capacity as a trustee or a corporate officer will also
constitute the obligation of such party as an individual.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
SELLERS:
SHAREHOLDERS OF
RAMUS MEDICAL TECHNOLOGIES
Signatures on Schedule 1
PURCHASER
PURCHASER CARDIOVASCULAR, INC.,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
<PAGE>
EXHIBITS
- --------
Exhibit A - Escrow Agreement
Exhibit B - Officer's Certificate of Sellers
Exhibit C - Opinion of Counsel to Sellers and Company
Exhibit D - Special Procedures Report
Exhibit E - Officer's Certificate of Purchaser
Exhibit F - Secretary's Certificate of Purchaser
Exhibit G - Opinion of Counsel to Purchaser
SCHEDULES
- ---------
Schedule 1 - List of Sellers
<PAGE>
SCHEDULE 1
TO STOCK PURCHASE AGREEMENT
List of Sellers
Shareholder Number of Shares Signature
- ----------------------------------------- ---------
<PAGE>
EXHIBIT B
JOINDER AGREEMENT
The undersigned option holder or Shareholder of Ramus Medical Technologies,
a California corporation ("Ramus"), irrevocably and unconditionally agrees to be
bound by the terms of that certain Option Agreement between Ramus, Charles S.
Love, ***** and PDT Cardiovascular, Inc.
Date:
-------------- ----------------------------------
Signature
Name (Typed or Printed):
----------------------------------
*****Confidential Treatment Requested
<PAGE>
SCHEDULE 1
List of Shareholders of Ramus
Charles S. Love
*****
*****Confidential Treatment Requested
<PAGE>
EXHIBIT 10.17
December 27, 1996
Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Re: CO-DEVELOPMENT AGREEMENT
Gentlemen:
By this letter we are pleased to confirm the terms of our mutual
agreements regarding the co-development between PDT Cardiovascular, Inc.
("PDTC") and Ramus Medical Technologies ("Ramus") of technology and devices for
use in applying photodynamic therapy technology to Ramus' autologous vascular
grafts for coronary arteries and for other vessels ("Ramus Products"). PDTC
(and its affiliates) is a pharmaceutical and medical device company which, using
its proprietary technology and know-how, has developed and will continue to
develop, on its own or in collaboration with third party vendors, photoreactive
drugs and related electromagnetic energy sources, whether used separately or in
combination ("Photodynamic Therapy"), for use in photodynamic therapy. Ramus is
a development stage medical device company which, using its proprietary
technology and know-how, has developed the Ramus Products and will continue to
develop the Ramus Products.
PDTC and Ramus agree to use reasonable efforts to cooperate in the
joint development of technology, instruments, devices and products for applying
PDTC's Photodynamic Therapy technology to Ramus Products. Unless otherwise
agreed to in writing by the parties, PDTC shall conduct, or arrange for one or
more a third parties to conduct, all reasonably necessary non-human tests in
preparation and support of a regulatory submission (the "Pre-Clinical Tests"),
and Ramus shall manufacture Ramus Products for use in the Pre-Clinical Tests in
quantities agreed to in writing by the parties. Unless otherwise agreed to in
writing by the parties, PDTC shall also conduct, or arrange for one or more a
third parties to conduct, all reasonably necessary tests performed on humans in
preparation and support of regulatory submissions (the "Clinical Tests") of
co-developed technology and devices.
Ramus will provide without charge reasonable quantities of Ramus
Products to PDTC for purposes of the co-development of technology and devices
and for the Pre-Clinical Tests and Clinical Tests. PDTC will provide its
photodynamic therapy technology to the co-development of technology and devices
and the Pre-Clinical Tests and Clinical Tests without charge. All other costs
of the Pre-Clinical Tests and Clinical Tests will be paid for by PDTC.
Unless otherwise agreed to in writing by the parties, PDTC will, with
counsel of its choice, prepare, file and prosecute, in the name of PDTC and at
PDTC's expense, any applicable
<PAGE>
Ramus Medical Technologies
December 27, 1996
Page 2
regulatory submissions covering Co-Developed Technology (as defined below) and
instruments, devices or products, or functionally separable component thereof,
that embody, incorporate, are composed of, function or are produced by means of,
or derive utility from any Co-Developed Technology ("Co-Developed Devices"),
including any "investigational device exemption" application ("IDE"),
"investigational new drug" application ("IND"), Pre-Market Approval Application
or 501(k) Application ("PMA") or New Drug Application ("NDA") or any other
application submitted to the United States Food and Drug Administration or any
successor agency ("FDA") for the purpose of conducting clinical investigations
of a drug or device, obtaining premarket or regulatory approval for a drug or
device, and any supplement or abbreviated application relating thereto (or the
equivalent in any foreign country). The parties also agree to cooperate to
secure government or private price approvals and reimbursement qualifications in
preparation for product launch of co-developed devices in the field of
photodynamic therapy. PDTC and Ramus agree to provide each other with access to
information or data relating to Co-Developed Devices which the other may need
for regulatory submissions or compliance. The actual costs of any regulatory
submission shall be paid by PDTC.
PDTC and Ramus shall jointly own the entire right, title and interest
in and to all technology conceived, made, created, developed, produced, designed
or reduced to practice, jointly by PDTC and Ramus, or their respective
affiliates, during the course and as a result of the performance of their work
and services under this co-development agreement ("Co-Developed Technology") and
all Co-Developed Devices; provided, however, PDTC grants to Ramus an exclusive
worldwide license under PDTC's interest in the Co-Developed Technology on terms
to be agreed upon by the parties to make, use, offer for sale, import, export,
distribute and sell Co-Developed Devices outside of Photodynamic Therapy
applications. PDTC will retain all right, title and interest in and to all
ideas, concepts, inventions (whether or not patentable), discoveries,
improvements, unpublished research and development information, information
disclosed (whether or not claimed) in patent applications or unissued patents,
trade secrets, technical and other information and data, including apparatus,
compositions, methods, processes, techniques, controls, routines, systems
(including quality assurance systems), procedures, reports, operating, test and
performance data, and process, mechanical, material and product specifications
("Know-How") owned by or licensed to PDTC or any of its affiliates other than
Co-Developed Technology ("PDTC Technology"), and Ramus will retain all right,
title and interest in and to all Know-How owned by or licensed to Ramus or any
of its affiliates other than Co-Developed Technology ("Ramus Technology").
PDTC will retain the entire right, title and interest in and to any compound
owned by or licensed to PDTC or any of its affiliates, to the extent that PDTC
has the right to use, make, sell or license such compound ("PDTC Drugs"), and
nothing in this agreement shall give Ramus any rights in or to any PDTC Drugs.
Until after the expiration of the term of this agreement, except as
expressly set forth herein or otherwise agreed to in writing by the parties:
(i) neither PDTC nor Ramus shall, directly or indirectly, grant any rights in,
to or under the Co-Developed Technology to any third party; (ii) neither PDTC
nor Ramus shall, directly or indirectly, make, use, sell, distribute or license
Co-Developed Devices; (iii) Ramus shall not, directly or indirectly, make, use,
sell, distribute or license any Co-Developed Device with any Photodynamic
Therapy drugs other than PDTC Drugs; and (iv) Ramus shall not, directly or
indirectly, make, use, sell, distribute or license any Ramus Technology or any
products developed thereunder, other than as required for the manufacture, use,
sale, distribution or license of Co-Developed Devices in the field of
photodynamic therapy or involving any other form or
<PAGE>
Ramus Medical Technologies
December 27, 1996
Page 3
provider of photodynamic therapy. The terms of any commercialization of any
Co-Developed Devices or Co-Developed Technology shall be agreed by the parties
in writing prior to such commercialization.
If a patentable invention embodying Co-Developed Technology, or
related to Co-Developed Devices or to photodynamic therapy using Ramus Products,
is (a) conceived in the course of this agreement and (b) reduced to practice
either during the term of this agreement or during the six (6) month period
after its termination, PDTC and Ramus shall together determine whether to file
patent applications covering the invention. Both parties agree to begin
application and prosecution in a timely manner once patentable inventions are
identified and disclosed. Any such patent applications shall be prepared by
PDTC and filed jointly in the name of PDTC and Ramus. PDTC shall prepare,
prosecute and maintain any and all United States and foreign patents embodying
Co-Developed Technology or related to Co-Developed Devices or photodynamic
therapy using Ramus Products. The reasonable costs thereof shall be shared
equally by the parties. If PDTC elects not to prepare, prosecute or maintain
any such patent, Ramus shall have the right, but not the obligation, to do so in
its own name and for its own benefit and PDTC agrees to execute an assignment of
its rights in such patent to Ramus. If PDTC and Ramus mutually agree in writing
to allow either party to utilize any Patent outside the field of photodynamic
therapy using Ramus Products, such agreement shall include, at a minimum, terms
as to the development, manufacture and royalty obligations of the parties.
In exercising the rights, and in carrying out the duties and
obligations set forth in this agreement, each party shall comply with all
applicable state, federal and country laws or rules. Each party shall also
comply to the extent of its duties hereunder with all applicable state, federal
or other rules and regulations governing the manufacture, records, distribution,
promotion, marketing and sale of Co-Developed Devices and that it shall
specifically comply with applicable current good clinical practices, good
laboratory practices and good manufacturing practices promulgated from time to
time by the FDA in accordance with the Food, Drug & Cosmetic Act (21 U.S.
Section 301, ET SEQ.) as such shall be amended from time to time and
regulations promulgated thereunder, as amended from time to time (or the
equivalent in any foreign country). PDTC and Ramus will promptly notify each
other of, and provide copies of, any correspondence and other documentation
received or prepared in connection with any FDA action or notification regarding
Co-Developed Devices.
Unless otherwise agreed to by the parties, the parties will maintain
in confidence information relating to PDTC Technology, Ramus Technology,
Co-Developed Technology or Co-Developed Devices (including without limitation,
information developed in Pre-Clinical Tests and Clinical Tests) and licenses,
patents, patent applications, technology or processes and business plans, in
each case, of the other party, including information designated as confidential
in writing from one party to another (all of the foregoing hereinafter referred
to as "Confidential Information"), disclosed to the other and shall not, during
the term of this agreement and for a period of five (5) years thereafter, use
such Confidential Information, except as permitted by this agreement or disclose
the same to anyone other than those of its officers, directors, employees,
affiliates and sublicensees as are necessary in connection with either parties'
activities as contemplated in this agreement. This obligation of
confidentiality shall not apply to the extent that (i) a party is required to
disclose information by applicable law, such as pursuant to Securities and
Exchange Commission rules and regulations, or by order of a governmental agency
or a court of competent jurisdiction; (ii) a party can demonstrate that the
disclosed information was, at the time of disclosure, already in the public
domain other than as a result of actions or failure to act of a party, its
officers, directors, employees, affiliates
<PAGE>
Ramus Medical Technologies
December 27, 1996
Page 4
and sublicensees in violation hereof; (iii) the disclosed information was
rightfully known by a party or its affiliates or sublicensees (as shown by its
written records) prior to the date of disclosure to the other party in
connection with this agreement; or (iv) the disclosed information was received
by a party or its affiliates or sublicensees on an unrestricted basis from a
third party which is not the other party or an affiliate of the other party and
not under a duty of confidentiality, and which was rightfully known to said
source.
This co-development agreement shall be effective as of the date
hereof, and shall continue in full force and effect for the greater of seventeen
(17) years or twelve (12) years from the date of first NDA or PMA approval for
commercial sale of Co-Developed Devices or the life of any patent issued on the
Co-Developed Technology. Provided that both parties agree in writing, at least
one hundred eighty (180) days prior to the expiration of the then existing term,
PDTC and Ramus shall have the option to extend the term of this agreement by
successive two (2) year periods.
If the foregoing correctly sets forth our agreement with respect to
the matters set forth herein, please so indicate by signing two copies of this
agreement and returning one of such signed copies to PDTC, whereupon this
agreement will constitute our binding agreement with respect to the matters set
forth herein.
Very truly yours,
PDT CARDIOVASCULAR, INC.
By: /s/ Gary S. Kledzik
-------------------------------
Title: Chairman
Accepted and agreed to as of
the 27th day of December 1996
RAMUS MEDICAL TECHNOLOGIES
By: /s/ Charles S. Love
------------------------------------
Title: President
<PAGE>
EXHIBIT 10.18
SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
RAMUS MEDICAL TECHNOLOGIES
DECEMBER 27, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 REQUEST FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . 2
1.3 COMPANY REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 3
1.5 FURNISH INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 6
1.6 EXPENSES OF DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . 6
1.7 EXPENSES OF COMPANY REGISTRATION . . . . . . . . . . . . . . . . . 6
1.8 UNDERWRITING REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . 6
1.9 DELAY OF REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . 7
1.10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. . . . . . . . . . . 9
1.12 FORM S-3 REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . 10
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . 10
1.14 "MARKET STAND-OFF" AGREEMENT . . . . . . . . . . . . . . . . . . . 11
1.15 AMENDMENT OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . 11
1.16 TERMINATION OF REGISTRATION RIGHTS . . . . . . . . . . . . . . . . 11
1.17 MORE FAVORABLE REGISTRATION RIGHTS . . . . . . . . . . . . . . . . 12
2. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . 12
2.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 TITLES AND SUBTITLES . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 AGGREGATION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
THIS SERIES A PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT is made as
of the 27th day of December, 1996, by and among Ramus Medical Technologies, a
California corporation (the "Company"), and PDT Cardiovascular, Inc.
("Purchaser") and ***** ("*****") (Purchaser and ***** shall be known,
collectively, as the "Investors").
WHEREAS, Purchaser is a party to the Investment Agreement with the
Company, of even date herewith (the "Investment Agreement"), pursuant to which
Purchaser has purchased shares of the Company's Series A Preferred Stock; and
WHEREAS, pursuant to the Investment Agreement, the Company has agreed
to grant Purchaser registration rights in respect of the Series A Preferred
Stock purchased by Purchaser;
WHEREAS, ***** has purchased shares of the Company's Series A
Preferred Stock as of the date hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term the "Act" shall mean the Securities Act of
1933, as amended to date, and the term the "1934 Act" shall mean the
Securities Exchange Act of 1934, as amended to date;
(b) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means the Common
Stock issuable or issued upon conversion of the Company's Series A Preferred
Stock;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(e) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.3 hereof; and
(f) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act
subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
*****Confidential Treatment Requested
<PAGE>
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after
January 1, 2002, a written request from the Holders of at least fifty percent
(50%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of at least
fifty percent (50%) of the Registrable Securities then outstanding, then the
Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations of
subsection 1.2 (b), effect as soon as practicable, and in any event shall use
its best efforts to effect within 90 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within ten (10) days of the mailing of such notice by
the Company in accordance with Section 2.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section
1.2 and the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter or underwriters will be
selected by the Company and shall be reasonably acceptable to a majority in
interest of the Initiating Holders. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company as
provided in subsection 1.4(e) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to
defer taking action with respect to such filing for a period of not more than
90 days after receipt of the request of the Initiating Holders.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, or a registration on any form which does not include or incorporate
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within ten (10)
days after mailing of such notice by the Company in accordance with Section
2.5, the
<PAGE>
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days, unless such registration is or may be effected on form S-3
(or any successor form) in which case the Company shall keep such registration
effective until such Registrable Securities are disposed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be reasonably requested by
any holder of Registrable Securities or any underwriter of Registrable
Securities or as may be necessary to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement or supplement to the
prospectus.
(c) Before filing a registration statement or prospectus
or any amendments or supplements thereto, furnish to the Holders of the
Registrable Securities covered by such registration statement and the
underwriters, if any, a copy of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters, and
the Company will not file any registration statement or amendment thereto or
any prospectus or any supplement thereto to which the Holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
registration statement or the underwriters, if any, shall reasonably object
within 10 days after receipt of such documents proposed to be filed.
(d) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(e) Prior to any public offering of Registrable
Securities, register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any, and their respective counsel
in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any seller or underwriter reasonably requests in writing and
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject.
(f) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(g) Notify the selling holders of Registrable Securities
and the managing underwriters, if any, promptly, and (if requested by any such
person) confirm such advice in writing,
(1) when the prospectus or any prospectus supplement or
post-effective
<PAGE>
amendment has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become
effective,
(2) of any request by the SEC for amendments or supplements
to the registration statement or the prospectus or for additional
information,
(3) of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement or the initiation of
any proceedings for that purpose,
(4) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the registrable
securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(5) at any time when a prospectus relating to the offer or
sale of any Registrable Securities is required to be delivered under
the Act, of the existence of any fact known to the Company which
results in the registration statement, the prospectus or any document
incorporated therein by reference containing an untrue statement of
material fact or omitting to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(h) Make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the registration statement at the
earliest possible moment.
(i) if requested by the managing underwriter or
underwriters of any holder of Registrable Securities being sold in connection
with an underwritten offering, promptly incorporate in a prospectus supplement
or post-effective amendment such information as the managing underwriters and
the holders of a majority in aggregate principal amount of the Registrable
Securities being sold agree should be included therein relating to the plan of
distribution with respect to such Registrable Securities, including without
limitation information with respect to the amount of Registrable Securities
being sold to such underwriters, the purchase price being paid therefor by
such underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be sold
in such offering; and make all required filings of such prospectus supplement
or post-effective amendment as soon as notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment.
(j) If requested, furnish, without charge, to (i) counsel
to the selling holders of Registrable Securities and each managing
underwriter, at least one signed copy of the registration statement and (ii)
each selling holder of Registrable Securities, at least one conformed copy of
the registration statement, and, with respect to copies furnished pursuant to
both clauses (i) and (ii) hereof, any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference).
(k) Cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be sold and not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two business days
prior to any sale of Registrable Securities to the underwriters.
(l) If any fact contemplated by paragraph (g)(5) above
shall exist, prepare a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
prospectus will not contain any untrue
<PAGE>
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading.
(m) Use its best efforts to cause all Registrable
Securities covered by the Registration statement to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed, if requested by the holders of a majority in
aggregate principal amount of such Registrable Securities or the managing
underwriters, if any.
(n) Obtain a CUSIP number for all Registrable Securities,
not later than the effective date of the registration statement;
(o) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to
their security holders, earnings statements satisfying the provisions of
Section 11(a) of the Securities Act (in accordance with Rule 158 thereunder or
otherwise), no later than 45 days after the end of any 12-month period (or 90
days, if such period is a fiscal year) (1) commencing at the beginning of the
fiscal quarter following that in which Registrable Securities are sold to
underwriters in an underwritten offering, of, if not sole to underwriters in
such an offering, (2) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the registration
statement, which statements shall cover said 12-month periods.
(p) Cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation
by an underwriter (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of the
NASD).
(q) Promptly prior to the filing of any document (other
than any document filed pursuant to Items 601 of Regulation S-K) that is to be
incorporated by reference into the registration statement or the prospects
(after initial filing of the registration statement) provide draft copies of
such document to counsel to the selling holders of Registrable Securities and
to the managing underwriters, if any, make the Company's representatives
available for discussion of such document and make such changes in such
document prior to the filing thereof as counsel for such selling holders or
underwriters may reasonably request.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to
the Registrable Securities of any selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required under the Act to effect the registration of
such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Section 1.2 or Section 1.12 if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and
<PAGE>
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses).
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.13), including (without limitation) all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not jeopardize the success of the offering by the Company. The Company shall
use its best efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit all Registrable Securities requested
to be included in the registration for such offering to include all such
Registrable Securities in such offering on the same terms and conditions as
any other securities included therein. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with
the success of the offering, then the Company shall be required to include in
the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling Holders according to the total amount
of securities entitled to be included therein owned by each selling Holder or
in such other proportions as shall mutually be agreed to by such selling
Holders) but in no event shall (i) the amount of securities of the selling
Holders included in the offering be reduced below twenty percent (20%) of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities in which case the
selling Holders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 or 1.3 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling Holder which is a Holder of
Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"selling Holder", and any pro-rata reduction with respect to such "selling
Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any,
<PAGE>
who controls such Holder or underwriter within the meaning of the Act or the
1934 Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, or any
rule or regulation promulgated under the Act, or the 1934 Act; and the Company
will pay to each such Holder, underwriter or controlling person any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.10(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act, insofar
as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay
any legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided,
that, in no event shall any indemnity under this subsection 1.10 (b) exceed
the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, the
indemnifying party(ies) shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
the payment of all reasonable expenses. Such indemnifying party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expense of such indemnifying party unless (a) the indemnifying party(ies) have
agreed to pay such fees and expenses or (b) the indemnifying party(ies) shall
have failed to employ counsel reasonably satisfactory to such indemnified
party in any such action or proceeding or (c) the named parties to any such
action or proceeding (including any impleaded parties) include such
indemnified party and the indemnifying party(ies), and such indemnified party
shall have been advised by counsel that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party(ies) (in which case,
if such indemnified party notifies the indemnifying party(ies) in writing that
it elects to employ separate counsel
<PAGE>
at the expense of the indemnifying party(ies), the indemnifying party(ies)
shall not have the right to assume the defense of such action or proceeding on
behalf of such indemnified party, it being understood, however, that the
indemnifying party(ies) shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate firm or attorneys at any time for such indemnified
party or any other indemnified parties, which firm shall be designated in
writing by such indemnified parties). The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action, if and to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of liability to the indemnified
party under this Section 1.10, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 1.10.
(d) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 and Rule 144A
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act;
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form; and
(e) if the Company is not required to file reports with
the SEC under the Act or the 1934 Act, the Company will, upon the request of
any holder of Registrable Securities made after the date hereof, (i) make
publicly available such information as is necessary to permit sales pursuant
to Rule 144 under the Act and (ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the Act.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or
<PAGE>
Holders a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or
a part of the Registrable Securities owned by such Holder or Holders, the
Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this
Section 1.12: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of
less than $500,000; (3) if the Board of Directors shall have determined, and
the Company shall furnish to the Holders a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the
Form S-3 registration statement for a period of not more than 90 days after
receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than
once in any twelve month period; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected a
registration on Form S-3 for the Holders pursuant to this Section 1.12 or for
any other holders of the Company's capital stock in which the Holders shall
have been granted the opportunity to participate without limitation or has
effected three (3) prior such registrations on Form S-3 for the Holders or for
any other holders of the Company's capital stock in which the Holders shall
have been granted the opportunity to participate without limitation; (5) if
less than 30% of the Holders request such registration, or (6) in any
particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file and
cause to be effective a registration statement covering the Registrable
Securities and other securities so requested to be registered as soon as
practicable after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to
Section 1.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders, and counsel for
the Company, shall be borne by the Company. Registrations effected pursuant
to this Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Section 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may
be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities who, after such assignment or
transfer, holds at least 100,000 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and
other recapitalizations), provided the Company is, within thirty (30) days,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall not be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is, in the written opinion of
counsel to the Company reasonably acceptable to the Holder, not restricted
under the Act. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferees
<PAGE>
and assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings
of such partners or spouses who acquire Registrable Securities by gift, will
or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices
or taking any action under this Section 1.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees
that, during the period of duration specified by the Company and an
underwriter of common stock or other securities of the Company (not to exceed
180 days), following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except common stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) are similarly bound.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 1 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon
each holder of any Registrable Securities then outstanding, each future holder
of all such Registrable Securities, and the Company.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after three (3)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public; provided that the Company is current in all of its reports
required to be filed with the SEC during such three-year period.
1.17 MORE FAVORABLE REGISTRATION RIGHTS. If the Company shall
grant to any party more favorable registration rights than those set forth
herein, then such more favorable registration rights shall be granted to
Investors or Holders.
2. MISCELLANEOUS.
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series A Preferred Stock of the
Company held by Investors or any Common Stock of the Company issued upon
conversion thereof). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
<PAGE>
2.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California.
2.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or four
days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party on the signature page hereof, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties.
2.6 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.7 AGGREGATION OF STOCK. All shares of the Series A Preferred
Stock of the Company held or acquired by affiliated entities or persons shall
be aggregated together for the purpose of determining the availability of any
rights under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
RAMUS MEDICAL TECHNOLOGIES
By: /s/ Charles S. Love
---------------------------------
Charles S. Love, President
Address: 6420 Via Real, Suite 8
Carpinteria, CA 93013
PDT CARDIOVASCULAR, INC.
By: /s/ Gary S. Kledzik
---------------------------------
Title: Chairman
------------------------------
Address: 7408 Hollister Avenue
Goleta, CA 93117
/s/ *****
------------------------------------
Address: *****
*****Confidential Treatment Requested
<PAGE>
EXHIBIT 10.19
OPTION TO PURCHASE
RAMUS MEDICAL TECHNOLOGIES
THIS OPTION TO PURCHASE RAMUS MEDICAL TECHNOLOGIES (the "OPTION AGREEMENT")
is made and entered into on the date hereinafter set forth by and among RAMUS
MEDICAL TECHNOLOGIES, a California corporation ("RAMUS"), PDT CARDIOVASCULAR,
INC., a Delaware corporation ("PDTC"), and the other shareholders of Ramus
identified in SCHEDULE 1 hereto (collectively, the "SHAREHOLDERS").
WHEREAS:
A. PDTC and Ramus are entering into an Investment Agreement of even date
(the "INVESTMENT AGREEMENT");
B. The Shareholders own all of the outstanding shares of capital stock of
Ramus or hold all of the outstanding options, rights or other securities to
acquire the shares of capital stock of Ramus;
C. The Investment Agreement contemplates Ramus granting to PDTC an option
to purchase Ramus as set forth herein; and
D. The Shareholders have also agreed to join in this Option Agreement.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. OPTION.
1.1 OPTION TO PURCHASE RAMUS. In consideration of the execution and
performance of the Investment Agreement, Ramus and the Shareholders hereby agree
that PDTC has fully complied with all obligations in the Investment Agreement as
required to date, Ramus and the Shareholders do hereby grant to PDTC an option
(the "OPTION") to purchase Ramus for the purchase price set forth in SECTION 1.2
below.
1.2 PURCHASE PRICE. Subject to the provisions of SECTION 4 with
respect to the issuance of PDT Shares, the purchase price for all of Ramus
shall be equal to ***** (the "PURCHASE PRICE"). (1) The Purchase Price will be
distributed on a pro rata basis to the holders of outstanding Ramus common
stock (the "COMMON STOCK"). Each Shareholder agrees to convert any
convertible securities into Common Stock and to exercise any options, rights
or other securities granting the right to acquire shares of Common Stock upon
notice by PDTC of the exercise of the Option; PROVIDED, HOWEVER, PDTC hereby
expressly acknowledges and agrees that, as provided in the option agreements
of those Shareholders who are option holders, such option holders may provide
for the exchange of their options for their applicable portion of the
Purchase Price having a value equal to the difference, or spread, between (i)
their applicable portion of the Purchase Price issuable upon exercise of the
option had the option been exercised immediately prior to the closing and
(ii) the applicable exercise price of the option.
*****Confidential Treatment Requested
(1) PDTC's Shares shall not be subject to the Option, and the Purchase Price
shall be reduced accordingly. For example, if, at the Closing of the Option
purchase, PDTC owns thirty percent (30%) of the PDT Shares, the Purchase
Price would be seventy percent (70%) of *****.
<PAGE>
2. TERM OF THE OPTION. The Option shall commence as of the execution
of this Option Agreement and shall expire (the "EXPIRATION DATE") on the
later of ***** from the execution of this Option Agreement, or ***** after
the day on which the first surgical procedure to implant the Company's
initial product in a coronary artery in a human subject involving coronary
artery bypass surgery is completed in its formally conducted clinical trials
supervised by the United States Food and Drug Administration, or the
regulatory equivalent in the country in which treatment is undertaken. Ramus
covenants to give notice to PDTC, as provided herein, of the first human
implant by Ramus, as set forth in the preceding sentence, within ten (10)
days of the date that such human implant is first undertaken.
3. NOTICE OF EXERCISE. Notice of exercise of the Option (the
"NOTICE") shall be accomplished in writing on or prior to the Expiration
Date. The Notice shall include an executed Purchase and Sale Agreement for
the purchase and sale of Ramus (the "PURCHASE AND SALE AGREEMENT"). The
Purchase and Sale Agreement shall be in the form attached hereto as EXHIBIT
A, with such changes therein as the parties reasonably determine are
necessary to implement the desired forms and transaction (sale of shares or a
merger), and shall provide for a closing within ninety (90) days of the date
of the Notice. After delivery of the Notice, if requested by Ramus, PDTC
will provide the loan described in the Stock Purchase Agreement.
4. PAYMENT OF PURCHASE PRICE.
(a) The Purchase Price will be payable in cash and the stock of
PDTC's parent corporation, PDT, Inc. (the "PDT SHARES") , or entirely in cash
or entirely in PDT Shares, at the option of PDTC. PDTC cannot convert this
from a stock sale to an asset sale without the prior written consent of Ramus
and its Shareholders.
(b) If PDTC elects to deliver the PDT Shares, it will deliver a
sufficient percentage of the Purchase Price to the Shareholders to permit
them to receive the PDT Shares as part of a tax-free reorganization as
determined by PDTC's independent auditors. ***** In the event that any of the
Purchase Price is to be payable in PDT Shares, each of the following
conditions shall have been satisfied on or prior to the closing contemplated
by this Option Agreement: (i) PDT, Inc. shall have had declared effective by
the Securities and Exchange Commission a registration statement covering the
resale by all of the Shareholders of the PDT Shares received by such
Shareholders, in form and substance reasonably satisfactory to Ramus, and
Ramus and the Shareholders will cooperate with PDT, Inc. in registering said
PDT Shares; and (ii) *****; and (iii) the PDT Shares shall be listed for
trading on the NASDAQ National Market System (NMS) or a national securities
exchange.
(c) The aggregate number of PDT Shares to be delivered by PDTC
shall be increased by ***** for each ***** of the Purchase Price paid for in
PDT Shares in consideration of the following agreement of the Shareholders:
(i) the Shareholders agree not to sell more than the greater
of ***** the PDT Shares owned by them, or ***** during any five (5)
trading day period, unless the PDT Shares are sold to PDT or the PDT
Employee Stock Ownership Plan.
(ii) the Shareholders may sell the PDT Shares in a private
transaction occurring off market and not reported in National Market
Systems (NMS) or other national securities exchange which is either
approved by PDT or which is included in the limitations of (i) above.
*****Confidential Treatment Requested
<PAGE>
(iii) each share certificate representing the PDT Shares will
contain a legend reflecting the foregoing.
5. ADDITIONAL SHAREHOLDERS. Ramus shall not issue any capital stock
or any securities convertible into, exchangeable for or exercisable for
capital stock of Ramus (whether preferred, common or otherwise) unless the
purchaser, grantee or other recipient thereof shall have executed a Joinder
Agreement to this Option Agreement in the form of EXHIBIT B at the time that
they first become a holder of or entitled to such securities. Ramus shall
use its best efforts to secure the execution by its existing option holders
of the Joinder Agreement and will not issue new options that do not include a
condition of executing the Joinder Agreement.
6. EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS. Ramus shall have
entered into Employment Agreements and Consulting Agreements to the
satisfaction of Ramus. Employment Agreements would be required for ***** if
they are still employed by Ramus at the time that this Option is exercised
and provided that they will agree to the compensation terms in effect
immediately preceding the exercise of the Option, together with any other
managers that PDTC wishes to retain. The Employment Agreements will provide
for customary provisions and shall include six (6) months' severance for
termination without cause, and no severance if termination is for cause.
*****. Any of the foregoing agreements will be terminable in the event of a
breach of the covenants not to compete by that party.
7. PROXY; LEGENDS. Each Shareholder, by signing this Option
Agreement, and each person who shall execute a Joinder Agreement by signing
such Joinder Agreement, grants PDTC an irrevocable proxy with respect to all
of such person's securities in Ramus, whether now or hereafter held by such
person, for the purpose of voting, converting, exchanging, exercising or
transferring such securities in connection with any exercise of the Option by
PDTC. The parties agree and acknowledge that such proxy is irrevocable by
the existing Shareholders and other persons who join this Option Agreement in
accordance with Section 705(e) of the California Corporations Code. Each
outstanding security of Ramus (including any right to acquire a security) and
each security or other right thereafter issued by Ramus shall bear a legend
reflecting the granting of such proxy and the existence of the Option in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF AN OPTION AGREEMENT AMONG RAMUS MEDICAL TECHNOLOGIES
("RAMUS"), PDT CARDIOVASCULAR, INC. ("PDTC") AND CERTAIN OTHER PERSONS
PURSUANT TO WHICH THIS SECURITY IS SUBJECT TO AN OPTION TO PURCHASE
GRANTED IN FAVOR OF PDTC. PURSUANT TO SUCH OPTION AGREEMENT, THE
HOLDERS OF THIS SECURITY HAS GRANTED AN IRREVOCABLE PROXY IN FAVOR OF
PDTC WITH RESPECT TO CERTAIN MATTERS RELATING TO SUCH OPTION. A COPY OF
THE OPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
EXECUTIVE OFFICES OF RAMUS.
8. ROLE OF HAI FINANCIAL. Ramus and the Shareholders hereby
acknowledge that HAI Financial ("HAI") is acting as an advisor to Ramus and
will be entitled to be paid a fee upon the exercise of the Option by PDTC and
upon funding of PDTC's investment in Ramus. Ramus and the Shareholders
further acknowledge that the principal of HAI, Charles T. Foscue ("FOSCUE"),
is a director and shareholder of PDTC's parent corporation, PDT, Inc. After
consultation with counsel and with full knowledge of the relationship and
possible conflict of interest, Ramus and the Shareholders agree that
*****Confidential Treatment Requested
<PAGE>
HAI or Charles T. Foscue's involvement in this transaction shall in no way
invalidate the Option or serve as an excuse for non-performance by either
Ramus or the Shareholders for performing their obligations hereunder. The
following waiver and release is not intended to apply to claims which Ramus
may have against HAI or Foscue, nor is it intended to apply to any breach of
the Investment Agreement or this Option Agreement, by PDTC. However, an
assertion of a breach of the Investment Agreement or this Option Agreement
shall not excuse Ramus and the Shareholders from performing their obligations
under the Option. Ramus and the Shareholders irrevocably and unconditionally
waive and release any and all claims against PDTC, PDT, their respective
officers, directors, employees, agents and insureds from HAI's involvement
with Ramus, the Shareholders or this transaction, whether now existing or
hereafter arising.
Ramus and the Shareholders acknowledge that they are aware of,
understand and hereby waive the rights of Section 1542 of the California
Civil Code, which provides:
"A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release, which
if known by him must have materially affected his settlement with the debtor."
9. NO SOLICITATION. The Shareholders will not take, nor will they
permit Ramus, or authorize or permit any investment banker, financial
advisor, attorney, accountant or other person retained by or acting for or on
behalf of any Shareholder or Ramus to take, directly or indirectly, any
action to solicit, encourage, receive, negotiate, assist or otherwise
facilitate (including by furnishing confidential information with respect to
Ramus or permitting access to the assets and properties and books and records
of Ramus), any offer or inquiry from any person concerning a proposed sale or
license of Ramus' technology or a proposed sale of the shares of Ramus or a
merger or other business combination between Ramus and a third-party. The
foregoing shall not preclude the sale of securities which does not result in
a change of control and which otherwise complies with this Option Agreement.
Unless PDTC refuses to provide financing in accordance with Sections 6.4 or
6.5 of the Investment Agreement, Ramus will be permitted to negotiate a
proposed license of Ramus's technology to an entity not affiliated with Ramus
or its shareholders, officers or directors after *****, so long as PDTC shall
approve the license. If PDTC refuses to approve the license within ten (10)
days of submission of the license (the "LICENSE REVIEW PERIOD") by Ramus to
PDTC, PDTC will purchase ***** in ***** at a price of ***** per share,
payable in cash, within ten (10) business days of the expiration of the
License Review Period. If any Shareholder or Ramus (or any such person
acting for or on their behalf) receives from any person any offer, inquiry or
informational request referred to above, such Shareholder or Ramus, as
applicable, will promptly advise such person, by written notice, of the terms
of this SECTION 9 and will promptly, orally and in writing, advise PDTC of
such offer, inquiry or request and deliver a copy thereof and of such notice
to PDTC.
10. MISCELLANEOUS.
10.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Option Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
Nothing in this Option Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by
reason of this Option Agreement, except as expressly provided in this Option
Agreement.
*****Confidential Treatment Requested
<PAGE>
10.2 SPECIFIC PERFORMANCE. PDTC shall be entitled to all rights
available under law, as well as injunctive relief, including the right to
demand specific performance of the Option by Ramus and the Shareholders.
10.3 GOVERNING LAW. This Option Agreement shall be governed by and
construed under the laws of the State of California.
10.4 COUNTERPARTS. This Option Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Option Agreement are used for convenience only and are not be considered in
construing or interpreting this Option Agreement.
10.6 NOTICES. Unless otherwise specifically provided herein, any
notice, demand, request or other communication herein requested or permitted
to be given shall be in writing and may be personally served, telecopied,
telexed or sent by recognized international courier service or United States
mail and shall be deemed to have been given when delivered in person or by
courier service, upon receipt of a telecopy or telex or five (5) business
days after deposit in the United States mail in the continental United States
(registered or certified, with postage prepaid and properly addressed). For
purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this SECTION 10.6) shall be as
follows:
If to Company: Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Attention: Charles S. Love, President
With a copy to: Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Michael E. Flynn, Esq.
If to PDTC: PDT Cardiovascular, Inc.
7408 Hollister Avenue
Goleta, CA 93117
Attention: David Mai, President
With a copy to: Nida & Maloney, PC
801 Garden Street, Suite 201
Santa Barbara, CA 93101
Attention: Joseph E. Nida, Esq.
10.7 ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Option Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
10.8 AMENDMENTS AND WAIVERS. Any term of this Option Agreement may
be amended and the observance of any term of this Option Agreement may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of Ramus and
<PAGE>
PDTC. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the parties, their successors and assigns.
10.9 SEVERABILITY. If one or more provisions of this Option
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Option Agreement and the balance of the Option
Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
10.10 TERMINATION. This Option Agreement, and the obligations of
the parties with respect thereto, shall terminate on the Option Termination
Date.
10.11 PUBLIC DISCLOSURE. Except as may be required to comply with
applicable law, and the requirements of PDTC's parent corporation, as an
entity whose stock is publicly traded, no party this Option Agreement shall
make or cause to be made any press release or similar public announcement or
communication concerning the execution or performance of this Option
Agreement and any of the transactions contemplated hereby, unless
specifically approved in advance and in writing by Ramus and PDTC.
Notwithstanding the foregoing, unless required by an opinion of PDTC's
counsel, PDTC will not disclose the non-exercise of its Option described in
this Option Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement this 27th day of December, 1996.
RAMUS
RAMUS MEDICAL TECHNOLOGIES,
a California corporation
By: /s/ Charles S. Love
--------------------------------
Title: President
PDTC
PDT CARDIOVASCULAR, INC.,
a Delaware corporation
By: /s/ Gary S. Kledzik
--------------------------------
Title: Chairman
SHAREHOLDERS
/s/ Charles S. Love
--------------------------------
/s/ *****
--------------------------------
*****Confidential Treatment Requested
<PAGE>
EXHIBIT A
Purchase and Sale Agreement
<PAGE>
FORM OF
STOCK PURCHASE AGREEMENT
dated as of ________________
by and between
PDT CARDIOVASCULAR, INC.
and
THE SELLERS IDENTIFIED ON SCHEDULE 1 HERETO
with respect to all
outstanding capital stock of
RAMUS MEDICAL TECHNOLOGIES
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
PAGE
NO.
----
ARTICLE I - SALE OF SHARES AND CLOSING
1.01 PURCHASE AND SALE 1
1.02 PURCHASE PRICE 1
1.03 CLOSING 2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLERS
2.01 ORGANIZATION OF SELLER 2
2.02 AUTHORITY 2
2.03 ORGANIZATION OF THE COMPANY 3
2.04 CAPITAL STOCK 3
2.05 SUBSIDIARIES 3
2.06 NO CONFLICTS 4
2.07 GOVERNMENTAL APPROVALS AND FILINGS 4
2.08 BOOKS AND RECORDS 4
2.09 FINANCIAL STATEMENTS 5
2.10 ABSENCE OF CHANGES 5
2.11 NO UNDISCLOSED LIABILITIES 7
2.12 TAXES 8
2.13 LEGAL PROCEEDINGS 9
2.14 COMPLIANCE WITH LAWS AND ORDERS 9
2.15 BENEFIT PLANS; ERISA 9
2.16 REAL PROPERTY 12
2.17 TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS 13
2.18 INTELLECTUAL PROPERTY RIGHTS 13
2.19 CONTRACTS 14
2.20 LICENSES 15
2.21 INSURANCE 16
2.22 AFFILIATE TRANSACTIONS 16
2.23 EMPLOYEES; LABOR RELATIONS 17
2.24 ENVIRONMENTAL MATTERS 17
2.25 SUBSTANTIAL CUSTOMERS AND SUPPLIERS 18
2.26 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS 19
2.27 NO POWERS OF ATTORNEY 19
2.28 ACCOUNTS RECEIVABLE 19
2.29 BROKERS 19
2.30 DISCLOSURE 19
2.31 INCORPORATION BY REFERENCE 20
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 ORGANIZATION 20
3.02 AUTHORITY 20
3.03 NO CONFLICTS 20
3.04 GOVERNMENTAL APPROVALS AND FILINGS 21
<PAGE>
PAGE
NO.
----
3.05 LEGAL PROCEEDINGS 21
3.06 PURCHASE FOR INVESTMENT 21
3.07 ACCREDITED INVESTOR 21
3.08 PURCHASE ENTIRELY FOR OWN ACCOUNT 21
3.09 INVESTMENT EXPERIENCE 21
3.10 PDT SHARES 21
ARCTICLE IV - COVENANTS OF SELLERS
4.01 REGULATORY AND OTHER APPROVALS 22
4.02 HSR FILINGS 22
4.03 INVESTIGATION BY PURCHASER 22
4.04 NO SOLICITATIONS 23
4.05 CONDUCT OF BUSINESS 23
4.06 EMPLOYEE MATTERS 24
4.07 CERTAIN RESTRICTIONS 24
4.08 AFFILIATE TRANSACTIONS 26
4.09 BOOKS AND RECORDS 26
4.10 NONCOMPETITION 26
4.11 NOTICE AND CURE 27
4.12 FULFILLMENT OF CONDITIONS 27
ARTICLE V - COVENANTS OF PURCHASER
5.01 REGULATORY AND OTHER APPROVALS 28
5.02 HSR FILINGS 28
5.03 NOTICE AND CURE 28
5.04 FULFILLMENT OF CONDITIONS 28
5.05 REGISTRATION OF PDT SHARES 29
5.06 ADVANCE BY PURCHASER TO THE COMPANY 29
ARTICLE VI - CONDITIONS TO OBLIGATIONS OF PURCHASER
6.01 REPRESENTATIONS AND WARRANTIES 29
6.02 PERFORMANCE; NO DEFAUL 29
6.03 OFFICERS' CERTIFICATES 29
6.04 ORDERS AND LAWS 29
6.05 REGULATORY CONSENTS AND APPROVALS 30
6.06 THIRD PARTY CONSENTS 30
6.07 OPINION OF COUNSEL 30
6.08 GOOD STANDING CERTIFICATES 30
6.09 SPECIAL PROCEDURES REPORT 30
6.10 RESIGNATIONS OF DIRECTORS AND OFFICERS 31
6.11 ENVIRONMENTAL SURVEY 31
6.12 PROCEEDINGS 31
6.13 EMPLOYMENT AND NONCOMPETITION AGREEMENTS 31
6.14 EQUITY RIGHTS 31
6.15 RELEASES 31
6.16 COMPLETION OF DUE DILIGENCE; FINANCIAL STATEMENTS 31
<PAGE>
PAGE
NO.
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6.17 JOINDER 31
6.18 AUDITED FINANCIAL STATEMENTS 31
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF SELLERS
7.01 REPRESENTATIONS AND WARRANTIES 32
7.02 PERFORMANCE 32
7.03 OFFICERS' CERTIFICATES 32
7.04 ORDERS AND LAWS 32
7.05 REGULATORY CONSENTS AND APPROVALS 32
7.06 THIRD PARTY CONSENTS 32
7.07 OPINION OF COUNSEL 33
7.08 PROCEEDINGS 33
7.09 GOOD STANDING CERTIFICATES 33
7.10 EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS 33
ARTICLE VIII - TAX MATTERS AND POST-CLOSING TAXES
8.01 INDEMNIFICATION 33
8.02 CONTROL OF CONTEST 33
8.03 ACCESS TO INFORMATION 34
8.04 RETENTION OF RECORDS 34
8.05 RESOLUTION OF DISAGREEMENTS AMONG PARTIES 34
8.06 TAX RETURNS 34
8.07 PRE-FILING APPROVAL OF TAX RETURNS AND REPORTS 34
8.08 COMPANY'S FINAL RETURNS 35
ARTICLE IX - SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS 35
ARTICLE X - INDEMNIFICATION
10.01 TAX INDEMNIFICATION 35
10.02 OTHER INDEMNIFICATION 36
10.03 METHOD OF ASSERTING CLAIMS 36
ARTICLE XI - TERMINATION AND DEFAULT
11.01 TERMINATION 39
11.02 EFFECT OF TERMINATION 40
ARTICLE XII - DEFINITIONS
12.01 DEFINITIONS 40
ARTICLE XIII - MISCELLANEOUS
13.01 NOTICES 48
13.02 ENTIRE AGREEMENT 49
13.03 EXPENSES 49
13.04 PUBLIC ANNOUNCEMENTS 49
<PAGE>
PAGE
NO.
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13.05 CONFIDENTIALITY 49
13.06 FURTHER ASSURANCES; POST-CLOSING COOPERATION 50
13.07 WAIVER 51
13.08 AMENDMENT 51
13.09 NO THIRD PARTY BENEFICIARY 51
13.10 NO ASSIGNMENT; BINDING EFFECT 51
13.11 HEADINGS 51
13.12 ARBITRATION 51
13.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS 52
13.14 INVALID PROVISIONS 52
13.15 AGENT 53
13.16 GOVERNING LAW 53
13.17 COUNTERPARTS 53
13.18 SIGNATURES 53
<PAGE>
EXHIBITS
--------
EXHIBIT A Escrow Agreement
EXHIBIT B Officer's Certificate of Sellers
EXHIBIT C Opinion of Counsel to Sellers and Company
EXHIBIT D Special Procedures Report
EXHIBIT E Officer's Certificate of Purchaser
EXHIBIT F Secretary's Certificate of Purchaser
EXHIBIT G Opinion of Counsel to Purchaser
SCHEDULES
---------
SCHEDULE 1 List of Sellers
<PAGE>
FORM OF
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of _______________ is made
and entered into by and between PDT CARDIOVASCULAR, INC., a Delaware
corporation ("PURCHASER"), and each of the shareholders of RAMUS MEDICAL
TECHNOLOGIES., a California corporation, listed on SCHEDULE 1 hereto (each a
"SELLER" and collectively, "SELLERS"). Capitalized terms not otherwise
defined herein have the meanings set forth in SECTION 12.01.
WHEREAS, Sellers own _____________________________________
(________) shares of common stock, no par value, of Ramus Medical
Technologies, a California corporation (the "COMPANY"), constituting all
issued and outstanding shares of capital stock of the Company, or the rights
to acquire such shares as indicated on SCHEDULE 1, excluding shares owned by
Purchaser prior to the execution of this Agreement (such shares being
referred to herein as the "SHARES");
WHEREAS, Charles S. Love ("LOVE") is a Seller and owns _________
percent (___%) of the Shares owned by the Sellers; and
WHEREAS, Sellers desire to sell, and Purchaser desires to purchase,
the Shares on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 PURCHASE AND SALE. Each Seller agrees to sell to Purchaser,
and Purchaser agrees to purchase from each Seller, all of the right, title
and interest of such Seller in and to the Shares owned by such Seller at the
Closing, as hereinafter defined, on the terms and subject to the conditions
set forth in this Agreement.
1.02 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE
PRICE") for the Shares and for the covenant of the Sellers contained in
Section 4.11 is as follows:
(a) ****(1)
(b) The Purchase Price will be payable at the option of the
Purchaser in immediately available United States funds or in the shares of
Common Stock of the Purchaser's parent corporation, PDT, Inc., a Delaware
corporation (the "PDT SHARES") or any combination thereof, provided that the
PDT Shares must be received on a tax-free basis in the opinion of PDT's
auditors, and subject to Sellers cooperating and agreeing to all conditions
necessary to create a tax-free exchange for PDT Shares. *****.
- -------------------
(1) The Purchase price will be reduced by the percentage ownership of the
Shares already owned by PDTC at the time of the Closing.
*****Confidential Treatment Requested
<PAGE>
(c) The Purchase Price will be payable pro rata to the Sellers
with ***** of the Purchase Price being paid in cash and PDT Shares to the
Sellers and ***** of cash and PDT Shares will be transferred immediately to
_______________________ (the "ESCROW AGENT") under an escrow agreement
substantially in the form attached hereto as EXHIBIT A (the "ESCROW
AGREEMENT") to be retained by the Escrow Agent for a period of one year as
provided in the Escrow Agreement. Any payments due under SECTION 2.29 hereof
to HAI Financial will be reduced from the sums due the Sellers and will be
payable to HAI Financial as if it were a Seller.
1.03 CLOSING. The Closing will take place at the offices of
Purchaser, or at such other place as Purchaser and Sellers mutually agree, at
10:00 a.m. local time, on the Closing Date. Purchaser will pay the
installments of the Purchase Price payable under clauses (b) and (c) of
SECTION 1.02 by checks payable in United States funds to the order of the
Agent, as hereinafter defined. Such checks shall be delivered to the Agent.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Love, jointly and severally as to all warranties and representations,
and the remaining Sellers on an individual basis as to SECTIONS 2.01, 2.02 AND
2.04 hereof, represent and warrant to Purchaser as follows:
2.01 ORGANIZATION OF SELLER. Each Seller is (a) an individual
acting on its own behalf, (b) an individual acting as trustee of a trust that
is duly organized, validly existing and in good standing under the Law of the
jurisdiction set forth in SCHEDULE 1 or (c) a corporation duly organized,
validly existing and in good standing under the Law of the jurisdiction of
its organization as set forth in SCHEDULE 1. Each Seller has full
individual, trustee or corporate power and authority to execute and deliver
this Agreement and the Operative Agreements to which it is a party and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby, including to own, hold, sell
and transfer (pursuant to this Agreement) the Shares.
2.02 AUTHORITY. The execution and delivery by each Seller of this
Agreement and the Operative Agreements to which it is a party, and the
performance by each Seller of its obligations hereunder, and thereunder, have
been duly and validly authorized by any trustee, beneficiary, board,
stockholder or other Person whose authorization is required, except as
provided in SECTION 2.07 OF THE DISCLOSURE SCHEDULE, no other action on the
part of any Seller or any trustee, beneficiary, board, stockholder or other
Person being necessary. This Agreement has been duly and validly executed
and delivered by each Seller and constitutes, and upon the execution and
delivery by each Seller of the Operative Agreements to which it is a party,
such Operative Agreements will constitute legal, valid and binding
obligations of each Seller enforceable against each Seller in accordance with
their terms.
2.03 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly organized, validly existing and in good standing under the Law of the
State of California, and has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
Assets and Properties. SECTION 2.03 OF THE DISCLOSURE SCHEDULE lists all
lines of business in which the Company is participating or engaged. The
Company is duly qualified, licensed or admitted to do business and is in good
standing in those jurisdictions specified in SECTION 2.03 OF THE DISCLOSURE
SCHEDULE, which are the only jurisdictions in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission
*****Confidential Treatment Requested
<PAGE>
necessary, except for those jurisdictions in which the adverse effects of all
such failures by the Company and the Subsidiaries to be qualified, licensed
or admitted and in good standing can in the aggregate be eliminated without
material cost or expense by the Company or a Subsidiary, as the case may be,
becoming qualified or admitted and in good standing. The name of each
director and officer of the Company on the date hereof, and the position with
the Company held by each, are listed in SECTION 2.03 OF THE DISCLOSURE
SCHEDULE. Love has, prior to the execution of this Agreement, delivered to
Purchaser true and complete copies of the articles of incorporation and
by-laws of the Company as in effect on the date hereof.
2.04 CAPITAL STOCK. The authorized capital stock of the Company
consists solely of ________________________ (__________) shares of Common
Stock and ____________________ (________) shares of Preferred Stock, of which
only the Shares have been issued. The Shares are duly authorized, validly
issued, outstanding, fully paid and nonassessable. Sellers own the Shares,
beneficially and of record, free and clear of all Liens, in the manner and as
set forth in SECTION 2.04 OF THE DISCLOSURE SCHEDULE. Except for this
Agreement and as disclosed in SECTION 2.04 OF THE DISCLOSURE SCHEDULE, there
are no outstanding Options with respect to the Company. The delivery of a
certificate or certificates at the Closing representing the Shares in the
manner provided in SECTION 1.03 will transfer to Purchaser good and valid
title to the Shares, free and clear of all Liens.
2.05 SUBSIDIARIES. SECTION 2.05 OF THE DISCLOSURE SCHEDULE lists
the name of each Subsidiary and all lines of business in which each
Subsidiary is participating or engaged. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the Law of its
jurisdiction of incorporation identified in SECTION 2.05 OF THE DISCLOSURE
SCHEDULE, and has full corporate power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its Assets and
Properties. Each Subsidiary is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions specified in SECTION
2.05 OF THE DISCLOSURE SCHEDULE, which are the only jurisdictions in which
the ownership, use or leasing of such Subsidiary's Assets and Properties, or
the conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for those jurisdictions in which the adverse
effects of all such failures by the Company and the Subsidiaries to be
qualified, licensed or admitted and in good standing can in the aggregate be
eliminated without material cost or expense by the Company or a Subsidiary,
as the case may be, becoming qualified, licensed or admitted and in good
standing. SECTION 2.05 OF THE DISCLOSURE SCHEDULE lists for each Subsidiary
the amount of its authorized capital stock, the amount of its outstanding
capital stock and the record owners of such outstanding capital stock.
Except as disclosed in SECTION 2.05 OF THE DISCLOSURE SCHEDULE, all of the
outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable, and are
owned, beneficially and of record, by the Company or Subsidiaries wholly
owned by the Company free and clear of all Liens. Except as disclosed in
SECTION 2.05 OF THE DISCLOSURE SCHEDULE, there are no outstanding Options
with respect to any Subsidiary. The name of each director and officer of
each Subsidiary on the date hereof, and the position with such Subsidiary
held by each, are listed in SECTION 2.05 OF THE DISCLOSURE SCHEDULE. Love
has prior to the execution of this Agreement delivered to Purchaser true and
complete copies of the certificate or articles of incorporation and by-laws
(or other comparable corporate charter documents) of each of the Subsidiaries
as in effect on the date hereof.
2.06 NO CONFLICTS. The execution and delivery by Love of this
Agreement do not, and the execution and delivery by Love of the Operative
Agreements to which it is a party, the performance by Love of his obligations
under this Agreement and such Operative Agreements and the consummation of
the transactions contemplated hereby, and thereby, will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate or articles of incorporation
or by-laws (or other comparable corporate charter
<PAGE>
documents) of the Company or any Subsidiary or Love or of any trust agreement
(or other comparable governing documents) of Love;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in SECTION 2.07 OF THE
DISCLOSURE SCHEDULE, conflict with or result in a violation or breach of any
term or provision of any material Law or Order applicable to Love, the
Company or any Subsidiary or any of their respective Assets and Properties; or
(c) except as disclosed in SECTION 2.06 OF THE DISCLOSURE
SCHEDULE, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require Love, the Company or any Subsidiary to obtain any consent,
approval or action of, make any filing with or give any notice to any Person
as a result or under the terms of, (iv) result in or give to any Person any
right of termination, cancellation, acceleration or modification in or with
respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments
under, or (vi) result in the creation or imposition of any Lien upon Love,
the Company or any Subsidiary or any of their respective Assets and
Properties under, any material Contract or License to which Love, the Company
or any Subsidiary is a party or by which any of their respective Assets and
Properties is bound.
2.07 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SECTION 2.07 OF THE DISCLOSURE SCHEDULE, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part
of Love, the Company or any Subsidiary is required in connection with the
execution, delivery and performance of this Agreement or any of the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby.
2.08 BOOKS AND RECORDS. The minute books and other similar records
of the Company and the Subsidiaries as made available to Purchaser prior to
the execution of this Agreement contain a true and complete record, in all
material respects, of all action taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and the Subsidiaries.
The stock transfer ledgers and other similar records of the Company and the
Subsidiaries as made available to Purchaser prior to the execution of this
Agreement accurately reflect all record transfers prior to the execution of
this Agreement in the capital stock of the Company and the Subsidiaries.
Except as set forth in SECTION 2.08 OF THE DISCLOSURE SCHEDULE, neither the
Company nor any Subsidiary has any of its Books and Records recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by
any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of the
Company or a Subsidiary.
2.09 FINANCIAL STATEMENTS. Prior to the execution of this
Agreement, Love has delivered to Purchaser true and complete copies of the
following financial statements:
(a) the audited balance sheets of the Company and its consolidated
subsidiaries as of __________________________, and the related audited
consolidated statements of operations, stockholders' equity and cash flows
for each of the fiscal years then ended, together with a true and correct
copy of the unqualified report with no exceptions or modifications, but with
allowable explanatory language with respect to the Company's ability to
continue as a going concern, on such audited information by
_____________________, and all letters from such accountants with respect to
the results of such audits; and
(b) the unaudited balance sheets of the Company and its consolidated
subsidiaries as
<PAGE>
of _________________, and the related unaudited consolidated statements of
operations, stockholders' equity and cash flows for the portion of the fiscal
year then ended.
Except as set forth in the notes thereto and as disclosed in SECTION 2.09 OF
THE DISCLOSURE SCHEDULE, all such financial statements (i) were prepared in
accordance with GAAP on a consistent basis, (ii) fairly present the
consolidated financial condition and results of operations of the Company and
its consolidated subsidiaries as of the respective dates thereof and for the
respective periods covered thereby, and (iii) were compiled from the Books
and Records of the Company and the Subsidiaries regularly maintained by
management and used to prepare the financial statements of the Company and
the Subsidiaries in accordance with the principles stated therein. The
Company and the Subsidiaries have maintained their respective Books and
Records in a manner sufficient to permit the preparation of financial
statements in accordance with GAAP, such Books and Records fairly reflect, in
all material respects, the income, expenses, assets and liabilities of the
Company and the Subsidiaries and the Books and Records provided a fair and
accurate basis for the preparation of the Audited Financial Statements and
the Unaudited Financial Statements. Except for those Subsidiaries listed in
SECTION 2.09 OF THE DISCLOSURE SCHEDULE, the financial condition and results
of operations of each Subsidiary are, and for all periods referred to in this
SECTION 2.09 have been, consolidated with those of the Company.
2.10 ABSENCE OF CHANGES. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on or prior
to the Closing Date, since the Audited Financial Statement Date there has not
been any material adverse change, or any event or development which,
individually or together with other such events, could reasonably be expected
to result in a material adverse change, in the Business or Condition of the
Company. Without limiting the foregoing, except as disclosed in SECTION 2.10
OF THE DISCLOSURE SCHEDULE, there has not occurred between the Audited
Financial Statement Date and the date hereof:
(i) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
Subsidiary not wholly owned by the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company or any Subsidiary
of any such capital stock of or any Option with respect to the Company or
any Subsidiary not wholly owned by the Company;
(ii) any authorization, issuance, sale or other disposition by the
Company or any Subsidiary of any shares of capital stock of or Option with
respect to the Company or any Subsidiary, or any modification or amendment
of any right of any holder of any outstanding shares of capital stock of
or Option with respect to the Company or any Subsidiary;
(iii) (x) any increase in the salary, wages or other compensation of
any officer, employee or consultant of the Company or any Subsidiary whose
annual salary is, or after giving effect to such change would be, $100,000
or more, except increases in the ordinary course of business, consistent
with past practice; (y) any establishment or modification of (A) targets,
goals, pools or similar provisions in respect of any fiscal year under any
Benefit Plan, employment-related Contract or other employee compensation
arrangement or (B) salary ranges, increase guidelines or similar provisions
in respect of any Benefit Plan, employment-related Contract or other
employee compensation arrangement, except for changes in the ordinary
course of business, consistent with past practice; or (z) any adoption,
entering into or becoming bound by any Benefit Plan, employment-related
Contract or collective bargaining agreement, or amendment, modification or
termination (partial or complete) of any Benefit Plan, employment-related
Contract or collective bargaining agreement not in the ordinary course of
business, except to the extent required by applicable Law and, in the event
compliance with legal requirements presented options, only to the extent
the option which the Company or Subsidiary reasonably
<PAGE>
believed to be the least costly was chosen; other than such bonus payments
permitted under SECTION 4.07(b);
(iv) (A) incurrences by the Company or any Subsidiary of Indebtedness
in an aggregate principal amount exceeding $25,000 (net of any amounts
discharged during such period), or (B) any voluntary purchase,
cancellation, prepayment or complete or partial discharge in advance of a
scheduled payment date with respect to, or waiver of any right of the
Company or any Subsidiary under, any Indebtedness of or owing to the
Company or any Subsidiary; other than borrowings by the Company in the
ordinary course of business.
(v) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the plant, real or personal
property or equipment of the Company or any Subsidiary in an aggregate
amount exceeding $10,000;
(vi) any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy
of the Company or any Subsidiary, (y) any method of calculating any bad
debt, contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or Tax purposes, or any change in the
fiscal year of the Company or any Subsidiary or (z) the financial
projections of the Company or any Subsidiary;
(vii) any write-off or write-down of or any determination to write-off
or write-down, not in the ordinary course or business, any of the Assets
and Properties of the Company or any Subsidiary in an aggregate amount
exceeding $10,000;
(viii) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of the Company
or any Subsidiary, other than in the ordinary course of business consistent
with past practice;
(ix) any (x) amendment of the certificate or articles of incorporation
or by-laws (or other comparable corporate charter documents) of the Company
or any Subsidiary, (y) recapitalization, reorganization, liquidation or
dissolution of the Company or any Subsidiary or (z) merger or other
business combination involving the Company or any Subsidiary and any other
Person;
(x) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver under or giving any consent with
respect to (A) any material Contract which is required (or had it been in
effect on the date hereof would have been required) to be disclosed in the
Disclosure Schedule pursuant to SECTION 2.19(a) or (B) any material License
held by the Company or any Subsidiary, except for amendments,
modifications, terminations, waivers or consents in the ordinary course of
business;
(xi) capital expenditures or commitments for additions to property,
plant or equipment of the Company and the Subsidiaries constituting capital
assets in an aggregate amount exceeding $50,000 without Purchaser's consent
which shall not unreasonably be withheld;
(xii) any commencement or termination by the Company or any
Subsidiary of any new line of business;
(xiii) any transaction by the Company or any Subsidiary with Love, any
officer,
<PAGE>
director, Affiliate (other than the Company or any Subsidiary) or Associate
of Love or any Associate of any such officer, director or Affiliate (A)
outside the ordinary course of business consistent with past practice or
(B) other than on an arm's-length basis, other than pursuant to any
Contract in effect on the Audited Financial Statement Date and disclosed
pursuant to SECTION 2.19(a)(vii) OF THE DISCLOSURE SCHEDULE;
(xiv) any entering into of a Contract to do or engage in any of the
foregoing after the date hereof; or
(xv) any other transaction involving or development affecting the
Company or any Subsidiary outside the ordinary course of business
consistent with past practice.
2.11 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheet included in the Audited Financial Statements or
in the notes thereto or as disclosed in SECTION 2.11 OF THE DISCLOSURE SCHEDULE
or any other Section of the Disclosure Schedule, there are no Liabilities
against, relating to or affecting the Company or any Subsidiary or any of their
respective Assets and Properties, other than Liabilities incurred in the
ordinary course of business consistent with past practice which in the aggregate
are not material to the Business or Condition of the Company.
2.12 TAXES.
(a) Except to the extent that any such failure would not have a
material adverse effect on the Company, the Company and each of its
Subsidiaries have (i) timely filed all Tax Returns required to be filed in
any jurisdiction to which it is subject, except as disclosed in SECTION 2.12
OF THE DISCLOSURE SCHEDULE, (ii) either timely paid in full all Taxes due to
be paid or collected by it and all Taxes claimed to be due from it by each
such jurisdiction (except for any such Taxes as are being contested in good
faith by appropriate proceedings), and any interest, additions to Tax and
penalties with respect thereto, or provided adequate reserves for the payment
thereof (which reserves are reflected in the Company's Audited Financial
Statements), and (iii) fully accrued on its Audited Financial Statements and
Books and Records all Taxes, and any interest, additions to Tax and penalties
with respect thereto, for any period through the date hereof which are not
yet due, including such as are being contested. There are no agreements for
extension of the time of assessment or payment of any Taxes of the Company or
any of its Subsidiaries. No waiver of any statute of limitations has been
executed by or on behalf of the Company or any of its Subsidiaries. There
are no examinations by the IRS of or relating to the Company or any of its
Subsidiaries presently in process, or, to the Knowledge of Love, threatened
against the Company or any of its Subsidiaries. Neither the IRS nor any
other taxing authority is now asserting or, to the Knowledge of Love,
threatening to assert, any deficiency or assessment for additional Taxes,
including any interest, penalties or fines, against the Company or any of its
Subsidiaries. No federal income tax returns of the Company or any of its
Subsidiaries have been audited by the IRS. Except as set forth in SCHEDULE
2.12 OF THE DISCLOSURE SCHEDULE, state, local and foreign income tax returns
of the Company and its Subsidiaries have never been audited by the
appropriate tax authorities for the jurisdictions indicated in SECTION 2.12
OF THE DISCLOSURE SCHEDULE. None of the Company or any of its Subsidiaries
has incurred any liability for Taxes other than in the ordinary course of
business and none of the Company or any of its Subsidiaries has incurred any
liability for Taxes which, in the aggregate, would result in a material
decrease in the net worth of the Company or any of its Subsidiaries. Love
has provided or made available to Purchaser or its authorized representative
complete and correct copies of all income Tax, franchise or capital stock
Tax, sales, occupational, employment, personal property, real property or
other Tax Returns related to the Company or any of its Subsidiaries and its
business for each of the __________ fiscal years of the Company ended
_______________________________, respectively, together with complete and
correct copies of any reports of Tax authorities relating to examination of
such returns and all prior returns for the __________
<PAGE>
fiscal years prior to _______________________, respectively, that have been
audited, together with any elections to adopt any particular method of
treating an item for Tax purposes and any closing agreements applicable to
the Company or any of its Subsidiaries.
(b) No election under Section 341(f) of the Code has been made by
Love to treat the Company as a "consenting corporation" as defined therein.
(c) None of the Company or any of its Subsidiaries has been formed
or availed of for the purpose of avoiding the Tax with respect to its
shareholders or the shareholders of any other corporation by permitting
earnings on profits to be accumulated instead of being divided or distributed.
(d) No compensation or benefits paid by the Company or any of its
Subsidiaries or payable by the Company or any of its Subsidiaries in
connection with the transactions contemplated by or effected in connection
with this Agreement has been or will be nondeductible by the Company or any
such Subsidiary or subject to any excise or penalty payable under the Code,
including Sections 280G or 4999 thereof.
2.13 LEGAL PROCEEDINGS. Except as disclosed in SECTION 2.13 OF
THE DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) there are no Actions or Proceedings pending or, to the
Knowledge of Love, threatened against, relating to or affecting Love, the
Company or any Subsidiary or any of their respective Assets and Properties
which (i) could reasonably be expected to result in the issuance of an Order
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or any
of the Operative Agreements or otherwise result in a material diminution of
the benefits contemplated by this Agreement or any of the Operative
Agreements to Purchaser, or (ii) if determined adversely to Love, the Company
or a Subsidiary, could reasonably be expected to result in (x) any injunction
or other equitable relief against the Company or any Subsidiary that would
interfere in any material respect with its business or operations or (y)
Losses by the Company or any Subsidiary, individually or in the aggregate
with Losses in respect of other such Actions or Proceedings, exceeding
$25,000;
(b) there are no facts or circumstances Known to Love that could
reasonably be expected to give rise to any Action or Proceeding that would be
required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against the Company or any
Subsidiary.
Prior to the execution of this Agreement, Love has delivered to Purchaser all
responses of counsel for the Company and the Subsidiaries to auditors'
requests for information delivered in connection with the Audited Financial
Statements (together with any updates provided by such counsel) regarding
Actions or Proceedings pending or threatened against, relating to or
affecting the Company or any Subsidiary.
2.14 COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in
SECTION 2.14 OF THE DISCLOSURE SCHEDULE, neither the Company nor any
Subsidiary is or has at any time within the last five (5) years been, or has
received any notice that it is or has at any time within the last five (5)
years been, in violation of or in default under, in any material respect, any
Law or Order applicable to the Company or any Subsidiary or any of their
respective Assets and Properties.
2.15 BENEFIT PLANS; ERISA.
<PAGE>
(a) SECTION 2.15(a) OF THE DISCLOSURE SCHEDULE (i) contains a true
and complete list and description of each of the Benefit Plans, (ii) identifies
each of the Benefit Plans that is a Qualified Plan, (iii) identifies each
Benefit Plan which at any time during the five-year period preceding the date
of this Agreement was a Defined Benefit Plan and (iv) lists, describes and
identifies each other Plan maintained, established, sponsored or contributed to
by an ERISA Affiliate, or any predecessor thereof, which, during the five-year
period preceding the date of this Agreement, was at any time a Defined Benefit
Plan. Neither the Company nor any Subsidiary has scheduled or agreed upon
future increases of benefit levels (or creations of new benefits) with respect
to any Benefit Plan, and no such increases or creation of benefits have been
proposed, made the subject of representations to employees or requested or
demanded by employees under circumstances which make it reasonable to expect
that such increases will be granted. Except as disclosed in SECTION 2.15(a) OF
THE DISCLOSURE SCHEDULE, no loan is outstanding between the Company or any
Subsidiary and any Benefit Plan.
(b) Neither the Company nor any Subsidiary maintains or is
obligated to provide benefits under any life, medical or health plan (other
than as an incidental benefit under a Qualified Plan) which provides benefits
to retirees or other terminated employees other than benefit continuation
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
(c) Except as set forth in SECTION 2.15(c) OF THE DISCLOSURE
SCHEDULE, each Benefit Plan covers only employees who are employed by the
Company or a Subsidiary (or former employees or beneficiaries with respect to
service with the Company or a Subsidiary), so that the transactions
contemplated by this Agreement will require no spin-off of assets and
liabilities or other division or transfer of rights with respect to any such
plan.
(d) Neither the Company, any Subsidiary, any ERISA Affiliate nor
any other corporation or organization controlled by or under common control
with any of the foregoing within the meaning of Section 4001 of ERISA has at
any time contributed to any "multiemployer plan," as that term is defined in
Section 4001 of ERISA.
(e) Each of the Benefit Plans is, and its administration is and
has been since inception, in all material respects in compliance with, and
neither the Company nor any Subsidiary has received any claim or notice that
any such Benefit Plan is not in compliance with, all applicable Laws and
Orders and prohibited transactions exemptions, including the requirements of
ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act
and Title VII of the Civil Rights Act of 1964. Each Qualified Plan is
qualified under Section 401(a) of the Code, and, if applicable, complies with
the requirements of Section 401(k) of the Code. Each Benefit Plan which is
intended to provide for the deferral of income, the reduction of salary or
other compensation or to afford other Tax benefits complies with the
requirements of the applicable provisions of the Code or other Laws required
in order to provide such Tax benefits.
(f) Neither the Company nor any Subsidiary is in default in
performing any of its contractual obligations under any of the Benefit Plans
or any related trust agreement or insurance contract. All contributions and
other payments required to be made by the Company or any Subsidiary to any
Benefit Plan with respect to any period ending before or at or including the
Closing Date have been made or reserves adequate for such contributions or
other payments have been or will be set aside therefor and have been or will
be reflected in Financial Statements in accordance with GAAP. There are no
material outstanding liabilities of any Benefit Plan other than liabilities
for benefits to be paid to participants in such Benefit Plan and their
beneficiaries in accordance with the terms of such Benefit Plan.
(g) No event has occurred, and there exists no condition or set of
circumstances in
<PAGE>
connection with any Benefit Plan, under which the Company or any Subsidiary,
directly or indirectly (through any indemnification agreement or otherwise),
could reasonably be expected to be subject to any risk of material liability
under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or
Section 4975 of the Code.
(h) No transaction contemplated by this Agreement will result in
liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of
ERISA, or otherwise, with respect to the Company, any Subsidiary, Purchaser
or any corporation or organization controlled by or under common control with
any of the foregoing within the meaning of Section 4001 of ERISA, and no
event or condition exists or has existed which could reasonably be expected
to result in any such liability with respect to Purchaser, the Company, any
Subsidiary or any such corporation or organization. No "reportable event"
within the meaning of Section 4043 of ERISA has occurred with respect to any
Defined Benefit Plan. No termination re-establishment or spin-off
re-establishment transaction has occurred with respect to any Subject Defined
Benefit Plan. No Subject Defined Benefit Plan has incurred any accumulated
funding deficiency whether or not waived. No filing has been made and no
proceeding has been commenced for the complete or partial termination of, or
withdrawal from, any Benefit Plan which is a Pension Benefit Plan.
(i) Except as described in SECTION 2.15(i) OF THE DISCLOSURE
SCHEDULE, no benefit under any Benefit Plan, including any severance or
parachute payment plan or agreement, will be established or become
accelerated, vested, funded or payable by reason of any transaction
contemplated under this Agreement.
(j) To the Knowledge of Love, there are no pending or threatened
claims by or on behalf of any Benefit Plan, by any Person covered thereby, or
otherwise, which allege violations of Law which could reasonably be expected
to result in liability on the part of Purchaser, the Company, any Subsidiary
or any fiduciary of any such Benefit Plan, nor is there any basis for such a
claim.
(k) No employer securities, employer real property or other employer
property is included in the assets of any Benefit Plan.
(l) The fair market value of the assets of each Subject Defined
Benefit Plan, as determined as of the last day of the plan year of such plan
which coincides with or first precedes the date of this Agreement, was not
less than the present value of the projected benefit obligations under such
plan at such date as established on the basis of the actuarial assumptions
applicable under such Subject Defined Benefit Plan at said date and, to the
Knowledge of Love, there have been no material changes in such values since
said date.
(m) Complete and correct copies of the following documents have
been furnished to Purchaser prior to the execution of this Agreement:
(i) the Benefit Plans and any predecessor plans referred to therein,
any related trust agreements, and service provider agreements, insurance
contracts or agreements with investment managers, including all amendments
thereto;
(ii) current summary Plan descriptions of each Benefit Plan subject
to ERISA, and any similar descriptions of all other Benefit Plans;
(iii) the most recent Form 5500 and Schedules thereto for each Benefit
Plan subject to ERISA reporting requirements;
<PAGE>
(iv) the most recent determination of the IRS with respect to the
qualified status of each Qualified Plan;
(v) the most recent accountings with respect to any Benefit Plan
funded through a trust;
(vi) the most recent actuarial report of the qualified actuary of any
Subject Defined Benefit Plan or any other Benefit Plan with respect to
which actuarial valuations are conducted; and
(vii) all qualified domestic relations orders or other orders
governing payments from any Benefit Plan.
2.16 REAL PROPERTY.
(a) SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE contains a true and
correct list of (i) each parcel of real property owned by the Company or any
Subsidiary, (ii) each parcel of real property leased by the Company or any
Subsidiary (as lessor or lessee) and (iii) all Liens (other than Permitted
Liens) relating to or affecting any parcel of real property referred to in
clause (i).
(b) Except as disclosed in SECTION 2.16(a) OF THE DISCLOSURE
SCHEDULE, the Company or a Subsidiary has good and marketable fee simple
title to each parcel of real property owned by it, free and clear of all
Liens other than Permitted Liens. Except for the real property leased to
others referred to in clause (ii) of paragraph (a) above, the Company or a
Subsidiary is in possession of each parcel of real property owned by it,
together with all buildings, structures, facilities, fixtures and other
improvements thereon. The Company and the Subsidiaries have adequate rights
of ingress and egress with respect to the real property listed in SECTION
2.16(a) OF THE DISCLOSURE SCHEDULE and all buildings, structures, facilities,
fixtures and other improvements thereon. None of such real property,
buildings, structures, facilities, fixtures or other improvements, or the use
thereof, contravenes or violates any building, zoning, administrative,
occupational safety and health or other applicable Law in any material
respect (whether or not permitted on the basis of prior nonconforming use,
waiver or variance).
(c) The Company or a Subsidiary has a valid and subsisting
leasehold estate in and the right to quiet enjoyment of the real properties
leased by it for the full term of the lease thereof. Each lease referred to
in clause (ii) of paragraph (a) above is a legal, valid and binding
agreement, enforceable in accordance with its terms, of the Company or a
Subsidiary and of each other Person that is a party thereto, and except as
set forth in SECTION 2.16(c) OF THE DISCLOSURE SCHEDULE, there is no, and
neither the Company nor any Subsidiary has received notice of any, default
(or any condition or event which, after notice or lapse of time or both,
would constitute a default) thereunder. Neither the Company nor any
Subsidiary owes any brokerage commissions with respect to any such leased
space.
(d) Love has delivered to Purchaser prior to the execution of this
Agreement true and complete copies of (i) all deeds, leases, mortgages, deeds
of trust, certificates of occupancy, title insurance policies, title reports,
surveys and similar documents, and all amendments thereof, with respect to
the real property owned by the Company and the Subsidiaries, and (ii) all
leases (including any amendments and renewal letters) and, to the extent
reasonably available, all other documents referred to in clause (i) of this
paragraph (d) with respect to the real property leased by the Company and the
Subsidiaries.
(e) Except as disclosed in SECTION 2.16(e) OF THE DISCLOSURE
SCHEDULE, no tenant or other party in possession of any of the real
properties owned by the Company and the Subsidiaries, has
<PAGE>
any right to purchase, or holds any right of first refusal to purchase, such
properties.
(f) Except as disclosed in SECTION 2.16(f) OF THE DISCLOSURE
SCHEDULE, the improvements on the real property identified in SECTION 2.16(a)
OF THE DISCLOSURE SCHEDULE are in good operating condition and in a state of
good maintenance and repair, ordinary wear and tear excepted, are adequate
and suitable for the purposes for which they are presently being used and, to
the Knowledge of Love, there are no condemnation or appropriation proceedings
pending or threatened against any of such real property or the improvements
thereon.
(g) Neither the Company nor any Subsidiary is or has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(i)(A)(ii).
2.17 TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS.
(a) The Company or a Subsidiary is in possession of and has good
title to, or has valid leasehold interests in or valid rights under Contract
to use, all tangible personal property used in or reasonably necessary for
the conduct of their business, including all tangible personal property
reflected on the balance sheet included in the Unaudited Financial Statements
and tangible personal property acquired since the Unaudited Financial
Statement Date other than property disposed of since such date in the
ordinary course of business consistent with past practice. All such tangible
personal property is free and clear of all Liens, other than Permitted Liens
and Liens disclosed in SECTION 2.17(a) OF THE DISCLOSURE SCHEDULE, and as of
Closing, is in good working order and condition, ordinary wear and tear
excepted, and its use complies in all material respects with all applicable
Laws.
(b) SECTION 2.17(b) OF THE DISCLOSURE SCHEDULE describes each
Investment Asset owned by the Company or any Subsidiary on the date hereof.
Except as disclosed in SECTION 2.17(b) OF THE DISCLOSURE SCHEDULE, all such
Investment Assets are owned by the Company or a Subsidiary free and clear of
all Liens other than Permitted Liens.
2.18 INTELLECTUAL PROPERTY RIGHTS. The Company and the
Subsidiaries have interests in or use only the Intellectual Property
disclosed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE, each of which the
Company or a Subsidiary either has all right, title and interest in or a
valid and binding rights under Contract to use. No other Intellectual
Property is used or necessary in the conduct of the business of the Company
or any Subsidiary. Except as disclosed in SECTION 2.18 OF THE DISCLOSURE
SCHEDULE, (i) the Company or a Subsidiary has the exclusive right to use the
Intellectual Property disclosed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE,
(ii) all registrations with and applications to Governmental or Regulatory
Authorities in respect of such Intellectual Property are valid and in full
force and effect and are not subject to the payment of any Taxes or
maintenance fees or the taking of any other actions by the Company or a
Subsidiary to maintain their validity or effectiveness, (iii) there are no
restrictions on the direct or indirect transfer of any Contract, or any
interest therein, held by the Company or any Subsidiary in respect of such
Intellectual Property, (iv) Love has delivered to Purchaser prior to the
execution of this Agreement documentation with respect to any invention,
process, design, computer program or other know-how or trade secret included
in such Intellectual Property, which documentation is accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such invention, process, design, computer program or other
know-how or trade secret and to facilitate its full and proper use without
reliance on the special knowledge or memory of any Person, (v) the Company
and the Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their trade secrets, (vi) neither the
Company nor any Subsidiary is, or has received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any Contract to use such Intellectual Property, (vii) to the
Knowledge of Love, no such Intellectual Property is being
<PAGE>
infringed by any other Person, and (viii) there are no claims by third
parties against the Intellectual Property. Neither Love, the Company nor any
Subsidiary has received notice that the Company or any Subsidiary is
infringing any Intellectual Property of any other Person, no claim is pending
or, to the Knowledge of Love, has been made to such effect that has not been
resolved and, to the Knowledge of Love, neither the Company nor any
Subsidiary is infringing any Intellectual Property of any other Person.
2.19 CONTRACTS.
(a) SECTION 2.19(a) OF THE DISCLOSURE SCHEDULE (with paragraph
references corresponding to those set forth below) contains a true and
complete list of each of the following Contracts or other arrangements (true
and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto
and all waivers of any terms thereof, have been delivered to Purchaser prior
to the execution of this Agreement), to which the Company or any Subsidiary
is a party or by which any of their respective Assets and Properties is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or independent
contracting or the termination of employment or independent contracting,
the name, position and rate of compensation of each Person party to such
a Contract and the expiration date of each such Contract; and (B) any
written or unwritten representations, commitments, promises, communications
or courses of conduct (excluding Benefit Plans and any such Contracts
referred to in clause (A)) involving an obligation of the Company or any
Subsidiary to make payments in any year, other than with respect to salary
or incentive compensation payments in the ordinary course of business, to
any employee exceeding $50,000 or any group of employees exceeding $100,000
in the aggregate;
(ii) all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of the Company or any
Subsidiary to engage in any business activity or compete with any Person
or, except as provided in SECTION 4.11, prohibiting or limiting the ability
of any Person to compete with the Company or any Subsidiary;
(iii) all partnership, joint venture, shareholders' or other similar
Contracts with any Person;
(iv) all Contracts relating to Indebtedness of the Company or any
Subsidiary in excess of $10,000 or to preferred stock issued by the Company
or any Subsidiary;
(v) all material Contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees;
(vi) all Contracts relating to (A) the future disposition or
acquisition of any Assets and Properties, other than dispositions or
acquisitions in the ordinary course of business consistent with past
practice, and (B) any merger or other business combination;
(vii) all Contracts between or among the Company or any Subsidiary, on
one part, and Love, any officer, director, Affiliate (other than the
Company or any Subsidiary) or Associate of Love or any Associate of any
such officer, director or Affiliate, on another part;
(viii) all collective bargaining or similar labor Contracts;
<PAGE>
(ix) all Contracts that (A) limit or contain restrictions on the
ability of the Company or any Subsidiary to declare or pay dividends on,
to make any other distribution in respect of or to issue or purchase,
redeem or otherwise acquire its capital stock, to incur Indebtedness, to
incur or suffer to exist any Lien, to purchase or sell any Assets and
Properties, to change the lines of business in which it participates or
engages or to engage in any Business Combination or (B) require the
Company or any Subsidiary to maintain specified financial ratios or
levels of net worth or other indicia of financial condition; and
(x) all other Contracts (other than Benefit Plans, leases listed
in SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE and insurance policies
listed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE) that (A) involve the
payment or potential payment, pursuant to the terms of any such Contract,
by or to the Company or any Subsidiary of more than $10,000 annually and
(B) cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any material cost or penalty to the
Company or any Subsidiary.
(b) Each Contract required to be disclosed in SECTION 2.19(a) OF
THE DISCLOSURE SCHEDULE is in full force and effect and constitutes a legal,
valid and binding agreement, enforceable in accordance with its terms, of
each party thereto; and except as disclosed in SECTION 2.19(b) OF THE
DISCLOSURE SCHEDULE neither the Company, any Subsidiary nor, to the Knowledge
of Love, any other party to such Contract is, or has received notice that it
is, in violation or breach of or default under any such Contract (or with
notice or lapse of time or both, would be in violation or breach of or
default under any such Contract) in any material respect.
(c) Except as disclosed in SECTION 2.19(c) OF THE DISCLOSURE
SCHEDULE, neither the Company nor any Subsidiary is a party to or bound by
any Contract that has been or could reasonably be expected to be,
individually or in the aggregate with any other such Contracts, materially
adverse to the Business or Condition of the Company.
2.20 LICENSES. SECTION 2.20 OF THE DISCLOSURE SCHEDULE contains a
true and complete list of all Licenses used in and material, individually or
in the aggregate, to the business or operations of the Company or any
Subsidiary (and all pending applications for any such Licenses), setting
forth the grantor, the grantee, the function and the expiration and renewal
date of each. Prior to the execution of this Agreement, Love has delivered to
Purchaser true and complete copies of all such Licenses. Except as disclosed
in SECTION 2.20 OF THE DISCLOSURE SCHEDULE:
(i) the Company and each Subsidiary owns or validly holds all
Licenses that are material, individually or in the aggregate, to its
business or operations;
(ii) each License listed in SECTION 2.20 OF THE DISCLOSURE SCHEDULE
is valid, binding and in full force and effect; and
(iii) neither the Company nor any Subsidiary is, or has received any
notice that it is, in default (or with the giving of notice or lapse of
time or both, would be in default) under any such License.
2.21 INSURANCE. SECTION 2.21 OF THE DISCLOSURE SCHEDULE contains a
true and complete list (including the names and addresses of the insurers,
the names of the Persons to whom such Policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof,
whether it is a "claims made" or an "occurrence" policy and a brief
description of the interests insured thereby) of all liability, property,
workers' compensation, directors' and officers' liability and other insurance
policies currently in effect that insure the business, operations or
employees of the Company or any Subsidiary or
<PAGE>
affect or relate to the ownership, use or operation of any of the Assets and
Properties of the Company or any Subsidiary and that (i) have been issued to
the Company or any Subsidiary or (ii) have been issued to any Person (other
than the Company or any Subsidiary) for the benefit of the Company or any
Subsidiary. The insurance coverage provided by any of the policies described
in clause (i) above will not terminate or lapse by reason of the transactions
contemplated by this Agreement. Each policy listed in SECTION 2.21 OF THE
DISCLOSURE SCHEDULE is valid and binding and in full force and effect, no
premiums due thereunder have not been paid and neither the Company, any
Subsidiary nor the Person to whom such policy has been issued has received
any notice of cancellation or termination in respect of any such policy or is
in default thereunder. The insurance policies listed in SECTION 2.21 OF THE
DISCLOSURE SCHEDULE are placed with insurers that are, to the Knowledge of
Love, financially sound and reputable and, in light of the respective
business, operations and Assets and Properties of the Company and the
Subsidiaries, are in amounts and have coverages that are reasonable and
customary for Persons engaged in such businesses and operations and having
such Assets and Properties. Neither the Company, any Subsidiary nor the
Person to whom such policy has been issued has received notice that any
insurer under any policy referred to in this Section is denying liability
with respect to a claim thereunder or defending under a reservation of rights
clause.
2.22 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION
2.19(a)(vii) OR SECTION 2.22(a) OF THE DISCLOSURE SCHEDULE, (i) there are no
intercompany Liabilities between the Company or any Subsidiary, on one part,
and Love, any officer, director, Affiliate (other than the Company or any
Subsidiary) or Associate of Love or any Associate of any such officer,
director or Affiliate, on another part; (ii) Love, nor such officer,
director, Affiliate or Associate provides or causes to be provided any
assets, services or facilities to the Company or any Subsidiary, (iii)
neither the Company nor any Subsidiary provides or causes to be provided any
assets, services or facilities to Love or any such officer, director,
Affiliate or Associate and (iv) neither the Company nor any Subsidiary
beneficially owns, directly or indirectly, any Investment Assets issued by
Love or any such officer, director, Affiliate or Associate. Except as
disclosed in SECTION 2.22(b) OF THE DISCLOSURE SCHEDULE, each of the
Liabilities and transactions listed in SECTION 2.22(a) OF THE DISCLOSURE
SCHEDULE was incurred or engaged in, as the case may be, on an arm's-length
basis. Except as disclosed in SECTION 2.22(c) OF THE DISCLOSURE SCHEDULE,
since the Audited Financial Statement Date, all settlements of intercompany
Liabilities between the Company or any Subsidiary, on one part, and Love or
any such officer, director, Affiliate or Associate, on another part, have
been made, and all allocations of intercompany expenses have been applied, in
the ordinary course of business consistent with past practice.
2.23 EMPLOYEES; LABOR RELATIONS.
(a) SECTION 2.23 OF THE DISCLOSURE SCHEDULE contains a list of the
name of each officer and employee of the Company and the Subsidiaries at the
date hereof, together with each such person's position or function, annual
base salary or wages and any incentive or bonus arrangement with respect to
such person in effect on such date. To the Knowledge of Love, the Company
has not received and Love has not received any information that would lead it
to believe that a material number of such person will or may cease to be
employees, or will refuse offers of employment from Purchaser, because of the
consummation of the transactions contemplated by this Agreement.
(b) Except as disclosed in SECTION 2.23 OF THE DISCLOSURE
SCHEDULE, (i) no employee of the Company or any Subsidiary is presently a
member of a collective bargaining unit and, to the Knowledge of Love, there
are no threatened or contemplated attempts to organize for collective
bargaining purposes any of the employees of the Company or any Subsidiary,
and (ii) no unfair labor practice complaint or sex, age, race or other
discrimination claim has been brought during the last five (5) years against
the Company or any of the Subsidiaries before the National Labor Relations
Board, the Equal Employment Opportunity Commission or any other Governmental
or Regulatory Authority. Since
<PAGE>
_____________, there has been no work stoppage, strike or other concerted
action by employees of the Company or any Subsidiary. During that period,
the Company and the Subsidiaries have complied in all material respects with
all applicable Laws relating to the employment of labor, including those
relating to wages, hours and collective bargaining. Except as disclosed in
SECTION 2.23 OF THE DISCLOSURE SCHEDULE, no loan is outstanding between the
Company or any Subsidiary and any employee.
2.24 ENVIRONMENTAL MATTERS. Each of the Company and the
Subsidiaries has obtained all Licenses which are required under applicable
Environmental Laws in connection with the conduct of the business or
operations of the Company or such Subsidiary. Each of such Licenses is in
full force and effect and each of the Company and the Subsidiaries is in
compliance in all material respects with the terms and conditions of all such
Licenses and with any applicable Environmental Law. In addition, except as
set forth in SECTION 2.24 OF THE DISCLOSURE SCHEDULE (with paragraph
references corresponding to those set forth below):
(a) No Order has been issued, no Environmental Claim has been
filed, no penalty has been assessed and no investigation or review is pending
or, to the Knowledge of Love, threatened by any Governmental or Regulatory
Authority with respect to any alleged failure by the Company or any
Subsidiary to have any License required under applicable Environmental Laws
in connection with the conduct of the business or operations of the Company
or any of the Subsidiaries or with respect to any generation, treatment,
storage, recycling, transportation, discharge, disposal or Release of any
Hazardous Material generated by the Company or any Subsidiary, and to the
Knowledge of Love, there are no facts or circumstances in existence which
could reasonably be expected to form the basis for any such Order,
Environmental Claim, penalty or investigation.
(b) Neither the Company nor any Subsidiary owns, operates or
leases a treatment, storage or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, as amended, or under any other
comparable state or local Law; and, without limiting the foregoing, (i) no
polychlorinated biphenyl is or has been present, (ii) no asbestos or
asbestos-containing material is or has been present, (iii) there are no
underground storage tanks or surface impoundments for Hazardous Materials,
active or abandoned, and (iv) no Hazardous Material has been Released in a
quantity reportable under, or in violation of, any Environmental Law or
otherwise Released, in the cases of clauses (i) through (iv), at, on or under
any site or facility now or previously owned, operated or leased by the
Company or any Subsidiary.
(c) Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location
that is (i) listed on the NPL under CERCLA, (ii) listed for possible
inclusion on the NPL by the Environmental Protection Agency in CERCLIS or on
any similar state or local list or (iii) the subject of enforcement actions
by federal, state or local Governmental or Regulatory Authorities that may
lead to Environmental Claims against the Company or any Subsidiary.
(d) No Hazardous Material generated by the Company or any
Subsidiary has been recycled, treated, stored, disposed of or Released by the
Company or any Subsidiary at any location.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any Subsidiary and,
to the Knowledge of Love, no site or facility now or previously owned,
operated or leased by the Company or any Subsidiary is listed or proposed for
listing on the NPL, CERCLIS or any similar state or local list of sites
requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental
Law on any site or facility owned, operated or leased by the Company or any
Subsidiary, and no federal, state or local Governmental or Regulatory
Authority action has been taken or, to the Knowledge of Love, is in process
<PAGE>
that could subject any such site or facility to such Liens, and neither the
Company nor any Subsidiary would be required to place any notice or
restriction relating to the presence of Hazardous Materials at any site or
facility owned by it in any deed to the real property on which such site or
facility is located.
(g) Except as disclosed in SECTION 2.24(g) OF THE DISCLOSURE
SCHEDULE, there have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession
of, Love, the Company or any Subsidiary in relation to any site or facility
now or previously owned, operated or leased by the Company or any Subsidiary
which have not been delivered to Purchaser prior to the execution of this
Agreement.
2.25 SUBSTANTIAL CUSTOMERS AND SUPPLIERS. SECTION 2.25(a) OF THE
DISCLOSURE SCHEDULE lists the five (5) largest customers of the Company and
the Subsidiaries, on the basis of revenues for goods sold or services
provided for the most recently-completed fiscal year. SECTION 2.25(b) OF THE
DISCLOSURE SCHEDULE lists the five (5) largest suppliers of the Company and
the Subsidiaries, on the basis of cost of goods or services purchased for the
most recently-completed fiscal year. Except as disclosed in SECTION 2.25(c)
OF THE DISCLOSURE SCHEDULE, no such customer or supplier has ceased or
materially reduced its purchases from, use of the services of, sales to or
provision of services to the Company and the Subsidiaries since the Audited
Financial Statement Date, or to the Knowledge of Love, has threatened to
cease or materially reduce such purchases, use, sales or provision of
services after the date hereof. Except as disclosed in SECTION 2.25(d) OF
THE DISCLOSURE SCHEDULE, to the Knowledge of Love, no such customer or
supplier is threatened with bankruptcy or insolvency.
2.26 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS. SECTION 2.26
OF THE DISCLOSURE SCHEDULE sets forth (a) a true and complete list of the
names and locations of all banks, trust companies, securities brokers and
other financial institutions at which the Company or any Subsidiary has an
account or safe deposit box or maintains a banking, custodial, trading or
other similar relationship; (b) a true and complete list and description of
each such account, box and relationship, indicating in each case the account
number and the names of the respective officers, employees, agents or other
similar representatives of the Company or any Subsidiary having signatory
power with respect thereto; and (c) a list of each Investment Asset, the name
of the record and beneficial owner thereof, the location of the certificates,
if any, therefor, the maturity date, if any, and any stock or bond powers or
other authority for transfer granted with respect thereto.
2.27 NO POWERS OF ATTORNEY. Except as set forth in SECTION 2.27 OF
THE DISCLOSURE SCHEDULE, neither the Company nor any Subsidiary has any
powers of attorney or comparable delegations of authority outstanding.
2.28 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 2.28 OF
THE DISCLOSURE SCHEDULE, the accounts and notes receivable of the Company and
the Subsidiaries reflected on the balance sheet included in the Unaudited
Financial Statements, and all accounts and notes receivable arising
subsequent to the Unaudited Financial Statement Date, (i) arose from BONA
FIDE sales transactions in the ordinary course of business and are payable on
ordinary trade terms, (ii) are legal, valid and binding obligations of the
respective debtors enforceable in accordance with their terms, (iii) are not
subject to any valid set-off or counterclaim, (iv) do not represent
obligations for goods sold on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return arrangement and (v) are
not the subject of any Actions or Proceedings brought by or on behalf of the
Company or any Subsidiary. SECTION 2.28 OF THE DISCLOSURE SCHEDULE sets forth
a description of any security arrangements and collateral securing the
repayment or other satisfaction of receivables of the Company and the
Subsidiaries. To the Knowledge of Love, all steps necessary to render all
such security arrangements legal, valid, binding and enforceable, and to give
and maintain for the Company or a Subsidiary, as the case may be, a perfected
security interest in the related collateral, have been taken.
<PAGE>
2.29 BROKERS. Except for the HAI Financial agreement, whose
obligation is to be assumed by Love as to this transaction, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by Love directly with Purchaser without the intervention of any
Person on behalf of Love in such manner as to give rise to any valid claim by
any Person against Purchaser, the Company or any Subsidiary for a finder's
fee, brokerage commission or similar payment.
2.30 DISCLOSURE. All material facts relating to the Business or
Condition of the Company have been disclosed to Purchaser in or in connection
with this Agreement. No representation or warranty contained in this
Agreement, and no statement contained in the Disclosure Schedule or in any
certificate, list or other writing furnished to Purchaser pursuant to any
provision of this Agreement (including the Financial Statements), contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in the light of
the circumstances under which they were made, not misleading.
2.31 INCORPORATION BY REFERENCE. Love hereby incorporates by
reference all representations and warranties of the Company made in the
Investment Agreement as if set forth in this Agreement in full and made by
Love as of the date hereof and as of the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.01 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of the State of
Delaware. Purchaser has full corporate power and authority to execute and
deliver this Agreement and the Operative Agreements to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
3.02 AUTHORITY. The execution and delivery by Purchaser of this
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of its obligations hereunder and thereunder, have
been duly and validly authorized by the Board of Directors of Purchaser, no
other corporate action on the part of Purchaser or its stockholders being
necessary. This Agreement has been duly and validly executed and delivered
by Purchaser and constitutes, and upon the execution and delivery by
Purchaser of the Operative Agreements to which it is a party, such Operative
Agreements will constitute, legal, valid and binding obligations of Purchaser
enforceable against Purchaser in accordance with their terms.
3.03 NO CONFLICTS. The execution and delivery by Purchaser of this
Agreement do not, and the execution and delivery by Purchaser of the
Operative Agreements to which it is a party, the performance by Purchaser of
its obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or
by-laws (or other comparable corporate charter document) of Purchaser;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in SCHEDULE 3.04 hereto,
conflict with or result in a violation or breach of any
<PAGE>
term or provision of any Law or Order applicable to Purchaser or any of its
Assets and Properties; or
(c) except as disclosed in SCHEDULE 3.03 hereto, (i) conflict with
or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under, (iii) require Purchaser to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of, (iv) result in or
give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments under, or (vi) result in the creation or imposition of
any Lien upon Purchaser or any of its Assets or Properties under, any
Contract or License to which Purchaser is a party or by which any of its
Assets and Properties is bound.
3.04 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SCHEDULE 3.04 hereto, no consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority on the part of Purchaser
is required in connection with the execution, delivery and performance of
this Agreement or the Operative Agreements to which it is a party or the
consummation of the transactions contemplated hereby or thereby.
3.05 LEGAL PROCEEDINGS. There are no Actions or Proceedings
pending or, to the knowledge of Purchaser, threatened against, relating to or
affecting Purchaser or any of its Assets and Properties which could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any
of the transactions contemplated by this Agreement or any of the Operative
Agreements.
3.06 PURCHASE FOR INVESTMENT. The Shares will be acquired by
Purchaser (or, if applicable, its assignee pursuant to SECTION 13.10(b)(i))
for its own account for the purpose of investment, it being understood that
the right to dispose of such Shares shall be entirely within the discretion
of Purchaser (or such assignee, as the case may be). Purchaser (or such
assignee, as the case may be) will refrain from transferring or otherwise
disposing of any of the Shares, or any interest therein, in such manner as to
cause Seller to be in violation of the registration requirements of the
Securities Act of 1933, as amended, or applicable state securities or blue
sky laws.
3.07 ACCREDITED INVESTOR. At the Closing, Purchaser will be an
"accredited investor" within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.
3.08 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Purchaser in reliance upon Purchaser's representations to the Company,
which by Purchaser's execution of this Agreement hereby confirms that the
Shares will be acquired for investment for Purchaser's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By
executing this Agreement, Purchaser further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
3.09 INVESTMENT EXPERIENCE. Purchaser 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 Shares.
3.10 PDT SHARES. The PDT Shares to be delivered by Purchaser at
the Closing will be duly authorized, validly issued and outstanding, fully
paid and non-assessable. All necessary corporate action on the part of PDT
has been taken in order to issue the PDT Shares.
<PAGE>
ARTICLE IV
COVENANTS OF SELLERS
The Company and Love jointly and severally, and Sellers severally,
where specifically indicated, covenant and agree with Purchaser that, at all
times from and after the date hereof until the Closing and, with respect to
any covenant or agreement by its terms to be performed in whole or in part
after the Closing, for the period specified herein, the Company and Love will
comply with all covenants and provisions of this ARTICLE IV, except to the
extent Purchaser may otherwise consent in writing.
4.01 REGULATORY AND OTHER APPROVALS. Love will, and will cause the
Company and the Subsidiaries to, (a) take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to give all
notices to Governmental or Regulatory Authorities or any other Person
required of Love, the Company or any Subsidiary to consummate the
transactions contemplated hereby and by the Operative Agreements, including
those described in SECTIONS 2.06 AND 2.07 OF THE DISCLOSURE SCHEDULE, (b)
provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as Purchaser or such Governmental or
Regulatory Authorities or other Persons may reasonably request in connection
therewith and (c) cooperate with Purchaser as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings with and
giving all notices to Governmental or Regulatory Authorities or other Persons
required of Purchaser to consummate the transactions contemplated hereby and
by the Operative Agreements. Love will provide prompt notification to
Purchaser when any such consent, approval, action, filing or notice referred
to in clause (a) above is obtained, taken, made or given, as applicable, and
will advise Purchaser of any communications (and, unless precluded by Law,
provide copies of any such communications that are in writing) with any
Governmental or Regulatory Authority or other Person regarding any of the
transactions contemplated by this Agreement or any of the Operative
Agreements.
4.02 HSR FILINGS. In addition to and not in limitation of Love's
covenants contained in SECTION 4.01, if required under applicable Law, the
Company and Love will (a) take promptly all actions necessary to make the
filings required of Love or his Affiliates under the HSR Act, (b) comply at
the earliest practicable date with any request for additional information
received by the Company, Love or their Affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act and (c) cooperate with Purchaser in connection with Purchaser's
filing under the HSR Act and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement
commenced by either the Federal Trade Commission or the Antitrust Division of
the Department of Justice or state attorneys general.
4.03 INVESTIGATION BY PURCHASER. The Company will, and will cause
the Subsidiaries to, (a) provide Purchaser and its respective officers,
directors, employees, agents, counsel, accountants, financial advisors,
consultants and other representatives (together "REPRESENTATIVES") with full
access, upon reasonable prior notice and during normal business hours, to all
officers, employees, agents and accountants of the Company and the
Subsidiaries and their Assets and Properties and Books and Records, and (b)
furnish Purchaser and such other Persons with all such information and data
(including copies of Contracts, Benefit Plans and other Books and Records)
concerning the business and operations of the Company and the Subsidiaries as
Purchaser or any of such other Persons may reasonably request in connection
with such investigation.
4.04 NO SOLICITATIONS. Love will not take, nor will he permit the
Company, the
<PAGE>
Subsidiaries or any Affiliate of Love (or authorize or permit any investment
banker, financial advisor, attorney, accountant or other Person retained by
or acting for or on behalf of Love, the Company, the Subsidiaries or any such
Affiliate) to take, directly or indirectly, any action to solicit, encourage,
receive, negotiate, assist or otherwise facilitate (including by furnishing
confidential information with respect to the Company or any Subsidiary or
permitting access to the Assets and Properties and Books and Records of the
Company or any Subsidiary) any offer or inquiry from any Person concerning an
Acquisition Proposal. If Love, the Company, any Subsidiary or any such
Affiliate (or any such Person acting for or on their behalf) receives from
any Person any offer, inquiry or informational request referred to above,
Love will promptly advise such Person, by written notice, of the terms of
this SECTION 4.04 and will promptly, orally and in writing, advise Purchaser
of such offer, inquiry or request and deliver a copy of such notice to
Purchaser.
4.05 CONDUCT OF BUSINESS. Love will cause the Company and the
Subsidiaries to conduct business only in the ordinary course consistent with
past practice. Without limiting the generality of the foregoing, Love will:
(a) cause the Company and the Subsidiaries to use commercially
reasonable efforts to (i) preserve intact the present business organization
and reputation of the Company and the Subsidiaries, (ii) take no action
(subject to dismissals and retirements in the ordinary course of business
consistent with past practice) to cause the services of the present officers,
employees and consultants of the Company and the Subsidiaries not to be
available to the Company after the Closing, (iii) maintain the Assets and
Properties of the Company and the Subsidiaries in good working order and
condition, ordinary wear and tear excepted, (iv) maintain the good will of
customers, suppliers, lenders and other Persons to whom the Company or any
Subsidiary sells goods or provides services or with whom the Company or any
Subsidiary otherwise has significant business relationships and (v) continue
all current sales, marketing and promotional activities relating to the
business and operations of the Company and the Subsidiaries;
(b) except to the extent required by applicable Law, (i) cause the
Books and Records to be maintained in the usual, regular and ordinary manner,
(ii) not permit any material change in (A) any pricing, investment,
accounting, financial reporting, inventory, credit, allowance or Tax practice
or policy of the Company or any Subsidiary, or (B) any method of calculating
any bad debt, contingency or other reserve of the Company or any Subsidiary
for accounting, financial reporting or Tax purposes and (iii) not permit any
change in the fiscal year of the Company or any Subsidiary;
(c) (i) use, and will cause the Company and the Subsidiaries to
use, commercially reasonable efforts to maintain in full force and effect
until the Closing substantially the same levels of coverage as the insurance
afforded under the Contracts listed in SECTION 2.21 OF THE DISCLOSURE
SCHEDULE, (ii) to the extent requested by Purchaser prior to the Closing
Date, use all commercially reasonable efforts to cause such insurance
coverage held by any Person (other than the Company or any Subsidiary) for
the benefit of the Company or any Subsidiary to continue to be provided at
the expense of the Company and the Subsidiaries for at least 90 days after
the Closing on substantially the same terms and conditions as provided on the
date of this Agreement and (iii) cause any and all benefits under such
Contracts paid or payable (whether before or after the date of this
Agreement) with respect to the business, operations, employees or Assets and
Properties of the Company and the Subsidiaries to be paid to the Company and
the Subsidiaries; and
(d) cause the Company and the Subsidiaries to comply, in all
material respects, with all Laws and Orders applicable to the business and
operations of the Company and the Subsidiaries, and promptly following
receipt thereof to give Purchaser copies of any notice received from any
Governmental or Regulatory Authority or other Person alleging any violation
of any such Law or Order.
<PAGE>
4.06 EMPLOYEE MATTERS. Except as may be required by Law, Love will
refrain, and will cause the Company and the Subsidiaries to refrain, from
directly or indirectly:
(a) making any representation or promise, oral or written, to any
officer, employee or consultant of the Company or any Subsidiary concerning
any Benefit Plan, except for statements as to the rights or accrued benefits
of any officer, employee or consultant under the terms of any Benefit Plan;
(b) materially increasing the annual level of compensation of any
employee, and not increasing, except in amounts in keeping with past
practices, the annual level of compensation of any person whose compensation
from the Company in the last preceding fiscal year exceeded $100,000, and not
granting any unusual or extraordinary bonuses, benefits or other forms of
direct or indirect compensation to any employee, officer, director or
consultant, except in amounts in keeping with past practices by formulas or
otherwise.
(c) adopting, entering into or becoming bound by any Benefit Plan,
employment-related Contract or collective bargaining agreement, or amending,
modifying or terminating (partially or completely) any Benefit Plan,
employment-related Contract or collective bargaining agreement, except to the
extent required by applicable Law and, in the event compliance with legal
requirements presents options, only to the extent that the option which the
Company or Subsidiary reasonably believes to be the least costly is chosen; or
(d) establishing or modifying any (i) targets, goals, pools or
similar provisions in respect of any fiscal year under any Benefit Plan,
employment-related Contract or other employee compensation arrangement or
(ii) salary ranges, increase guidelines or similar provisions in respect of
any Benefit Plan, employment-related Contract or other employee compensation
arrangement.
Love will cause the Company and the Subsidiaries to administer each
Benefit Plan, or cause the same to be so administered, in all material
respects in accordance with the applicable provisions of the Code, ERISA and
all other applicable Laws. Love will promptly notify Purchaser in writing of
each receipt by Love, the Company or any Subsidiary (and furnish Purchaser
with copies) of any notice of investigation or administrative proceeding by
the IRS, Department of Labor, PBGC or other Person involving any Benefit Plan.
4.07 CERTAIN RESTRICTIONS. Love will cause the Company and the
Subsidiaries to refrain from:
(a) amending their certificates or articles of incorporation or
by-laws (or other comparable corporate charter documents) or taking any
action with respect to any such amendment or any recapitalization,
reorganization, liquidation or dissolution of any such corporation;
(b) authorizing, issuing, selling or otherwise disposing of any
shares of capital stock of or any Option with respect to the Company or any
Subsidiary, or modifying or amending any right of any holder of outstanding
shares of capital stock of or Option with respect to the Company or any
Subsidiary, other than the issuance of options under the Company's option
plan;
(c) declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of the Company or any Subsidiary
not wholly owned by the Company, or directly or indirectly redeeming,
purchasing or otherwise acquiring any capital stock of or any Option with
respect to the Company or any Subsidiary not wholly owned by the Company;
(d) acquiring or disposing of, or incurring any Lien (other than
a Permitted Lien) on,
<PAGE>
any Assets and Properties, other than in the ordinary course of business
consistent with past practice;
(e) (i) except in the ordinary course of business, consistent with
past practice, entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with respect to
(A) any Contract that would, if in existence on the date of this Agreement,
be required to be disclosed in the Disclosure Schedule pursuant to SECTION
2.19(a) or (B) any material License or (ii) granting any irrevocable powers
of attorney;
(f) violating, breaching or defaulting under in any material
respect, or taking or failing to take any action that (with or without notice
or lapse of time or both) would constitute a material violation or breach of,
or default under, any term or provision of any material License held or used
by the Company or any Subsidiary or any material Contract to which the
Company or any Subsidiary is a party or by which any of their respective
Assets and Properties is bound;
(g) (i) incurring Indebtedness in an aggregate principal amount
exceeding $100,000 (net of any amounts of Indebtedness discharged during such
period), except as reasonably necessary for the ordinary operation of the
Company's or its Subsidiaries' business in a manner, and in amounts,
consistent with historical practice, or (ii) voluntarily purchasing,
canceling, prepaying or otherwise providing for a complete or partial
discharge in advance of a scheduled payment date with respect to, or waiving
any right of the Company or any Subsidiary under, any Indebtedness of or
owing to the Company or any Subsidiary;
(h) engaging with any Person in any merger or other business
combination;
(i) making capital expenditures or commitments for additions to
property, plant or equipment constituting capital assets in an aggregate
amount exceeding $50,000, without Purchaser's consent which shall not be
unreasonably withheld;
(j) making any change in the lines of business in which they
participate or are engaged;
(k) writing off or writing down any of their Assets and Properties
outside the ordinary course of business consistent with past practice; or
(l) entering into any Contract to do or engage in any of the
foregoing.
4.08 AFFILIATE TRANSACTIONS. Except as set forth in SECTION 4.08
OF THE DISCLOSURE SCHEDULE, immediately prior to the Closing, all
Indebtedness and other amounts owing under Contracts between Love, any
officer, director, Affiliate (other than the Company or any Subsidiary) or
Associate of Love or any Associate of any such officer, director or
Affiliate, on one part, and the Company or any of the Subsidiaries, on
another part, will be paid in full, and Love will terminate and will cause
any such officer, director, Affiliate or Associate to terminate each Contract
with the Company or any Subsidiary, without expense or liability to the
Company. Prior to the Closing, neither the Company nor any Subsidiary will
enter into any Contract or amend or modify any existing Contract, and will
not engage in any transaction outside the ordinary course of business
consistent with past practice or not on an arm's-length basis (other than
pursuant to Contracts disclosed pursuant to SECTION 2.19(a)(vii) OF THE
DISCLOSURE SCHEDULE), with Love or any such officer, director, Affiliate or
Associate.
4.09 BOOKS AND RECORDS. On the Closing Date, Love will deliver or
make available to Purchaser at the offices of the Company and the
Subsidiaries all of the Books and Records, and if at any time after the
Closing Love discovers in its possession or under its control any other Books
and Records,
<PAGE>
it will forthwith deliver such Books and Records to Purchaser. Love shall
also cooperate with Purchaser in including financial statements of the Company
and its Subsidiaries for the fiscal years ending in ________________ via the
Purchaser's parent corporation's filings with the Securities and Exchange
Commission.
4.10 NONCOMPETITION.
(a) Each Seller who owns at least three percent (3%) of the
outstanding capital stock of the Company will, for a period of five (5) years
from the Closing Date, refrain from, either alone or in conjunction with any
other Person, or directly or indirectly through its present or future
Affiliates:
(i) employing, engaging or seeking to employ or engage any Person
who within the prior twenty-four (24) months had been an officer or
employee of the Company or a Subsidiary, unless such officer or employee
(A) resigns voluntarily (without any solicitation from any Seller or any
of their Affiliates) or (B) is terminated by the Company or any Subsidiary
or Purchaser other than for cause after the Closing Date;
(ii) causing or attempting to cause (A) any client, customer or
supplier of the Company or any Subsidiary to terminate or materially reduce
its business with the Company and the Subsidiaries or (B) any officer,
employee or consultant of the Company or any Subsidiary to resign or
sever a relationship with the Company or a Subsidiary;
(iii) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the
Company or any of the Subsidiaries or any of their respective clients,
customers or suppliers; or
(iv) participating or engaging in (other than through the ownership
of five percent (5%) or less of any class of securities registered under
the Securities Exchange Act of 1934, as amended), or otherwise lending
assistance (financial or otherwise) to any Person participating or engaged
in, any of the lines of business in which the Company or any of the
Subsidiaries is participating or engaged on the Closing Date in any
jurisdiction.
(b) The parties hereto recognize that the Laws and public policies
of the various states of the United States and foreign jurisdictions may
differ as to the validity and enforceability of covenants similar to those
set forth in this Section. It is the intention of the parties that the
provisions of this Section be enforced to the fullest extent permissible
under the Laws and policies of each jurisdiction in which enforcement may be
sought, and that the unenforceability (or the modification to conform to such
Laws or policies) of any provisions of this Section shall not render
unenforceable, or impair, the remainder of the provisions of this Section.
Accordingly, if any provision of this Section shall be determined to be
invalid or unenforceable, such invalidity or unenforceability shall be deemed
to apply only with respect to the operation of such provision in the
particular jurisdiction in which such determination is made and not with
respect to any other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy at
Law for any breach of the provisions of this Section would be inadequate, and
each Seller hereby consents to the granting by any court of an injunction or
other equitable relief, without the necessity of actual monetary loss being
proved, in order that the breach or threatened breach of such provisions may
be effectively restrained.
4.11 NOTICE AND CURE. Love will notify Purchaser in writing (where
appropriate, through updates to the Disclosure Schedule) of, and
contemporaneously will provide Purchaser with true
<PAGE>
and complete copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practicable after it becomes
Known to Love, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of any Seller under this Agreement to be
breached or that renders or will render untrue any representation or warranty
of any Seller contained in this Agreement as if the same were made on or as
of the date of such event, transaction or circumstance. Love also will
notify Purchaser in writing (where appropriate, through updates to the
Disclosure Schedule) of, and will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach, as soon as practicable
after it becomes Known to Love, of any representation, warranty, covenant or
agreement made by any Seller in this Agreement, whether occurring or arising
before, on or after the date of this Agreement. No notice given pursuant to
this Section shall have any effect on the representations, warranties,
covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein or shall in any
way limit Purchaser's right to seek indemnity under ARTICLE XI.
4.12 FULFILLMENT OF CONDITIONS. Love will each execute and deliver
at the Closing each Operative Agreement that such Seller is required hereby
to execute and deliver as a condition to the Closing, will take all
commercially reasonable steps necessary or desirable and proceed diligently
and in good faith to satisfy each other condition to the obligations of
Purchaser contained in this Agreement and will not, and will not permit the
Company or any Subsidiary to, take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Sellers that, at all times from
and after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this ARTICLE V, except to the extent any Seller
may otherwise consent in writing.
5.01 REGULATORY AND OTHER APPROVALS. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently
and in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all
filings with and to give all notices to Governmental or Regulatory
Authorities or any other Person required of Purchaser to consummate the
transactions contemplated hereby and by the Operative Agreements, including
those described in SECTIONS 3.03 AND 3.04 OF THE DISCLOSURE SCHEDULE hereto,
(b) provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as Sellers or such Governmental or
Regulatory Authorities or other Persons may reasonably request in connection
therewith and (c) cooperate with Sellers, the Company and the Subsidiaries as
promptly as practicable in obtaining all consents, approvals or actions of,
making all filings with and giving all notices to Governmental or Regulatory
Authorities or other Persons required of Sellers, the Company or any
Subsidiary to consummate the transactions contemplated hereby and by the
Operative Agreements. Purchaser will provide prompt notification to Sellers
when any such consent, approval, action, filing or notice referred to in
clause (a) above is obtained, taken, made or given, as applicable, and will
advise Sellers of any communications (and, unless precluded by Law, provide
copies of any such communications that are in writing) with any Governmental
or Regulatory Authority or other Person regarding any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
5.02 HSR FILINGS. In addition to and without limiting Purchaser's
covenants contained in SECTION 5.01, if required under applicable Law,
Purchaser will (a) take promptly all actions
<PAGE>
necessary to make the filings required of Purchaser or its Affiliates under
the HSR Act, (b) comply at the earliest practicable date with any request for
additional information received by Purchaser or its Affiliates from the
Federal Trade Commission or the Antitrust Division of the Department of
Justice pursuant to the HSR Act and (c) cooperate with Sellers in connection
with Sellers' filing under the HSR Act and in connection with resolving any
investigation or other regulatory inquiry concerning the transactions
contemplated by this Agreement commenced by either the Federal Trade
Commission or the Antitrust Division of the Department of Justice or state
attorneys general.
5.03 NOTICE AND CURE. Purchaser will notify Sellers in writing of,
and contemporaneously will provide Sellers with true and complete copies of
any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
Purchaser, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of Purchaser under this Agreement to be
breached or that renders or will render untrue any representation or warranty
of Purchaser contained in this Agreement as if the same were made on or as of
the date of such event, transaction or circumstance. Purchaser also will
notify Sellers in writing of, and will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach, as soon as
practicable after it becomes known to Purchaser, of any representation,
warranty, covenant or agreement made by Purchaser in this Agreement, whether
occurring or arising before, on or after the date of this Agreement. No
notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein or shall in any way limit Seller's right to seek indemnity under
ARTICLE XI.
5.04 FULFILLMENT OF CONDITIONS. Purchaser will execute and deliver
at the Closing each Operative Agreement that Purchaser is hereby required to
execute and deliver as a condition to the Closing, will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good
faith to satisfy each other condition to the obligations of Seller contained
in this Agreement and will not take or fail to take any action that could
reasonably be expected to result in the nonfulfillment of any such condition.
5.05 REGISTRATION OF PDT SHARES. Purchaser will cause the resale
of the PDT Shares by the Sellers to be registered with the Securities and
Exchange Commission and listed on the NASDAQ National Market System, or the
then-applicable exchange, prior to the Closing.
5.06 ADVANCE BY PURCHASER TO THE COMPANY. After execution of this
Agreement, Purchaser agrees to advance to the Company sufficient funds for
its working capital needs for the period preceding the Closing. The advance
will be reflected in a Promissory Note at the Purchaser's bank borrowing
rate, plus one percent (1%). If this transaction does not close through the
fault of the Sellers, the Promissory Note will be due and payable within
ninety (90) days of the termination of this Agreement. If this transaction
does not close through the fault of the Purchaser, the Promissory Note will
be due and payable one hundred eighty (180) days of the date of Closing.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Shares are
subject to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part
by Purchaser in its sole discretion):
<PAGE>
6.01 REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Company and Sellers in this Agreement (other than
those made as of a specified date earlier than the Closing Date) shall be
true and correct in all material respects on and as of the Closing Date as
though such representation or warranty was made on and as of the Closing
Date, and any representation or warranty made as of a specified date earlier
than the Closing Date shall have been true and correct in all material
respects on and as of such earlier date.
6.02 PERFORMANCE; NO DEFAULT. The Company and Sellers shall have
performed and complied with, in all material respects, each agreement,
covenant and obligation required by this Agreement to be so performed or
complied with by the Company and any Seller at or before the Closing and no
Default shall have occurred and be continuing.
6.03 OFFICERS' CERTIFICATES. Each Seller shall have delivered to
Purchaser a certificate, dated the Closing Date (and executed by the Chairman
of the Board or the President of any corporate Seller and by all trustees of
any trust with respect to any trustee Seller), substantially in the form and
to the effect of EXHIBIT B hereto.
6.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by
this Agreement or any of the Operative Agreements or which could reasonably
be expected to otherwise result in a material diminution of the benefits of
the transactions contemplated by this Agreement or any of the Operative
Agreements to Purchaser, and there shall not be pending or threatened on the
Closing Date any Action or Proceeding or any other action in, before or by
any Governmental or Regulatory Authority which could reasonably be expected
to result in the issuance of any such Order or the enactment, promulgation or
deemed applicability to Purchaser, the Company, any Subsidiary or the
transactions contemplated by this Agreement or any of the Operative
Agreements of any such Law.
6.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals
and actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit Purchaser and Sellers to perform their
obligations under this Agreement and the Operative Agreements and to
consummate the transactions contemplated hereby and thereby (a) shall have
been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to Purchaser, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement and
the Operative Agreements, including under the HSR Act, if applicable, shall
have occurred.
6.06 THIRD PARTY CONSENTS. The consents (or in lieu thereof
waivers) listed in SECTION 6.06 OF THE DISCLOSURE SCHEDULE and all other
consents (or in lieu thereof waivers) to the performance by Purchaser and
Sellers of their obligations under this Agreement and the Operative
Agreements or to the consummation of the transactions contemplated hereby and
thereby as are required under any Contract to which Purchaser, any Seller,
the Company or any Subsidiary is a party or by which any of their respective
Assets and Properties are bound (a) shall have been obtained, (b) shall be in
form and substance reasonably satisfactory to Purchaser, (c) shall not be
subject to the satisfaction of any condition that has not been satisfied or
waived and (d) shall be in full force and effect, except where the failure to
obtain any such consent (or in lieu thereof waiver) could not reasonably be
expected, individually or in the aggregate with other such failures, to
materially adversely affect Purchaser or the Business or Condition of the
Company or otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement and the Operative Agreements to
Purchaser.
<PAGE>
6.07 OPINION OF COUNSEL. Purchaser shall have received the opinion
of Stradling, Yocca, Carlson and Rauth, counsel to Sellers and the Company,
dated the Closing Date, substantially in the form and to the effect of
EXHIBIT C hereto, and to such further effect as Purchaser may reasonably
request.
6.08 GOOD STANDING CERTIFICATES. Sellers shall have delivered to
Purchaser (a) copies of the certificates or articles of incorporation (or
other comparable corporate charter documents), including all amendments
thereto, of the Company and each Subsidiary certified by the Secretary of
State or other appropriate official of the jurisdiction of incorporation, (b)
certificates from the Secretary of State or other appropriate official of the
respective jurisdictions of incorporation to the effect that each of the
Company and the Subsidiaries is in good standing or subsisting in such
jurisdiction, listing all charter documents of the Company and such
Subsidiaries on file and attesting to its payment of all franchise or similar
Taxes, and (c) a certificate from the Secretary of State or other appropriate
official in each jurisdiction in which the Company and the Subsidiaries are
qualified or admitted to do business to the effect that the Company or the
applicable Subsidiary is duly qualified or admitted and in good standing in
such jurisdiction.
6.09 SPECIAL PROCEDURES REPORT. Purchaser shall have received the
Audited Financial Statements of the Company as of ________________ and for the
year then ended, together with the unqualified opinion of _____________________
thereon (but with explanatory language with respect to the Company's ability to
continue as a going concern), and the Company shall have received, and shall
deliver to the Purchaser a copy of, a special procedures report, dated the
Closing Date, of ______________________________, substantially in the form and
to the effect of EXHIBIT D hereto.
6.10 RESIGNATIONS OF DIRECTORS AND OFFICERS. Such members of the
boards of directors and such officers of the Company and the Subsidiaries as
are designated in a written notice delivered at least two (2) Business Days
prior to the Closing Date by Purchaser to Seller shall have tendered,
effective at the Closing, their resignations as such directors and officers.
6.11 ENVIRONMENTAL SURVEY. Purchaser shall have received an
environmental survey and assessment in form and substance reasonably
satisfactory to Purchaser prepared by a firm of licensed engineers (familiar
with the identification of Hazardous Materials) reasonably satisfactory to
Purchaser, such environmental survey and assessment to be based upon physical
on-site inspections by such firm of each of the existing sites and facilities
owned, operated and leased by the Company and the Subsidiaries, as well as a
historical review of the uses of such sites and facilities and of the
business and operations of the Company and the Subsidiaries (including any
former Subsidiaries or divisions of the Company or any Subsidiary which have
been disposed of prior to the date of such survey and assessment and with
respect to which the Company or any Subsidiary may have retained liability
for environmental matters).
6.12 PROCEEDINGS. All proceedings to be taken on the part of
Sellers in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form
and substance to Purchaser, and Purchaser shall have received copies of all
such documents and other evidences as Purchaser may reasonably request in
order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
6.13 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Purchaser shall
have received the Employment Agreements and the noncompetition agreements
listed in SECTION 6.13 OF THE DISCLOSURE SCHEDULE in form and content
acceptable to Purchaser, duly signed by the respective parties thereto.
6.14 EQUITY RIGHTS. Purchaser shall have received satisfactory
evidence of the
<PAGE>
exercise, termination or cancellation of all Options identified in SECTION
2.04 OF THE DISCLOSURE SCHEDULE.
6.15 RELEASES. Purchaser shall have received satisfactory evidence
of the termination of all Contracts identified in SECTION 4.09 OF THE
DISCLOSURE SCHEDULE, including releases in favor of the Company and its
Subsidiaries in form and substance and from such Person as is satisfactory to
Purchaser.
6.16 COMPLETION OF DUE DILIGENCE; FINANCIAL STATEMENTS. Purchaser
shall have completed its due diligence investigation of the Company, the
Business or Condition of the Company, the Audited Financial Statements and
Sellers to its satisfaction.
6.17 JOINDER. All holders of Options relating to the Company's
securities shall have executed and delivered such documents joining in and
becoming a party to this Agreement as Purchaser shall reasonably request.
6.18 AUDITED FINANCIAL STATEMENTS. Purchaser shall have received a
satisfactory undertaking of ______________________ to the effect that they
shall provide manually signed Audited Financial Statements of the Company for
the years ended _________________________________ when reasonably requested
by Purchaser.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers hereunder to sell the Shares are subject
to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Sellers
in their sole discretion):
7.01 REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by Purchaser in this Agreement (other than those made as
of a specified date earlier than the Closing Date) shall be true and correct
in all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and any
representation or warranty made as of a specified date earlier than the
Closing Date shall have been true and correct in all material respects on and
as of such earlier date.
7.02 PERFORMANCE. Purchaser shall have performed and complied
with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by Purchaser
at or before the Closing.
7.03 OFFICERS' CERTIFICATES. Purchaser shall have delivered to
Seller a certificate, dated the Closing Date and executed by the Chairman of
the Board, the President, the Chief Financial Officer or any Vice President
of Purchaser, substantially in the form and to the effect of EXHIBIT E
hereto, and a certificate, dated the Closing Date and executed by the
Secretary or any Assistant Secretary of Purchaser, substantially in the form
and to the effect of EXHIBIT F hereto.
7.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law that became effective after the date of this Agreement
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or any
of the Operative Agreements.
7.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals
and actions of,
<PAGE>
filings with and notices to any Governmental or Regulatory Authority
necessary to permit Sellers and Purchaser to perform their obligations under
this Agreement and the Operative Agreements to which they are a party and to
consummate the transactions contemplated hereby and thereby (a) shall have
been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to the Agent, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement and
the Operative Agreements, including, if applicable, under the HSR Act, shall
have occurred.
7.06 THIRD PARTY CONSENTS. All consents (or in lieu thereof
waivers) to the performance by Sellers of their obligations hereunder and to
the consummation of the transactions contemplated hereby as are required
under the Contracts listed in SECTION 7.06 OF THE DISCLOSURE SCHEDULE (a)
shall have been obtained, (b) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (c) shall be in full
force and effect.
7.07 OPINION OF COUNSEL. Sellers shall have received the opinion
of counsel, Nida & Maloney, to Purchaser, dated the Closing Date, substantially
in the form and to the effect of EXHIBIT G hereto.
7.08 PROCEEDINGS. All proceedings to be taken on the part of
Purchaser in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form
and substance to Sellers, and Sellers shall have received copies of all such
documents and other evidences as Sellers may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.09 GOOD STANDING CERTIFICATES. Purchaser shall have delivered to
Sellers (a) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto, of
Purchaser certified by the Secretary of State or other appropriate official
of the jurisdiction of incorporation, (b) certificates from the Secretary of
State or other appropriate official of the respective jurisdictions of
incorporation to the effect that Purchaser is in good standing or subsisting
in such jurisdiction, listing all charter documents of Purchaser on file and
attesting to its payment of all franchise or similar Taxes, and (c) a
certificate from the Secretary of State or other appropriate official in each
jurisdiction in which Purchaser is qualified or admitted to do business to
the effect that Purchaser is duly qualified or admitted and in good standing
in such jurisdiction.
7.10 EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS. The Company
shall have entered into Employment Agreements and Consulting Agreements to
the satisfaction of the Company. Employment Agreements would be required for
***** if they are still employed by the Company at the time that this
Agreement is executed, together with any other managers that Purchaser wishes
to retain. The Employment Agreements will provide for customary provisions
and shall include six (6) months' severance for termination without cause,
and no severance if termination is for cause. *****. Any of the foregoing
agreements will be terminable in the event of a breach of the covenants not
to compete.
*****Confidential Treatment Requested
<PAGE>
ARTICLE VIII
TAX MATTERS AND POST-CLOSING TAXES
8.01 INDEMNIFICATION. Love jointly and severally indemnifies,
defends and holds harmless Purchaser Indemnified Parties in accordance with
Section 10.01.
8.02 CONTROL OF CONTEST. Each party shall have the right, at its
own expense, to control any audit or determination by any authority, initiate
any claim for refund or amended return, and contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or proposed
adjustment of Taxes for any taxable period for which that party (or any of
its Affiliates) is charged with responsibility for filing a Tax Return and
paying Taxes under this Agreement; provided, however, that neither party
shall have the right to agree to any assessment, deficiency, settlement or
other adjustment or proposed adjustment of Taxes that would adversely affect
the interests of the other party without such other party's written consent,
which consent shall not be unreasonably withheld, and provided, further, that
in the event that a party not charged with the responsibility for filing a
Tax Return under this Agreement is paid a refund, such party shall pay such
refund to the party so charged within seven (7) days of receipt of such
refund by the first party. Purchaser shall promptly forward to Sellers all
written notifications and other written communications from any taxing
authority received by the Company relating to any liability for Taxes for any
taxable period for which Sellers are charged with payment responsibility
under this Agreement and Purchaser shall execute or cause to be executed any
powers of attorney or other documents reasonably requested by Sellers to
enable Sellers to take any and all necessary actions with respect to any
proceedings for any such period.
8.03 ACCESS TO INFORMATION. Each of Purchaser and Sellers will
provide the other, and Purchaser shall cause the Company to provide Sellers,
with the right, at reasonable times and upon reasonable notice, to have
access to, and to copy and use, any records or information and personnel
which may be relevant in connection with the preparation of any Tax Returns,
any audit or other examination by any authority, or any judicial or
administrative proceedings relating to liability for Taxes. The party
requesting assistance hereunder shall reimburse the other party for
reasonable expenses incurred in providing such assistance. Any information
obtained pursuant to this SECTION 8.03 shall be held in strict confidence and
shall be used solely in connection with the reason for which it was requested.
8.04 RETENTION OF RECORDS. For a period of four (4) years from the
Closing Date, Sellers shall not dispose of or destroy any of the business
records and files of Sellers or the Company relating to Taxes in existence on
the Closing Date without first offering to turn over possession thereof to
Purchaser by written notice to Purchaser at least thirty (30) days prior to
the proposed date of such disposition or destruction.
8.05 RESOLUTION OF DISAGREEMENTS AMONG PARTIES. If Sellers and
Purchaser disagree as to the matters governed by this ARTICLE VIII, Sellers
and Purchaser shall promptly consult with each other in an effort to resolve
such dispute. If any such disagreement cannot be resolved within fifteen
(15) days, either party shall assert in writing that such dispute cannot be
resolved by arbitration as set forth in SECTION 10.03(d) hereof.
8.06 TAX RETURNS. Without limiting the foregoing, Sellers shall be
fully responsible for the filing of all Tax Returns, including delinquent Tax
Returns with respect to any period ending on or before the Closing Date, and
will pay all fines and penalties due in connection with such Tax Returns.
<PAGE>
8.07 PRE-FILING APPROVAL OF TAX RETURNS AND REPORTS. For any
period that includes days on or before the Closing, Tax Returns and reports
prepared or caused to be prepared by Purchaser for the Company or the
Subsidiaries, shall be prepared in accordance with generally accepted tax
accounting principles and in a manner consistent with past tax filing
practices of the Company and the subsidiaries, to the extent not inconsistent
with the Code, state and local tax statutes, and the applicable regulations.
Purchaser shall supply copies of the Tax Returns to Agent within ten (10)
days of filing. Any Tax Return or report which relates to any period that
includes days on or before the Closing prepared or caused to be prepared by
Purchaser for Company or the Subsidiaries, shall also be subject to
pre-filing approval by Agent, for and on behalf of Seller. Unless otherwise
agreed to by the parties, Tax Returns and reports subject to pre-filing
approval shall be submitted by Purchaser to Agent at least forty-five (45)
days prior to the due date (including extensions) of the Tax Return or
report, and Seller shall either approve or provide written comment on the Tax
Return or report within fifteen (15) days of receipt of the Tax Return or
report. In the event Sellers shall dispute any determination by the
accountants, Sellers shall notify (through the Agent) Purchaser within a
reasonable time not to exceed 10 days (taking into account the deadline for
filing the Tax Return or report) of such dispute. In such event, such
dispute shall be submitted by Purchaser to an independent certified public
accountant of recognized national standing not performing services for
Purchaser, Sellers, the Company or any of their respective Affiliates. Such
accountant's determination shall be final and binding. In the event the tax
liability for the periods on or before the Closing, as determined by such
accountants, are materially different than that determined by Purchaser's
auditors (plus or minus more than five percent), then the costs and expenses
of such accountants shall be borne by Purchaser. In the event the tax
liability for the periods on or before the Closing as determined by such
accountants are not materially different than that determined by Purchaser's
auditors, then the costs and expenses of such accountants shall be borne by
Sellers.
8.08 COMPANY'S FINAL RETURNS. Purchaser files consolidated returns
with its subsidiaries and as of the date of closing, the Company will become
part of Purchaser's consolidated group. The Company and its Subsidiaries
will be required to file returns for the fiscal year ending the day before
the Closing. Notwithstanding the provisions of SECTION 8.06, it is Sellers'
responsibility to prepare such returns and the Company will pay the costs
therefor. The Company will make its personnel reasonably available, after
the Closing, for such return preparation.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding any right of Purchaser (whether or not exercised)
to investigate the affairs of the Company and the Subsidiaries or any right
of any party (whether or not exercised) to investigate the accuracy of the
representations and warranties of the other party contained in this
Agreement, Sellers and Purchaser have the right to rely fully upon the
representations, warranties, covenants and agreements of the other contained
in this Agreement. The representations, warranties, covenants and agreements
of Sellers and Purchaser contained in this Agreement will survive the Closing
for two (2) years.
ARTICLE X
INDEMNIFICATION
10.01 TAX INDEMNIFICATION. Love shall, jointly and severally,
indemnify, defend and hold harmless the Purchaser Indemnified Parties from
and against any and all Losses arising from or incurred as a result of Taxes
owed by the Company (or any Subsidiary) with respect to any taxable
<PAGE>
period ending on or prior to the Closing Date in excess of the amount accrued
for taxes on the Company's Audited Financial Statements, provided that the
Sellers shall have received an Indemnity Notice from Purchaser in a timely
manner enabling Sellers to investigate and defend any alleged Tax Losses, or
if they so elect, assume control of the defense of any claim, action or
proceeding with respect thereto.
10.02 OTHER INDEMNIFICATION.
(a) Subject to the other Sections of this ARTICLE X and excluding
the indemnity under SECTION 10.01 above, Love shall jointly and severally,
and the remaining Sellers on an individual basis shall severally, indemnify
the Purchaser Indemnified Parties in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained
by any of them or to which any of them becomes subject, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement made by
such Seller contained in this Agreement.
(b) Subject to the other Sections of this ARTICLE X, Purchaser
shall indemnify the Seller Indemnified Parties in respect of, and hold each
of them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to any misrepresentation, breach of warranty
or nonfulfillment of or failure to perform any covenant or agreement on the
part of Purchaser contained in this Agreement.
10.03 METHOD OF ASSERTING CLAIMS. All claims for indemnification
by any Indemnified Party under SECTION 10.02 will be asserted and resolved as
follows:
(a) No claims will be made hereunder unless the total amount of
such claims exceeds $100,000 at which time claims in excess of such amount
will be subject to indemnification.
(b) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under SECTION 10.02 is asserted
against or sought to be collected from such Indemnified Party by a Person
other than Sellers, the Company, any Subsidiary, Purchaser or any Affiliate
of any Seller or Purchaser (a "THIRD PARTY CLAIM"), the Indemnified Party
shall deliver a Claim Notice with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify
the Indemnified Party with respect to such Third Party Claim to the extent
that the Indemnifying Party's ability to defend has been irreparably
prejudiced by such failure of the Indemnified Party. The Indemnifying Party
will notify the Indemnified Party as soon as practicable within the Dispute
Period whether the Indemnifying Party disputes its liability to the
Indemnified Party under SECTION 10.02 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
SECTION 10.03(a), then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party, such Third Party Claim
by all appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
will be settled at the discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party in the case of any settlement that
provides for any relief other than the payment of monetary damages). The
Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; PROVIDED, HOWEVER, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any
<PAGE>
time prior to the Indemnifying Party's delivery of the notice referred to
in the first sentence of this clause (i), file any motion, answer or other
pleadings or take any other action that the Indemnified Party reasonably
believes to be necessary or appropriate to protect its interests; and
PROVIDED FURTHER, that if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in
contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause (i), and except as provided in
the preceding sentence, the Indemnified Party will bear its own costs and
expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the defense
or settlement of a Third Party Claim at any time if it irrevocably waives
its right to indemnity under SECTION 10.02 with respect to such Third Party
Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to SECTION 10.03(a), or if the Indemnifying
Party gives such notice but fails to prosecute vigorously and diligently or
settle the Third Party Claim, or if the Indemnifying Party fails to give
any notice whatsoever within the Dispute Period, then the Indemnified Party
will have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings will be prosecuted by the Indemnified Party in a
reasonable manner and in good faith or will be settled at the discretion of
the Indemnified Party (with the consent of the Indemnifying Party, which
consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including any compromise
or settlement thereof; PROVIDED, HOWEVER, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying
Party in connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this clause (ii), and the Indemnifying
Party will bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability to the Indemnified Party with respect to the
Third Party Claim under SECTION 10.02 or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes its
liability to the Indemnified Party with respect to such Third Party Claim,
the Loss in the amount specified in the Claim Notice will be conclusively
deemed a liability of the Indemnifying Party under SECTION 10.02 and the
Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. In the event any payments under this Agreement are then
due by the Indemnified Party to the Indemnifying Party (whether as a direct
obligation or a joint and several obligation together with other Persons),
then the Indemnified Party may, at its election, set off amounts payable
under this ARTICLE X against such amounts as they become due. If the
Indemnifying Party has timely disputed its liability with respect to such
claim, the
<PAGE>
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, such dispute shall be resolved
by arbitration in accordance with paragraph (c) of this SECTION 10.03.
(c) In the event any Indemnified Party should have a claim under
SECTION 10.02 against any Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that an Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim described
in such Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim described in
such Indemnity Notice, the Loss in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the Indemnifying Party
under SECTION 10.02 and the Indemnifying Party shall pay the amount of such
Loss to the Indemnified Party on demand. In the event any payments under
this Agreement, including any installments payable under clauses (b), (c) OR
(d) OF SECTION 1.02, are then or thereafter due by the Indemnified Party to
the Indemnifying Party (whether as a direct obligation or a joint and several
obligation together with other Persons), then the Indemnified Party may, at
its election, set off amounts payable under this ARTICLE X against such
amounts as they become due. If the Indemnifying Party has timely disputed
its liability with respect to such claim, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with
paragraph (c) of this SECTION 10.03.
(d) Any dispute submitted to arbitration pursuant to this SECTION
10.03 shall be finally and conclusively determined by the decision of a
single arbitrator through Jams Endispute (hereinafter sometimes called the
"ARBITRATOR") selected as hereinafter provided. The arbitrator shall be
selected by Jams Endispute upon application made to it for such purpose by
the Indemnified Party. The arbitrability of any dispute, claim or
controversy shall likewise be determined in such arbitration. Such
arbitration proceeding shall be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of Jams
Endispute. The Arbitrator shall conduct its hearings in Santa Barbara,
California, and shall reach and render a decision in writing with respect to
the amount, if any, which the Indemnifying Party is required to pay to the
Indemnified Party in respect of a claim filed by the Indemnified Party. In
connection with rendering its decisions, the Arbitrator shall adopt and
follow such rules and procedures as it deems necessary or appropriate. To
the extent practical, decisions of the Arbitrator shall be rendered no more
than thirty (30) days following commencement of proceedings with respect
thereto. The Arbitrator shall cause its written decision to be delivered to
the Indemnified Party and the Indemnifying Party. Any decision made by the
Arbitrator (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the
Indemnified Party and the Indemnifying Party and entitled to be enforced to
the fullest extent permitted by law and entered in any court of competent
jurisdiction. Until any award of costs or expenses, including reasonable
attorneys' fees, by the Arbitrator, each party to any arbitration shall bear
its own expense in relation thereto, including but not limited to such
party's attorneys' fees, if any, and one-half of the expenses and fees of the
Arbitrator (which shall be a joint and several obligation of multiple
Indemnifying or Indemnified Parties, as the case may be). The parties and
the Arbitrator shall have all of the rights and duties relating to discovery
provided by Section 1283.05 of the California Code of Civil Procedure, which
is hereby made a part of this Agreement, except that the Arbitrator shall
have the right to disapprove or to limit any discovery which such Arbitrator
deems to be for purposes of delay or otherwise unnecessarily burdensome or
oppressive.
(e) The maximum amount of claims made hereunder shall not exceed
the lesser of:
<PAGE>
(i) the Purchaser's total investment in the Company (including loans or
advances), or (ii) $5,000,000, except in the case of fraud by the Sellers, in
which case there is no maximum. The maximum liability of any Seller, other
than Love, shall be the portion of the Purchase Price received by such Seller.
(f) No claim may be made more than two (2) years from the date of
the Closing.
ARTICLE XI
TERMINATION AND DEFAULT
11.01 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of
Sellers and Purchaser;
(b) at any time before the Closing, by Sellers or Purchaser, in
the event (i) of a material breach hereof by the non-terminating party if
such non-terminating party fails to cure such breach within five (5) Business
Days following notification thereof by the terminating party or (ii) upon
notification of the non-terminating party by the terminating party that the
satisfaction of any condition to the terminating party's obligations under
this Agreement becomes impossible or impracticable with the use of
commercially reasonable efforts if the failure of such condition to be
satisfied is not caused by a breach hereof by the terminating party;
(c) at any time after ninety (90) days from exercise by Sellers or
Purchaser upon notification of the non-terminating party by the terminating
party if the Closing shall not have occurred on or before such date and such
failure to consummate is not caused by a breach of this Agreement by the
terminating party; or
(d) by Purchaser if there shall have occurred (i) any general
suspension of, or limitation on prices for, trading in securities on the New
York Stock Exchange, (ii) a declaration of a banking, moratorium or any
suspension of payments in respect to banks in the United States, (iii) a
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (iv) any
limitation by federal or state authorities on the extension or credit by
lending institutions which materially and adversely affects Purchaser or (v)
in the case of any of the foregoing existing at the date of this Agreement, a
material acceleration or worsening thereof, upon notification of the
non-terminating party by the terminating party.
11.02 EFFECT OF TERMINATION.
(a) If this Agreement is validly terminated pursuant to SECTION
11.01, this Agreement will forthwith become null and void, and there will be
no liability or obligation on the part of Sellers or Purchaser (or any of
their respective officers, directors, employees, agents or other
representatives or Affiliates), except as provided in this SECTION 11.02 and
except that the provisions with respect to expenses in SECTION 13.03 and
confidentiality in SECTION 13.05 will continue to apply following any such
termination and except that the covenants contained in SECTION 4.04 will
continue to apply until thirty (30) days following such termination.
Notwithstanding any other provision in this Agreement to the contrary, upon
termination of this Agreement pursuant to SECTION 11.01(b), (c) or (d),
Sellers will remain liable to Purchaser for any breach of this Agreement by
Sellers existing at the time of such termination, and Purchaser will remain
liable to Sellers for any breach of this Agreement by Purchaser
<PAGE>
existing at the time of such termination, and Sellers or Purchaser may seek
such remedies, including damages and fees of attorneys, against the other
with respect to any such breach as are provided in this Agreement or as are
otherwise available at Law or in equity.
(b) In the event the Sellers or the Company breaches SECTION 4.04
and, within twelve (12) months after such breach, Sellers or the Company
closes a transaction relating to the acquisition of a material portion of the
Shares, the Company, its assets, securities or its business, in whole or in
part, whether through direct purchase, merger, consolidation or other
business combination (other than sales of inventory or immaterial portions of
the Company's assets in the ordinary course), then, immediately upon any such
closing, the Company and Sellers shall pay to Purchaser the sum of Two
Million Dollars ($2,000,000).
ARTICLE XII
DEFINITIONS
12.01 DEFINITIONS.
(a) DEFINED TERMS. As used in this Agreement, the following
defined terms have the meanings indicated below:
"ACQUISITION PROPOSAL" means any proposal for a merger or other
business combination to which the Company or any Subsidiary is a party or the
direct or indirect acquisition of any equity interest in, or a substantial
portion of the assets of, the Company or any Subsidiary, other than the
transactions contemplated by this Agreement.
"ACTIONS OR PROCEEDINGS" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"AFFILIATE" means any Person that directly, or indirectly through
one of more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control
of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by Contract
or otherwise and, in any event and without limitation of the previous
sentence, any Person owning ten percent (10%) or more of the voting
securities of another Person shall be deemed to control that Person.
"AGENT" means Charles S. Love appointed as agent of the Sellers
pursuant to SECTION 13.15.
"AGREEMENT" means this Stock Purchase Agreement and the Exhibits,
the Disclosure Schedule and the Schedules hereto and the certificates
delivered in accordance with SECTIONS 6.03 and 7.03, as the same shall be
amended from time to time.
"ARBITRATOR" has the meaning ascribed to it in SECTION 10.03(d).
"ASSETS AND PROPERTIES" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including cash,
cash equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
<PAGE>
"ASSOCIATE" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or
is the beneficial owner, directly or indirectly, of ten percent (10%) or more
of any class of equity securities, any trust or estate in which such Person
has a substantial beneficial interest or as to which such Person serves as a
trustee or in a similar capacity and any relative or spouse of such Person,
or any relative of such spouse, who has the same home as such Person.
"AUDITED FINANCIAL STATEMENT DATE" means the last day of the most
recent fiscal year of the Company for which Financial Statements are
delivered to Purchaser pursuant to SECTION 2.09.
"AUDITED FINANCIAL STATEMENTS" means the Financial Statements for
the most recent fiscal year of the Company delivered to Purchaser pursuant to
SECTION 2.09.
"BENEFIT PLAN" means any Plan established by the Company or any
Subsidiary, or any predecessor or Affiliate of any of the foregoing, existing
at the Closing Date or prior thereto, to which the Company or any Subsidiary
contributes or has contributed, or under which any employee, former employee
or director of the Company or any Subsidiary or any beneficiary thereof is
covered, is eligible for coverage or has benefit rights.
"BOOKS AND RECORDS" means all files, documents, instruments,
papers, books and records relating to the Business or Condition of the
Company, including financial statements, Tax Returns and related work papers
and letters from accountants, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates and books, stock
transfer ledgers, Contracts, Licenses, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental
studies and plans.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of California are authorized or obligated
to close.
"BUSINESS OR CONDITION OF THE COMPANY" means the business,
condition (financial or otherwise), results of operations, Assets and
Properties and prospects of the Company and the Subsidiaries taken as a whole.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response and
Liability Information System, as provided for by 40 C.F.R. Section 300.5.
"CLAIM NOTICE" means written notification pursuant to SECTION
10.03(a) of a Third Party Claim as to which indemnity under SECTION 10.02 is
sought by an Indemnified Party, enclosing a copy of all papers served, if
any, and specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim against the Indemnifying Party under
SECTION 10.02, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim.
"CLOSING" means the closing of the transactions contemplated by
SECTION 1.03.
"CLOSING DATE" means (a) the fifth Business Day after the day on
which the last of the consents, approvals, actions, filings, notices or
waiting periods described in or related to the filings
<PAGE>
described in SECTIONS 6.04 through 6.07 and SECTIONS 7.04 through 7.07 has
been obtained, made or given or has expired, as applicable, or (b) such other
date as Purchaser and Seller mutually agree upon in writing.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMMON STOCK" means the common stock, no par value, of the Company.
"COMPANY" has the meaning ascribed to it in the forepart of this
Agreement.
"CONTRACT" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract
(whether written or oral).
"DEFINED BENEFIT PLAN" means each Benefit Plan which is subject to
Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"DISCLOSURE SCHEDULE" means the record delivered to Purchaser by
Seller herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required
to be included therein by Seller pursuant to this Agreement.
"DISPUTE PERIOD" means the period ending ninety (90) days following
receipt by an Indemnifying Party of either a Claim Notice or an Indemnity
Notice.
"EMPLOYMENT AGREEMENTS" shall mean the employment agreements
between the Company and the Persons identified in SECTION 6.15 OF THE
DISCLOSURE SCHEDULE, in form and substance acceptable to Purchaser.
"ENVIRONMENTAL CLAIM" means, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging or asserting such Person's liability
for investigatory costs, cleanup costs, Governmental or Regulatory Authority
response costs, damages to natural resources or other property, personal
injuries, fines or penalties arising out of, based on or resulting from (a)
the presence, or Release into the environment, of any Hazardous Material at
any location, whether or not owned by such Person, or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law. The term "Environmental Claim" shall include any claim by
any Governmental or Regulatory Authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from the presence of Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" means any Law or Order relating to the
regulation or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment (including ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
<PAGE>
"ERISA AFFILIATE" means any Person who is in the same controlled
group of corporations or who is under common control with Seller or, before
the Closing, the Company or any Subsidiary (within the meaning of Section 414
of the Code).
"ESTOPPEL CERTIFICATE" means the written certification, issued not
more than twenty (20) days prior to the Closing Date by a lessor, sublessor
or other party to a lease or occupancy agreement, stating (a) that such lease
or occupancy agreement is (i) in full force and effect and (ii) has not been
modified or amended except as described therein, (b) the date to which rental
has been paid, (c) that no default or event of default exists thereunder and
(d) that to the best of the knowledge of the issuer thereof, no event has
occurred which, with the giving of notice or lapse of time or both, would be
a default or event of default thereunder.
"FINANCIAL STATEMENTS" means the consolidated financial statements
of the Company and its consolidated Subsidiaries delivered to Purchaser
pursuant to SECTION 2.09 or 4.06.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior
comparable period.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality
of the United States, any foreign country or any domestic or foreign state,
county, city or other political subdivision.
"HAZARDOUS MATERIAL" means (A) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants" or words of similar import under any
Environmental Law; and (C) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated by any
Governmental or Regulatory Authority under any Environmental Law.
"HSR ACT" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the
rules and regulations promulgated thereunder.
"INDEBTEDNESS" of any Person means all obligations of such Person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (iv) under capital leases and (v) in the nature of guarantees of
the obligations described in clauses (i) through (iv) above of any other
Person.
"INDEMNIFIED PARTY" means any Person claiming indemnification under
any provision of ARTICLE X, including a Person asserting a claim pursuant to
paragraph (c) of SECTION 10.03.
"INDEMNIFYING PARTY" means any Person against whom a claim for
indemnification is being asserted under any provision of ARTICLE X, including
a Person against whom a claim is asserted pursuant to paragraph (c) of
SECTION 10.03.
"INDEMNITY NOTICE" means written notification pursuant to SECTION
10.03(b) of a claim for indemnity under ARTICLE X by an Indemnified Party,
specifying the nature of and basis for such claim,
<PAGE>
together with the amount or, if not then reasonably ascertainable, the
estimated amount, determined in good faith, of such claim.
"INTELLECTUAL PROPERTY" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights,
trade dress, business and product names, logos, slogans, trade secrets,
industrial models, processes, designs, methodologies, computer programs
(including all source codes) and related documentation, technical
information, manufacturing, engineering and technical drawings, know-how and
all pending applications for and registrations of patents, trademarks,
service marks and copyrights.
"INVESTMENT ASSETS" means all debentures, notes and other evidences
of Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities), interests
in joint ventures and general and limited partnerships, mortgage loans and
other investment or portfolio assets owned of record or beneficially by the
Company or any Subsidiary and issued by any Person other than the Company or
any Subsidiary (other than trade receivables generated in the ordinary course
of business of the Company and the Subsidiaries).
"IRS" means the United States Internal Revenue Service.
"LAWS" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision or of any Governmental or Regulatory Authority.
"LIABILITIES" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"LICENSES" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"LIENS" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"LOSS" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including interest, court costs, fees of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment).
"NPL" means the National Priorities List under CERCLA.
"OPERATIVE AGREEMENTS" means the Option Agreement, the Investment
Agreement, the Employment Agreements and any support or other agreements to
be entered into in connection with the transaction.
"OPTION" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares
of capital stock of such Person or any security of any kind convertible into
or exchangeable or exercisable for any shares of capital stock of such Person
or (ii) receive or exercise any benefits or rights similar to any rights
enjoyed by or accruing to the holder of shares of capital stock of such
Person, including any rights to participate in the equity or income of such
Person or to participate in
<PAGE>
or direct the election of any directors or officers of such Person or the
manner in which any shares of capital stock of such Person are voted.
"ORDER" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
"PENSION BENEFIT PLAN" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
"PERMITTED LIEN" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation of
Law with respect to a Liability that is not yet due or delinquent and (iii)
any minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of
the business of the Company or any Subsidiary.
"PERSON" means any natural person, corporation, limited liability
company, general partnership, limited partnership, proprietorship, other
business organization, trust, union, association or Governmental or
Regulatory Authority.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workmen's compensation or other
insurance, severance, separation or other employee benefit plan, practice,
policy or arrangement of any kind, whether written or oral, including, but
not limited to, any "employee benefit plan" within the meaning of Section
3(3) of ERISA.
"PURCHASE PRICE" has the meaning ascribed to it in SECTION 1.02.
"PURCHASER" has the meaning ascribed to it in the forepart of this
Agreement.
"PURCHASER INDEMNIFIED PARTIES" means Purchaser and its officers,
directors, employees, agents and Affiliates.
"QUALIFIED PLAN" means each Benefit Plan which is intended to
qualify under Section 401 of the Code.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the indoor or outdoor environment, including the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata.
"REPRESENTATIVES" has the meaning ascribed to it in SECTION 4.03
and shall apply to both Purchaser's Representatives and Sellers'
Representatives.
"RESOLUTION PERIOD" means the period ending thirty (30) days
following receipt by an Indemnified Party of a written notice from an
Indemnifying Party stating that it disputes all or any portion of a claim set
forth in a Claim Notice or an Indemnity Notice.
<PAGE>
"SELLER" and "SELLERS" have the meanings ascribed to such terms in
the forepart of this Agreement.
"SELLER INDEMNIFIED PARTIES" means each Seller and its officers,
directors, trustees, employees, agents and Affiliates.
"SHARES" has the meaning ascribed to it in the forepart of this
Agreement.
"SUBJECT DEFINED BENEFIT PLAN" means each Defined Benefit Plan
listed and described in SECTION 2.15(a) OF THE DISCLOSURE SCHEDULE.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than
fifty percent (50%) of either the equity interests in, or the voting control
of, such Person.
"TAX" means any foreign, federal, state, county or local income,
gross receipt, capital stock, production, business and occupation, net
proceeds, alternative or add on minimum, ad valorem, value added, turnover,
sales, use, real property, personal property (tangible and intangible),
stamp, leasing, excise, duty, disability, franchise, transfer, license,
withholding, payroll, severance, employment, fuel, excess profits,
environmental, occupational, interest equalization, windfall profits and
severance taxes, and all other like governmental charges and any
deficiencies, penalties, assessments and interest thereon.
"TAX RETURNS" means any foreign, federal, state, county or local
tax report, form, return, information return or other related document
required to be filed by any relevant Tax authority.
"THIRD PARTY CLAIM" has the meaning ascribed to it in SECTION
10.03(a).
"UNAUDITED FINANCIAL STATEMENT DATE" means the last day of the most
recent fiscal quarter of the Company for which Financial Statements are
delivered to Purchaser pursuant to SECTION 2.09.
"UNAUDITED FINANCIAL STATEMENTS" means the Financial Statements for
the most recent fiscal quarter of the Company delivered to Purchaser pursuant
to SECTION 2.09.
(b) CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context
of this Agreement otherwise requires, (i) words of any gender include each
other gender; (ii) words using the singular or plural number also include the
plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; (iv)
references to Articles, Sections (or subdivisions of Sections), Exhibits,
Annexes or Schedules are to this Agreement; and (v) the phrases "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the business and practice of the Company or a Subsidiary;
(vi) references to agreements and other contractual instruments shall be
deemed to include all subsequent amendments, extensions and other modifications
to such instruments (without, however, limiting any prohibition on any such
amendments, extensions and other modifications by the terms of this Agreement);
(vii) references to statutes or regulations are to be construed as including
all statutory or regulatory provisions consolidating, amending or replacing the
statute or regulation referred to; (viii) references to "writing" include
printing, typing, lithography and other means of reproducing words in a tangible
visible form; (ix) the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation"; and (x) references to
Persons include their respective
<PAGE>
permitted successors and assigns and, in the case of Governmental or
Regulatory Authorities, Governmental or Regulatory Authorities succeeding to
their respective functions and capacities. Whenever this Agreement refers to
a number of days, such number shall refer to calendar days unless Business
Days are specified. All accounting terms used herein and not expressly
defined herein shall have the meanings given to them under GAAP.
ARTICLE XIII
MISCELLANEOUS
13.01 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only
if delivered personally or by facsimile transmission or mailed (first class
postage prepaid) to the parties at the following addresses or facsimile
numbers:
If to Purchaser, to:
PDT Cardiovascular, Inc.
7408 Hollister Avenue
Goleta, CA 93117
Facsimile No.: 805-685-6038
Attention: Gary S. Kledzik, Ph.D.
with a copy to:
Nida & Maloney
801 Garden Street, Suite 201
Santa Barbara, CA 93101
Facsimile No.: 805-568-1955
Attention: Joseph E. Nida, Esq.
If to any Seller:
Ramus Medical Technologies
6420 Via Real, Unit 8
Carpinteria, CA 93013
Facsimile No.: 805-684-7276
Attention: Charles S. Love, President
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Facsimile No.: 714-725-4100
Attention: Michael E. Flynn
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt
<PAGE>
(in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice,
request or other communication is to be delivered pursuant to this Section).
Any party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto; PROVIDED, HOWEVER, that in
no event shall Sellers have more than one address or facsimile number for the
purpose of notices to any or all Sellers.
13.02 ENTIRE AGREEMENT. This Agreement and the Operative
Agreements supersede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof, including the Letter
of Intent, and contain the sole and entire agreement between the parties
hereto with respect to the subject matter hereof and thereof.
13.03 EXPENSES. Except as otherwise expressly provided in this
Agreement (including as provided in SECTION 11.02), if the transactions
contemplated hereby are consummated, each party will pay its own costs and
expenses, and the Company shall pay the costs and expenses of the Company and
the Subsidiaries, incurred in connection with the negotiation, execution and
closing of this Agreement, the Operative Agreements and the transactions
contemplated hereby and thereby.
13.04 PUBLIC ANNOUNCEMENTS. At all times at or before the
Closing, Sellers will not issue or make any reports, statements or releases
to the public or generally to the employees, customers, suppliers or other
Persons to whom the Company and the Subsidiaries sell goods or provide
services or with whom the Company and the Subsidiaries otherwise have
significant business relationships with respect to this Agreement or the
transactions contemplated hereby without the consent of Purchaser, which
consent shall not be unreasonably withheld. Sellers and Purchaser will
obtain the other party's prior approval of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
13.05 CONFIDENTIALITY. Each party hereto will hold, and will use
its best efforts to cause its Affiliates, and in the case of Purchaser, any
Person who has provided, or who is considering providing, financing to
Purchaser to finance all or any portion of the Purchase Price, and their
respective Representatives to hold, in strict confidence from any Person
(other than any such Affiliate, Person who has provided, or who is
considering providing, financing or Representative), unless (i) compelled to
disclose by judicial or administrative process (including in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law or (ii) disclosed in an Action or Proceeding brought by a
party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, all documents and information concerning the other party or any of
its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information
can be shown to have been (a) previously known by the party receiving such
documents or information, (b) in the public domain (either prior to or after
the furnishing of such documents or information hereunder) through no fault
of such receiving party or (c) later acquired by the receiving party from
another source if the receiving party is not aware that such source is under
an obligation to another party hereto to keep such documents and information
confidential; PROVIDED that following the Closing the foregoing restrictions
will not apply to Purchaser's use of documents and information concerning the
Company and the Subsidiaries furnished by Seller hereunder. In the event the
transactions contemplated hereby are not consummated, upon the request of the
other party, each party hereto will, and will cause its Affiliates, any
Person who has provided, or who is considering providing, financing to such
party and their respective Representatives to, promptly (and in no event
later than five (5) Business Days after such request) redeliver or cause to
be redelivered all copies of documents and information furnished by the other
party in connection with this Agreement or the transactions contemplated
hereby and destroy or cause to be destroyed all notes, memoranda,
<PAGE>
summaries, analyses, compilations and other writings related thereto or based
thereon prepared by the party furnished such documents and information or its
Representatives.
13.06 FURTHER ASSURANCES; POST-CLOSING COOPERATION.
(a) At any time or from time to time after the Closing, Sellers
shall execute and deliver to Purchaser such other documents and instruments,
provide such materials and information and take such other actions as
Purchaser may reasonably request more effectively to vest title to the Shares
in Purchaser and, to the full extent permitted by Law, to put Purchaser in
actual possession and operating control of the Company and the Subsidiaries
and their Assets and Properties and Books and Records, and otherwise to cause
Seller to fulfill its obligations under this Agreement and the Operative
Agreements to which they are a party.
(b) Following the Closing, each party will afford the other party,
its counsel and its accountants, during normal business hours, reasonable
access to the books, records and other data relating to the Business or
Condition of the Company in its possession with respect to periods prior to
the Closing and the right to make copies and extracts therefrom, to the
extent that such access may be reasonably required by the requesting party in
connection with (i) the preparation of Tax Returns, (ii) the determination or
enforcement of rights and obligations under this Agreement, (iii) compliance
with the requirements of any Governmental or Regulatory Authority, (iv) the
determination or enforcement of the rights and obligations of any Indemnified
Party or (v) in connection with any actual or threatened Action or
Proceeding. Further, each party agrees for a period extending six (6) years
after the Closing Date not to destroy or otherwise dispose of any such books,
records and other data unless such party shall first offer in writing to
surrender such books, records and other data to the other party and such
other party shall not agree in writing to take possession thereof during the
ten (10) day period after such offer is made.
(c) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations
hereunder, it is necessary that a party be furnished with additional
information, documents or records relating to the Business or Condition of
the Company not referred to in paragraph (b) above, and such information,
documents or records are in the possession or control of the other party,
such other party shall use its best efforts to furnish or make available such
information, documents or records (or copies thereof) at the recipient's
request, cost and expense. Any information obtained by Sellers in accordance
with this paragraph shall be held confidential by Sellers in accordance with
SECTION 13.05.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in
accordance with any provision of this Section shall be subject to applicable
rules relating to discovery.
13.07 WAIVER. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party waiving such term or condition.
No waiver by any party of any term or condition of this Agreement, in any one
or more instances, shall be deemed to be or construed as a waiver of the same
or any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by Law or otherwise afforded, will
be cumulative and not alternative.
<PAGE>
13.08 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
13.09 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under ARTICLE X.
13.10 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party
hereto without the prior written consent of the other party hereto and any
attempt to do so will be void, except (a) for assignments and transfers by
operation of Law and (b) that Purchaser may assign any or all of its rights,
interests and obligations hereunder (including its rights under ARTICLE X) to
(i) a wholly-owned subsidiary, provided that any such subsidiary agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein or (ii) any financial institution providing purchase money or other
financing to Purchaser or the Company from time to time as collateral security
for such financing, but no such assignment referred to in clause (ii) shall
relieve Purchaser of its obligations hereunder. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
13.11 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
13.12 ARBITRATION. Subject to and without limitation on SECTION
10.03 hereof, in the event of any dispute, claim or controversy between the
parties arising out of or relating to this Agreement or any of the documents
executed pursuant to this Agreement, whether in contract, tort, equity or
otherwise, and whether relating to the meaning, interpretation, effect,
validity, performance or enforcement of this Agreement or any of the documents
executed pursuant to this Agreement, such dispute, claim or controversy shall
be resolved by and through an arbitration proceeding before a single
arbitrator to be conducted under the auspices and the commercial arbitration
rules (formal or informal) of ___________ (or any like organization successor
thereto) at Santa Barbara, California. The arbitrability of such dispute,
claim or controversy shall likewise be determined in such arbitration. Such
arbitration proceeding shall be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of
_____________. Both the foregoing agreement of the parties to arbitrate any
and all such disputes, claims and controversies, and the results,
determinations, findings, judgments and/or awards rendered through any such
arbitration shall be final and binding on the parties hereto and may be
specifically enforced by legal proceedings. Subject to and without limitation
on SECTION 10.03 hereof, such arbitration may be initiated by written notice
from either party to the other setting forth a demand for arbitration and
detailing with specificity the nature of the dispute, claim or controversy to
be arbitrated. Time is of the essence of this arbitration procedure, and the
arbitrator shall be instructed and required to render its decision within ten
(10) days following completion of the arbitration. The parties and arbitrator
shall have all of the rights and duties relating to discovery provided by
Section 1283.05 of the California Code of Civil Procedure, which is hereby
made a part of this Agreement, except that the arbitrator shall have the right
to disapprove or to limit any discovery which such arbitrator deems to be for
purposes of delay or otherwise unnecessarily burdensome or oppressive.
13.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Each Seller
hereby irrevocably appoints its lawful agent and attorney-in-fact to accept
and acknowledge service of any and all process against it in any action, suit
or proceeding arising out of or relating to this Agreement or any of the
Operative Agreements or any of the transactions contemplated hereby or thereby
and upon whom such
<PAGE>
process may be served, with the same effect as if such party were a resident
of the State of California and had been lawfully served with such process in
such jurisdiction, and waives all claims of error by reason of such service,
PROVIDED that in the case of any service upon such agent and attorney-in-fact,
the party effecting such service shall also deliver a copy thereof to the
other party at the address and in the manner specified in SECTION 13.01. Each
Seller will enter into such agreements with such agent as may be necessary to
constitute and continue the appointment of such agent hereunder. In the event
that such agent and attorney-in-fact resigns or otherwise becomes incapable of
acting as such, such party will appoint a successor agent and attorney-in-fact
in Santa Barbara, California, reasonably satisfactory to Purchaser, with like
powers. Each party hereby irrevocably submits to the exclusive jurisdiction
of the United States District Court for the Central District of California or
any court of the State of California located in the City of Santa Barbara,
County of Santa Barbara, in any action, suit or proceeding arising out of or
relating to this Agreement or any of the Operative Agreements or any of the
transactions contemplated hereby or thereby, and agrees that any such action,
suit or proceeding shall be brought only in such court, PROVIDED, HOWEVER,
that such consent to jurisdiction is solely for the purpose referred to in
this SECTION 13.13 and shall not be deemed to be a general submission to the
jurisdiction of said courts or in the State of California other than for such
purpose and PROVIDED FURTHER, that such consent to jurisdiction and agreement
shall not limit the parties' agreement to arbitrate disputes under this
Agreement pursuant to SECTIONS 10.03 OR 13.12. Each party hereby irrevocably
waives, to the fullest extent permitted by Law, any objection that it may now
or hereafter have to the laying of the venue of any such action, suit or
proceeding brought in such a court and any claim that any such action, suit or
proceeding brought in such a court has been brought in an inconvenient forum.
Nothing herein shall affect the right of any party to serve process in any
other manner permitted by Law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction.
13.14 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a
part of this Agreement a legal, valid and enforceable provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible.
13.15 AGENT. Each Seller hereby irrevocably appoints and
authorizes the Agent to act as its agent under this Agreement and the other
Operative Documents with such powers as are specifically delegated to the
Agent by the terms of the Operative Documents, together with such other powers
as are reasonably incidental to such powers. Purchaser shall be entitled to
rely upon any certification, notice or other communication (including any made
by telephone, telecopy, telex, telegram or cable) made by Agent and believed
by Purchaser to be genuine and correct and to have been signed or sent by or
on behalf of Sellers. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or under any
Operative Document in accordance with instructions given by Sellers holding a
majority of the Shares on the date hereof, and such instructions of such
Sellers and any action taken or failure to act pursuant to such instructions
shall be binding on all of the Sellers.
13.16 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Law of the State of California applicable to
a Contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
13.17 COUNTERPARTS. This Agreement may be executed in any number
of counterparts,
<PAGE>
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
13.18 SIGNATURES. The signatures by a party constituting one of
the Sellers in their capacity as a trustee or a corporate officer will also
constitute the obligation of such party as an individual.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
SELLERS:
SHAREHOLDERS OF
RAMUS MEDICAL TECHNOLOGIES
Signatures on Schedule 1
PURCHASER
PURCHASER CARDIOVASCULAR, INC.,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
<PAGE>
EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B - Officer's Certificate of Sellers
Exhibit C - Opinion of Counsel to Sellers and Company
Exhibit D - Special Procedures Report
Exhibit E - Officer's Certificate of Purchaser
Exhibit F - Secretary's Certificate of Purchaser
Exhibit G - Opinion of Counsel to Purchaser
SCHEDULES
Schedule 1- List of Sellers
<PAGE>
SCHEDULE 1
TO STOCK PURCHASE AGREEMENT
List of Sellers
SHAREHOLDER NUMBER OF SHARES SIGNATURE
- ------------------------------------ ---------
<PAGE>
EXHIBIT B
Joinder Agreement
The undersigned option holder or Shareholder of Ramus Medical
Technologies, a California corporation ("Ramus"), irrevocably and
unconditionally agrees to be bound by the terms of that certain Option
Agreement between Ramus, Charles S. Love, ***** and PDT Cardiovascular, Inc.
Date:
----------------- ------------------------------
Signature
Name (Typed or Printed):
------------------------------
*****Confidential Treatment Requested
<PAGE>
SCHEDULE 1
List of Shareholders of Ramus
Charles S. Love
*****
*****Confidential Treatment Requested
<PAGE>
EXHIBIT 10.20
December 16, 1996
Re: Development and License Agreement between Pharmacia S.p.A.
("Pharmacia") and PDT, Inc. ("PDTI") dated July 1st, 1995, as amended July
25, 1995, September 11, 1995, March 20, 1996, July 10, 1996 and August 12,
1996 ("License Agreement") and the Product Supply Agreement dated July 1,
1995, amended September 11, 1995 and March 20, 1996 ("Product Supply
Agreement")
Pharmacia and PDTI have amended the License Agreement to include the field of
Ophthalmology, and now wish to amend the Product Supply Agreement with respect
to the field of Ophthalmology.
Pharmacia and PDTI agree to amend the Product Supply Agreement according to the
following terms and conditions:
1. WHEREAS CLAUSE. The third WHEREAS clause on page 1 shall be deleted and
replaced by:
"WHEREAS, PDTI and Pharmacia have entered into a Development and License
Agreement, dated July 1, 1995, as amended (hereinafter "License"), wherein
Pharmacia acquired exclusive rights to develop, use and sell photoreactive
tin ethyl etiopurpurin for treatment and diagnosis in the fields of
oncology, urology, dermatology and ophthalmology; and
WHEREAS, Pharmacia has sublicensed its license rights in the field of
Ophthalmology to its affiliate, Pharmacia & Upjohn AB ("P&U AB"), whereby,
in respect to such Field, such affiliate shall make all royalty and other
payments, exercise all rights and perform all obligations directly to PDT;
and"
2. SNET2 CONCENTRATION. Consistent with a prior amendment made to the License,
the references to ***** mg of SnET2 per ***** ml of emulsion" in Sections 3.05
and 3.06 shall be changed to "***** mg of SnET2 per ***** ml of emulsion."
3. *****
4. P&U AB AS SUBLICENSEE. The following new Section 15.10 shall be added:
15.10 SUPPLY TO P&U AB. Pharmacia intends to sublicense its
rights in the field of Ophthalmology to its Affiliate, P&U AB. In respect
to such field, the parties intend for such Affiliate to order all Product,
make all Transfer Price and other payments, exercise all rights and perform
all obligations under this Agreement directly to PDT.
*****Confidential Treatment Requested
<PAGE>
In all other respects, the Product Supply Agreement is hereby ratified,
confirmed, and approved.
IN WITNESS WHEREOF, the parties hereto have caused this Product Supply
Agreement to be executed in duplicate by their respective officers duly
authorized as of the date first above written.
PDT, INC.
By /s/ David E. Mai
-------------------------------
Name: David E. Mai
Title: President
PHARMACIA & UPJOHN S.p.A.
By /s/ Lamberto Andreotti
-------------------------------
Name: Lamberto Andreotti
Title: Managing Director
PHARMACIA & UPJOHN AB
By /s/ Goran Petterson By /s/ Mats Lidgard
------------------------------- -------------------------------
Name: Goran Petterson Name: Mats Lidgard
Title: VP Ophthalmology Title: VP Legal Affairs
<PAGE>
EXHIBIT 10.21
SNET2 DEVICE SUPPLY AGREEMENT
FOR
OPHTHALMOLOGY
BETWEEN
PDT, INC.
AND
PHARMACIA & UPJOHN AB
<PAGE>
SNET2 OPHTHALMOLOGY DEVICE SUPPLY AGREEMENT
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS 2
ARTICLE II- GENERAL 4
ARTICLE III- DEVELOPMENT AND TESTING 5
ARTICLE IV- COMMERCIAL SUPPLY 7
ARTICLE V- DUTIES OF THE PARTIES 10
ARTICLE VI- PAYMENTS AND ACCOUNTING 11
ARTICLE VII- REGULATORY RESPONSIBILITIES 12
ARTICLE VIII- PATENTS 13
ARTICLE IX- PUBLICATIONS AND CONFIDENTIALITY 15
ARTICLE X- WARRANTIES OF PDTI 16
ARTICLE XI- WARRANTIES OF P&U 17
ARTICLE XII- MUTUAL WARRANTIES 17
ARTICLE XIII- TERM & TERMINATION 18
ARTICLE XIV- INDEMNIFICATION 19
ARTICLE XV- MISCELLANEOUS 21
ARTICLE XVI- BINDING EFFECT: ASSIGNMENT 25
ARTICLE XVII- RESOLUTION OF DISPUTES 25
<PAGE>
SNET2 OPHTHALMOLOGY DEVICE SUPPLY AGREEMENT
THIS SNET2 OPHTHALMOLOGY LIGHT DEVICE SUPPLY AGREEMENT
("Agreement") entered into this 20th day of December, 1996, between PDT, Inc.,
with corporate offices at 7408 Hollister Avenue, Santa Barbara, California 93117
(hereinafter referred to as "PDTI") and Pharmacia & Upjohn AB, a company
organized and existing under the laws of Sweden, with head offices at
Lindhagensgatan 133, S-112 87 Stockholm, Sweden (hereinafter referred to as
"P&U").
WHEREAS, PDTI is a pharmaceutical and medical device company which, using
its proprietary technology and know-how, has developed and will continue to
develop, on its own or in collaboration with third party vendors, photoreactive
drugs and related light devices for use in photodynamic therapy;
WHEREAS, P&U is a pharmaceutical company doing research, development and
marketing of pharmaceutical products;
WHEREAS, PDTI and Pharmacia & Upjohn S.p.A. have signed a Development and
License Agreement, dated July 1, 1995, as amended (hereinafter "License
Agreement"), wherein PDTI licensed to P&U one of PDTI's proprietary drug
products for use in photodynamic therapy;
WHEREAS, Pharmacia & Upjohn S.p.A. has sublicensed its license rights in
the Field of Ophthalmology to its affiliate, P&U, whereby, in respect to such
Field, such affiliate shall make all royalty and other payments, exercise all
rights and perform all obligations directly to PDTI;
WHEREAS, PDTI already has one or more collaborative arrangements with other
companies for the development, manufacturing, and/or distribution of devices for
Photodynamic Therapy and will continue to seek additional such arrangements in
the future;
WHEREAS, PDTI and P&U wish to enter into an agreement for the supply of
light devices in support of the License Agreement.
NOW, THEREFORE, in consideration of the above premises and the covenants
exchanged herein, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.01 ACT. The term "Act" shall mean the Food, Drug & Cosmetic Act (21
U.S.C. Section 301, et seq.), as such shall be amended from time to time, and
regulations promulgated thereunder.
<PAGE>
1.02 AFFILIATE. The term "Affiliate" shall mean, with respect to any
specified party, any company that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
party specified. For purposes of this definition, "Control," including with
correlative meanings, the terms "controlled by" and "under common control with,"
means ownership, directly or indirectly, of more than fifty percent (50%) of the
equity capital having the right to vote for election of directors (or in the
case of an entity other than a corporation, the equivalent management
authority).
1.03 CLINICAL TESTS. The term "Clinical Tests" shall mean any tests
performed on humans in preparation and support of regulatory submissions.
1.04 EFFECTIVE DATE. The "Effective Date" of this Agreement shall be the
date first written hereinabove.
1.05 FDA. The term "FDA" shall mean the United States Food and Drug
Administration or any successor agency having the administrative authority to
regulate the approval for testing or marketing of human pharmaceutical,
biological, medical or medical device products in the United States (or, where
appropriate, the equivalent governmental authority in any other country).
1.06 FIELD. The term "Field" shall mean any application for Photodynamic
Therapy in Ophthalmology.
1.07 GCP. The term "GCP" shall mean the applicable current good clinical
practices promulgated from time to time by the FDA in accordance with the Act,
and which may be amended from time to time (or the equivalent in any other
country).
1.08 GLP. The term "GLP" shall mean the applicable current good laboratory
practices promulgated from time to time by the FDA in accordance with the Act,
and which may be amended from time to time (or the equivalent in any other
country).
1.09 GMP. The term "GMP" shall mean the applicable current good
manufacturing practices promulgated from time to time by the FDA in accordance
with the Act, and which may be amended from time to time (or the equivalent in
any other country).
1.10 IDE. The term "IDE" shall mean an "investigational device exemption"
application or any other application submitted to the FDA for the purpose of
conducting Clinical Tests of a device, and any supplement or abbreviated
application thereof (or the equivalent in any other country).
<PAGE>
1.11 IND. The term "IND" shall mean an "investigational new drug"
application or any other application submitted to the FDA in accordance with the
Act for the purpose of conducting Clinical Tests of a drug, and any supplement
or abbreviated application thereof (or the equivalent in any other country).
1.12 KNOW-HOW. The term "Know-How" shall mean all inventions (whether or
not patentable), trade secrets, technical and other information and data,
including, without limitation, apparatus; compositions; processes; controls;
systems (including QA systems) and procedures; reports; operating, test and
performance data; and process, mechanical, material and product specifications.
1.13 NDA. The term "NDA" shall mean a New Drug Application or other
premarket approval application for a Photodynamic Therapy drug, (and, in
countries requiring a single application, SnET2 Light Devices) and any
supplement or abbreviated application relating thereto, submitted to the FDA (or
the equivalent in any other country).
1.14 PATENTS. The term "Patents" shall mean all United States and foreign
patents, including improvement patents, patents of addition, patents of
importation, certificates of invention, utility model and design patents, method
patents, and all reissues, renewals and extensions thereof; and all United
States and foreign patent applications, including original, divisional,
continuation and continuation-in-part applications pending before any patent
office.
1.15 PDTI TECHNOLOGY. The term "PDTI Technology" shall mean all Patents and
Know-How owned or licensed by PDTI or any of its Affiliates, including any
Patents or Know-How licensed by PDTI from a third party.
1.16 PHOTODYNAMIC THERAPY. The term "Photodynamic Therapy" shall mean the
technique of diagnosis and/or treatment of abnormal or normal biological or
medical conditions, either in-vivo or ex-vivo, through the use of drugs
activated by any type of electromagnetic radiation or magnetic field.
1.17 PMA. The term "PMA" shall mean a Pre-Market Approval Application,
510(k) Application or any other application for regulatory approval of SnET2
Light Devices, and any supplement or abbreviated application relating thereto,
submitted to the FDA (or the equivalent in any other country).
1.18 PRECLINICAL TESTS. The term "Preclinical Tests" shall mean any
nonhuman tests performed in preparation and support of a regulatory submission
or product development.
1.19 SNET2. The term "SnET2" shall mean pharmaceutical products for
Photodynamic Therapy
<PAGE>
containing the drug designated by PDT as tin ethyl etiopurpurin as licensed by
PDTI to P&U under the terms of the License Agreement.
1.20 SNET2 LIGHT DEVICES. The term "SnET2 Light Devices" shall mean the
instruments developed, manufactured, or licensed by PDTI (by itself or in
collaboration with a third party) that produce, deliver or measure light for use
with SnET2 in Photodynamic Therapy in the Field, including but not limited to
light sources, light delivery devices, light dosimetry devices and light device.
ARTICLE II - GENERAL
2.01 ACCESS TO SNET2 DEVICES.
The parties mutually acknowledge that an essential feature of the
development of SnET2 for marketing by P&U under the License Agreement, is access
by P&U to SnET2 Light Devices. PDTI agrees that it shall undertake all necessary
action, including collaborating with third parties, to enable P&U to access high
quality and competitively priced SnET2 Light Devices and to insure that P&U has
continued access to SnET2 Light Devices during the term of the License
Agreement.
2.02 APPOINTMENT OF P&U AS DISTRIBUTOR.
Unless otherwise agreed to in writing by the parties and subject to the
terms of this Agreement, PDTI hereby appoints P&U as worldwide distributor of
SnET2 Light Devices for use in the Field. P&U's rights to distribute and sell
SnET2 Light Devices shall be exclusive, except that, after due consultation with
P&U, PDTI may, from time to time, grant co-exclusive rights to one or more third
parties to manufacture and distribute particular SnET2 Light Devices which were
co-developed with PDTI (a "Light Device Provider"). Moreover, PDTI may appoint
from time to time a Light Device Provider to act as the exclusive distributor of
such a co-developed SnET2 Light Device, subject to P&U's approval, which shall
not be withheld unreasonably. P&U hereby consents to the grant of exclusive
distributions rights of a SnET2 Light Device to Iridex Corporation. The terms of
any agreement with a Light Device Provider shall not be inconsistent with the
terms of this Agreement.
2.03 RIGHT TO APPOINT SUBDISTRIBUTORS.
P&U may appoint one or more third parties to subdistribute SnET2 Light
Devices (other than devices to be distributed by the Light Device Provider),
provided, however, (i) P&U must notify PDTI,
<PAGE>
in writing, of any such subdistributor at least thirty (30) days in advance;
(ii) P&U remains responsible to PDTI for all contractual obligations of the
subdistributor including, but not limited to, keeping of records, reporting of
sales and payment of invoices, and (iii) any subdistributor agrees to be bound
by the terms of this Agreement to the extent agreed to by P&U.
2.04 OWNERSHIP OF SNET2 LIGHT DEVICES & PDTI TECHNOLOGY.
PDTI shall retain the entire right, title and interest in all SnET2 Light
Devices and PDTI Technology, and nothing in this Agreement shall give P&U any
ownership rights in or to any SnET2 Light Devices or PDTI Technology.
ARTICLE III - DEVELOPMENT AND TESTING
3.01 DEVELOPMENT AND TESTING OF SNET2 LIGHT DEVICES.
Further research and development and Preclinical and Clinical Tests of
SnET2 Light Devices shall be conducted and funded as provided for in the License
Agreement. PDTI and P&U shall share equally (after taking into account any costs
shared with a Light Device Provider) the costs of SnET2 Light Devices required
to conduct Clinical Tests. Such costs shall not include any profit or corporate
overhead allocations.
3.02 REGULATORY SUBMISSION.
PDTI shall be responsible for preparing and filing in its own name any IDE
or IND which may be necessary for conducting Clinical Tests of SnET2 Light
Devices. PDTI shall be responsible for preparing and submitting PMAs or other
regulatory submissions for SnET2 Light Devices;, except in those countries where
PMAs are not independent from an NDA for SnET2, in which case P&U shall have
primary responsibility for the submission. All regulatory submissions for SnET2
Light Devices shall be filed in the name of, and shall remain the sole and
exclusive property of PDTI, except in such countries which require that
regulatory approvals be held by the distributor in such country. Each party
shall provide the other with copies of all regulatory submissions. If any
information is submitted to the FDA directly by the Light Device Provider or
other third party, P&U shall be granted rights of reference or other rights to
such submissions adequate for it to comply with all regulatory requirements. P&U
shall be responsible for, and PDTI shall cooperate with, securing government or
private price approvals and
<PAGE>
reimbursement qualifications in preparation for product launch of SnET2 Light
Devices (other than SnET2 Light Sources).
ARTICLE IV - COMMERCIAL SUPPLY
4.01 MANUFACTURE OF SNET2 LIGHT DEVICES.
PDTI shall have the exclusive right to manufacture or have manufactured
SnET2 Light Devices. If PDTI determines, after due consultation with P&U, not to
manufacture or have manufactured a certain SnET2 Light Device, PDTI hereby
agrees to transfer to P&U the non-exclusive right to manufacture or have
manufactured that SnET2 Light Device on its own and for its own behalf. In such
an event, PDTI shall continue to supply the SnET2 Light Device to P&U for a
period of twelve (12) months or until P&U determines it is able to supply the
SnET2 Light Device, whichever is sooner. Unless mutually agreed to in writing by
the parties, in the event PDTI cannot supply, or have supplied by one or more
third parties, any quantity of a certain SnET2 Light Device to P&U for a period
of three (3) months or longer, beyond the shipping date of any order, P&U shall
immediately have the right under PDTI Technology to manufacture, or have
manufactured by one or more third parties or by P&U itself the SnET2 Light
Device, and PDTI shall have no further obligation related to that SnET2 Light
Device under this Agreement.
4.02 SNET2 LIGHT DEVICES.
Except for SnET2 Light Devices distributed directly by a Light Device
Provider, P&U shall purchase all of its requirements of SnET2 Light Devices for
commercial distribution from PDTI. PDTI shall sell such SnET2 Light Devices to
P&U at transfer prices as described in Schedule 4.02 hereto, or at such other
transfer prices as the parties may subsequently agree to in writing.
4.03 LABELING OF SNET2 LIGHT DEVICES.
All SnET2 Light Devices, whether sold by P&U or a Light Device Provider,
shall be labelled as follows: (a) each SnET2 Light Device shall contain, in
addition to any trademark of PDTI or a Light Device Provider, such trademark as
P&U shall designate, which shall be consistent with the trademark it
<PAGE>
uses for SnET2; and (b) each SnET2 Light Device shall be identified as for use
only with SnET2.
4.04 INITIAL FORECAST REQUIREMENTS.
At least six (6) months prior to any anticipated FDA approval of SnET2
Light Devices, P&U shall provide to PDTI a written forecast of its requirements
for SnET2 Light Devices for the period extending from that forecast date through
the first full quarter following such FDA approval. This is the "Initial
Forecast" for SnET2 Light Device requirements. The SnET2 Light Devices shown in
the Initial Forecast shall be considered a firm purchase order by P&U.
4.05 ORDER FORECASTS.
Each quarter, beginning at FDA approval of any SnET2 Light Device, P&U
shall provide to PDTI written forecasts of P&U's quarterly requirements for
SnET2 Light Devices for the next twelve (12) month period ("Rolling Forecast").
Such Rolling Forecasts shall be for the purpose of assisting PDTI in its
planning. In each quarter, unless otherwise agreed to by PDTI, (i) P&U shall be
obligated to purchase at least seventy-five percent (75%) of P&U's most recent
forecast for any SnET2 Light Device for that quarter and (ii) PDTI shall not be
obligated to supply more than one hundred twenty-five percent (125%) of P&U's
most recent forecast for any SnET2 Light Device for that quarter.
4.06 PURCHASE ORDERS AND SHIPMENT.
P&U shall order all of its requirements of SnET2 Light Devices from PDTI by
submitting written, non-cancelable purchase orders to PDTI identifying the
quantity, type and model numbers of SnET2 Light Device(s) ordered, shipping
instructions including the common carrier to be used and the place to which the
goods should be delivered, and the requested delivery date. No later than ten
(10) business days after receipt of the purchase order, PDTI shall provide P&U
with the shipping date. SnET2 Light Devices shall be shipped in the manner and
to the location specified by P&U.
4.07 MARKETING AND SALE OF SNET2 LIGHT DEVICES.
(a) The parties acknowledge that the marketing, distribution and servicing
of SnET2 Light Devices is critical to P&U efforts to exploit SnET2 and
Photodynamic Therapy. The parties also recognize that it is not possible at this
time to determine some of the specific procedures required to best serve the
market. Further information is required about the clinical uses of SnET2 and
SnET2 Light Devices and further discussions are required among the parties and
each Light Device Provider. The
<PAGE>
parties agree to continue to discuss these arrangements and to implement such
terms as may be commercially reasonably to exploit Photodynamic Therapy on a
worldwide basis. The terms set forth below in paragraph (b) below shall
provide a basis for such discussions and, until such time as the parties and
Light Device Providers agree upon more specific marketing arrangements, the
terms set forth in paragraph (b) below shall govern the marketing and
distribution of SnET2 Light Devices.
(b) SnET2 Light Devices shall be marketed and sold as follows: (1) P&U
shall have primary responsibility for the marketing of the SnET2 Light Devices,
which shall be marketed and promoted in connection with SnET2; (2) Light Device
Provider shall sell, supply, and service SnET2 Light Devices for which it has
exclusive distribution rights, and shall provide required user education,
training and technical support; (3) P&U shall sell and supply all other SnET2
Light Devices and, with the assistance of PDTI, provide user education, training
and technical support; and (4) PDTI shall provide all necessary product service
(as agreed to with P&U) set forth under the terms of PDTI's product warranties
and service contracts covering SnET2 Light Devices. PDTI shall cause the Light
Device Provider to coordinate marketing, education, training and sales
(including exchange of market plans and referral of sales leads) with P&U, and
to maintain adequate distribution and service capabilities in each market
region.
(c) PDTI shall cause each Light Device Provider to provide high quality
and competitively priced SnET2 Light Devices and to meet the market demand for
such devices. The price and other supply terms of SnET2 Devices shall be
established to facilitate the use of Photodynamic Therapy and the marketing of
SnET2. Following the submission of the first NDA and PMA:
(i) The parties and each Light Device Provider shall discuss and
agree upon an initial marketing plan, which shall reflect the foregoing
allocation of responsibilities; and
(ii) P&U and each Light Device Provider having exclusive rights
to any SnET2 Light Device shall discuss the planned distribution of such
SnET2 Light Devices in each country. Such Light Device Provider shall give
due consideration to using P&U as its distributor in any country in which
it would otherwise distribute through third parties.
4.08 OWNERSHIP OF TRADEMARKS
Nothing in this Agreement shall give P&U any ownership rights in or to any
trademarks, logos and/or trade dress registered by PDTI for use in connection
with SnET2 Light Devices.
ARTICLE V - DUTIES OF THE PARTIES
<PAGE>
5.01 EXCLUSIVE.
During the term of this Agreement, unless otherwise agreed to in writing by
the parties and except as provided in Section 4.01, P&U, including its
Affiliates and sublicensees, (i) shall not, either directly or indirectly,
develop or manufacture SnET2 Light Devices; (ii) shall not, either directly or
indirectly, purchase SnET2 Light Devices from any third party (other than Light
Device Provider, if agreed to for any country); and (iii) shall not, either
directly or indirectly, distribute or sell SnET2 Light Devices for use with any
Photodynamic Therapy drug other than SnET2.
5.02 ACCESS TO INFORMATION.
PDTI and P&U agree to provide each other with access to information or data
relating to SnET2 Light Devices or SnET2 which the other may need for regulatory
submissions or compliance, clinical studies, marketing or otherwise to perform
its obligations or exploit its rights hereunder, subject to the confidentiality
provisions set forth in Section 9.02. PDTI shall cause the Light Device Provider
to provide P&U access to the same information and data, and P&U agrees to
provide Light Device Provider the same rights of access in respect to SnET2.
5.03 AUTHORIZATION.
PDTI and P&U each warrant that it has the legal capacity to enter into this
Agreement and that it has secured all necessary approvals.
ARTICLE VI - PAYMENTS AND ACCOUNTING
6.01 PAYMENT OF INVOICES.
Unless otherwise agreed to in writing by the parties, PDTI shall submit
invoices to P&U upon shipment of SnET2 Light Devices. PDTI shall submit invoices
for costs of SnET2 Light Devices for Clinical Tests, on a monthly basis. P&U
shall pay all invoices, plus applicable taxes or freight and other
transportation charges stated thereon, within sixty (60) days after date of
invoice.
6.02 PAYMENT OF MONIES.
All payments made pursuant to this Agreement shall be paid in U.S. dollars.
<PAGE>
6.03 LATE PAYMENTS.
In the event any payment due pursuant to this Agreement is not paid within
the time specified, in addition to remitting the amount of the payment as
required by this Agreement, the late paying party shall pay the other party
interest on such amount at the prime rate per annum (as published daily in The
Wall Street Journal); such interest being payable on demand together with all
costs incurred by the collecting party to collect the amounts due hereunder,
including, but not limited to, reasonable attorney fees and disbursements.
6.04 BOOKS AND RECORDS.
PDTI and P&U shall keep, and shall cause its Affiliates and sublicensees to
keep, full, true and accurate books of accounts and other records, for a period
of five (5) years, containing sufficient detail as may be necessary for the
other party to properly ascertain and verify the costs and royalties payable to
it hereunder in accordance with generally accepted accounting principles. Upon
either PDTI's or P&U's request, the other party shall permit an independent
certified accountant selected by the requesting party (except one to whom the
other has reasonable objection) to have access once each year during ordinary
business hours to such records as may be necessary to determine the correctness
of any report and payment made under this Agreement.
ARTICLE VII - REGULATORY RESPONSIBILITIES
7.01 COMPLIANCE WITH APPLICABLE LAW.
In exercising the rights, and in carrying out the duties and obligations
set forth in this Agreement, each party represents and warrants that it shall
comply with all applicable state, federal and country laws or rules. Each party
further represents and warrants that it shall comply to the extent of its duties
hereunder with all applicable state, federal or other rules and regulations
governing the manufacture, records, distribution, promotion, marketing and sale
of SnET2 Light Devices and that it shall specifically comply with GCPs, GLPs,
GMPs or other equivalent regulatory requirements of any country.
7.02 PACKAGING & LABELING.
All SnET2 Light Devices manufactured or supplied by PDTI hereunder shall be
packaged and
<PAGE>
labeled in accordance with all applicable state, federal, or other
governmental rules and regulations.
7.03 NOTIFICATION OF FDA ACTION.
PDTI and P&U shall promptly notify each other of, and shall provide copies
of, any correspondence and other documentation received or prepared in
connection with any FDA action or significant notification regarding SnET2 Light
Devices.
7.04 PRODUCT COMPLAINT FILES.
PDTI and P&U shall each maintain complaint files in accordance with GMP
regulations. Following first clinical use, PDTI and P&U shall promptly provide
to the other copies of significant complaints received with respect to SnEiT2
Light Devices which may impact the other party's performance under this
Agreement. Each party shall comply with its reporting obligations, and the
holder of the PMA shall be responsible for compliance with reporting obligations
to the FDA. PDTI shall cause the Light Device Provider to provide P&U with
copies of and access to the same information referred to in Sections 7.03 and
7.04, and P&U agrees to provide Light Device Provider with the same access
rights in respect to SnET2.
7.05 RECALLS.
In the event of a total or partial recall of a SnET2 Light Device, whether
voluntary or mandated by law, PDTI and P&U agree to cooperate fully with each
other to effect such recall. PDTI and Light Device Provider shall bear the
expenses associated with any recall, except to the extent a recall results from
the gross negligence or willful misconduct of P&U.
ARTICLE VIII- PATENTS
8.01 PATENTS.
PDTI shall, at its own discretion, prepare, prosecute and maintain any and
all Patents claiming inventions by employees or consultants of PDTI which embody
or relate to SnET2 Light Devices in its own name and for its own benefit. PDTI
shall be responsible for all costs thereof.
<PAGE>
8.02 PATENT INFRINGEMENT BY THIRD PARTIES.
If, during the term of this Agreement, either PDTI or P&U shall acquire
knowledge or have reasonable cause to believe that any patent rights covering
SnET2 Light Devices shall be infringed or used without authorization by any
third party, either PDTI or P&U shall promptly notify the other of such
knowledge. PDTI and P&U shall promptly meet to discuss the commercial impact of
such third party infringement and shall mutually agree as to the manner in which
to proceed against said third party, and the level of involvement of PDTI and
P&U in such action.
8.03 INITIATION OF ACTION BY PDTI OR P&U.
PDTI may take all steps in its name which are necessary or advisable
including, without limitation, the institution of any action or proceeding for
the obtaining of damages or the enjoinment of any such infringement and to
prosecute, settle, compromise or otherwise dispose of the same. PDTI shall be
entitled to the full recovery of any money or other property collected by way of
judgment, settlement (whether prior to or after the institution of any action or
proceeding) or otherwise on any action initiated by PDTI. If PDTI does not
commence such action within one hundred eighty (180) days, after a written
request to do so by P&U, then P&U may initiate an action or proceeding for the
obtaining of damages or the enjoinment of any such infringement and to
prosecute, settle, compromise or otherwise dispose of the same. P&U shall be
entitled to the full recovery of any money or other property collected by way of
judgment, settlement (whether prior to or after the institution of any action or
proceeding) or otherwise on any action initiated by P&U. Each party agrees to
reasonably cooperate with the other party in any legal proceeding and to pay all
its own costs taken pursuant to this Section 8.03.
8.04 CLAIMS AGAINST PDTI OR P&U.
If any claim is made or action brought against PDTI or P&U based on the
claim that PDTI or P&U (or any customer or user of a SnET2 Light Source) is
infringing any third party patent rights by virtue of the manufacture, use or
sale of SnET2 Light Devices, PDTI or P&U shall promptly so notify the other. The
parties shall then consult with each other as to the course of action to take
relative to such third party claim. PDTI agrees, and shall cause Light Device
Provider, to indemnify, protect and defend P&U (its Affiliates, sublicensees,
and customers) and hold P&U (its Affiliates, sublicensees, and customers)
harmless from and against any claims, damages, liability, harm, loss, costs,
penalties, lawsuits, threats of lawsuit, recalls or other governmental action,
including reasonable attorneys' fees,
<PAGE>
brought or claimed by any third party which alleges that any SnET2 Light
Device infringes any patent or other intellectual property rights of such
third party. Notwithstanding the foregoing sentence, each party shall, and
PDTI shall cause each Light Device Provider to, indemnify each other (and
their respective Affiliates, sublicensees, and customers) from claims of
third parties that the indemnifying party's trademarks infringe the rights of
such third party.
ARTICLE IX - PUBLICATIONS AND CONFIDENTIALITY
9.01 PUBLICATION.
At least thirty (30) days prior to the time P&U or PDTI submits any data or
articles related to SnET2 Light Devices in the Field for publication or
presentation, the proposed publication or presentation must be sent to the other
party for review and approval. If the other party so decides, such publication
or presentation can be delayed as long as reasonably necessary to preserve U.S.
or foreign patent or other property rights. Such approval shall not be
unreasonably withheld. If no response is received with 30 days from receipt,
such approval shall be deemed to have been given.
9.02 CONFIDENTIAL INFORMATION.
Unless otherwise mutually agreed to by the parties, the parties agree to
maintain in confidence information relating to SnET2 Light Devices (including
without limitation, information developed in Preclinical Tests and Clinical
Tests), PDTI Technology and licenses, patents, patent applications, technology
or processes and business plans of the other parties (or of the Light Device
Provider), including, without limitation, information designated as confidential
in writing from one party to another (all of the foregoing hereinafter referred
to as "Confidential Information"), disclosed to the other and shall not, during
the term of this Agreement and for a period of five (5) years thereafter, use
such Confidential Information, except as permitted by this Agreement, or
disclose the same to anyone other than those of its officers, directors,
employees, Affiliates and Sublicensees as are necessary in connection with
either parties' activities as contemplated in this Agreement. PDTI shall cause
the Light Device Provider to be bound to P&U to hold its Confidential
Information under the same obligations.
<PAGE>
9.03 LIMITATION ON CONFIDENTIALITY.
The obligation of confidentiality in Section 9.02 shall not apply to the
extent that (i) a party is required to disclose information by applicable law,
such as pursuant to Securities and Exchange Commission rules and regulations, or
by order of a governmental agency or a court of competent jurisdiction; (ii) a
party can demonstrate that the disclosed information was, at the time of
disclosure, already in the public domain other than as a result of actions or
failure to act of a party, its officers, directors, employees, and Affiliates
and Sublicensees in violation hereof; (iii) the disclosed information was
rightfully known by a party or its Affiliates or Sublicensees (as shown by its
written records) prior to the date of disclosure to the other party in
connection with this Agreement; or (iv) the disclosed information was received
by a party or its Affiliates or Sublicensees on an unrestricted basis from a
third party which is not the other party or an Affiliate of the other party and
not under a duty of confidentiality, and which was rightfully known to said
source.
ARTICLE X - WARRANTIES OF PDTI
10.01 WARRANTY.
PDTI represents and warrants that SnET2 Light Devices, at the time of
shipment to P&U shall not be SnET2 Light Devices that have been misbranded or
adulterated within the meaning of the Act, or of any applicable state or local
law. PDTI further represents and warrants that SnET2 Light Devices sold to P&U
hereunder shall have been manufactured, packaged, labeled, stored and shipped in
conformity with all applicable GMP requirements.
10.02 NO OTHER PRODUCT WARRANTIES.
Except as expressly provided for in this Article X, PDTI makes no
representations or warranties of any nature whatsoever with respect to SnET2
Light Devices, and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY
DISCLAIMED BY PDTI AND ITS AFFILIATES.
ARTICLE XI - WARRANTIES OF P&U
11.01 WARRANTY.
<PAGE>
P&U represents and warrants that SnET2 Light Devices sold by P&U shall not,
as a result of acts by P&U, be misbranded or adulterated within the meaning of
the Act or of any applicable state or local law. P&U represents and warrants
that SnET2 Light Devices shall be distributed in conformity with all applicable
GMP requirements. P&U further represents and warrants that it shall promote,
market and sell SnET2 Light Devices in accordance with applicable FDA, state and
local regulations and in accordance with the NDA or PMA.
11.02 REASONABLE COMMERCIAL EFFORTS.
P&U represents and warrants that it shall use reasonable commercial efforts
to promote, market and sell SnET2 Light Devices supplied to it hereunder.
11.03 NO OTHER PRODUCT WARRANTIES.
Except as expressly provided for in this Article XI, P&U makes no
representations or warranties of any nature whatsoever with respect to the SnET2
Light Devices, and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY
DISCLAIMED BY P&U AND ITS AFFILIATES.
ARTICLE XII - MUTUAL WARRANTIES
12.01 RIGHT, POWER AND AUTHORITY TO EXECUTE.
Each party hereby represents and warrants to the other parties that it has
full right, power and authority to enter into this Agreement and that the
Agreement has been duly authorized by all necessary actions of its directors and
shareholders and constitutes a valid and binding obligation.
12.02 CORPORATE GOOD STANDING.
Each party represents and warrants to the other parties that it is a
corporation duly organized and validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and that no consent of any
third party is or shall be required in addition as to the validity of this
Agreement.
<PAGE>
12.03 DURATION OF REPRESENTATIONS AND WARRANTIES.
Each party represents and warrants to the other parties that the
representations and warranties set forth in Article XII shall be true as of the
Effective Date of this Agreement.
ARTICLE XIII- TERM & TERMINATION
13.01 TERM OF AGREEMENT.
This Agreement shall be effective as of the date first set forth
hereinabove ("Effective Date"), and shall continue in full force and effect for
as long as the License Agreement, dated July 1, 1995, as amended, between PDT,
Inc. and Pharmacia & Upjohn S.p.A. shall remain in full force and effect.
13.02 TERMINATION FOR MATERIAL BREACH.
Either party may terminate this Agreement in the event of a material
breach by another, provided that the party asserting such breach first serves
written notice of the alleged material breach on the offending party and such
alleged breach is not cured within sixty (60) days of said notice. If such
material breach cannot be cured within said period, the cure period will be
extended ninety (90) days if the offending party has commenced to cure the
material breach in a diligent fashion within the sixty (60) day period.
13.03 TERMINATION FOR INSOLVENCY.
In the event that either party becomes insolvent or shall suspend its
business or shall file a voluntary petition or any answer admitting the
jurisdiction of the court and the material allegations of, or shall consent to,
an involuntary petition pursuant to or purporting to be pursuant to any
reorganization or insolvency law of any jurisdiction, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of a receiver or trustee of all or a substantial part of its
property (such party, upon the occurrence of any such event, a "Bankrupt
Party"), then to the extent permitted by the law another party hereto may
thereafter immediately terminate this Agreement by giving written notice of
termination to the Bankrupt Party, unless the proceeding is dismissed within
ninety (90) days of its filing.
<PAGE>
13.04 TERMINATION OF LIGHT DEVICE PROVIDER RIGHTS.
Upon termination of the rights of a Light Device Provider to distribute
the SnET2 Light Sources in any country, P&U shall have the option to require
PDTI to transfer, at no cost to P&U, all such rights, including all PMA's and
other regulatory approvals, to P&U.
13.05 EFFECT OF EXPIRATION OR TERMINATION.
Expiration or earlier termination of this Agreement shall not extinguish
rights or obligations previously accrued or vested. The following sections shall
survive any expiration or termination of this Agreement: 2.04, Article VII,
8.04, Articles IX through XI, Article XIV and 15.09.
ARTICLE XIV - INDEMNIFICATION
14.01 PDTI INDEMNITY.
PDTI agrees, and shall cause Light Device Provider, to indemnify, protect
and defend P&U (its Affiliates, sublicensees, and customers) and hold P&U (its
Affiliates, sublicensees, and customers) harmless from and against any claims,
damages, liability, harm, loss, costs, penalties, lawsuits, threats of lawsuit,
recalls or other governmental action, including reasonable attorneys' fees,
brought or claimed by any third party which (i) arise as the result of PDTI's or
Light Device Provider's breach of this Agreement or of any warranty or
representation made by PDTI under this Agreement; or, (ii) which result from any
claim in connection with defective SnET2 Light Devices. Upon the filing of any
such legal claim or lawsuit against P&U, P&U shall promptly notify PDTI, in
writing, of any such claim and PDTI shall, at its expense, with attorneys
reasonably acceptable to P&U, handle, defend and control such claim or lawsuit.
14.02 P&U INDEMNITY.
P&U agrees to indemnify, protect, and defend PDTI (its Affiliates,
sublicensees, and customers) and hold PDTI (its Affiliates, sublicensees, and
customers) harmless from and against any claims, damages, liabilities, harm,
loss, costs, penalties, lawsuits, threats of lawsuit, recalls or other
governmental action, including reasonable attorneys' fees, brought or claimed by
any third party, which (i) arise out of P&U's breach of this Agreement or of any
warranty or representation made by P&U under
<PAGE>
this Agreement; or, (ii) result from the negligent acts or willful malfeasance
on the part of P&U or its employees or agents, in connection with P&U's sale,
marketing or distribution of SnET2 Light Devices. Upon the filing of any such
legal claim or lawsuit against PDTI. PDTI shall promptly notify P&U, in
writing, of any such claim P&U shall, at its expense, with attorneys
reasonably acceptable to PDTI, handle, defend, and control such claim or
lawsuit. P&U shall extend the foregoing indemnity obligation to Light Device
Providers (and their Affiliates, sublicensees, and customers) so long as each
such Light Device Provider is expressly bound to P&U to the same extent.
14.03 NOTICE OF DEFENSE OF ACTIONS.
Each party shall give the other prompt notice of any potential liability,
and promptly after receipt by a party claiming indemnification under this
Article XIV, of notice of the commencement of any action, such indemnified party
shall notify the indemnifying party of the commencement of the action and
generally summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such action with counsel of its
choosing. An indemnifying party shall not have the right to direct the defense
in such an action of an indemnified party if counsel to such indemnified party
has reasonably concluded that there may be defenses available to it that are
different from or additional to those available to the indemnifying party;
provided, however, that in such event, the indemnifying party shall bear the
fees and expenses of separate counsel reasonably satisfactory to the
indemnifying party. The failure to notify an indemnifying party promptly of the
commencement of any such action, if prejudicial to the ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Article XIV. No settlement of any claim or action
may be made without the consent of the indemnifying party (which consent shall
not be unreasonably withheld or delayed).
ARTICLE XV - MISCELLANEOUS
15.01 FORCE MAJEURE.
No party to this Agreement shall be liable to another party for any loss,
injury, delay, damage or other casualty suffered or incurred by such other party
due to strikes, lockouts, accidents, fire, delays in transportation or delivery
of material, embargoes, inability to ship, explosions, floods, war, governmental
action or any other cause similar thereto which is beyond the reasonable control
of such other party and any failure or delay by a party in the performance of
any of its obligations under this Agreement shall not be considered as a breach
of this Agreement due to, but only so long as there exists, one or more of the
<PAGE>
foregoing causes.
15.02 RELATIONSHIP.
This Agreement shall not be construed to create between the parties hereto
or their respective successors or permitted assignees the relationship of
principal and agent, joint ventures, co-partners or any other similar
relationship, the existence of which is hereby expressly denied by each party.
The parties shall not be liable to any third party in any way for engagement,
obligation, contract, representation or transaction or for any negligent act or
omission to act of the other except as expressly provided.
15.03 GOVERNING LAW.
The provisions of this Agreement shall be governed in all respects by the
laws of the State of New York, without regard to its conflicts of laws rules.
15.04 NOTICE.
All notices, proposals, submissions, offers, approvals, agreements,
elections, consents acceptances, waivers, reports, plans, requests, instructions
and other communications required or permitted to be made or given hereunder
(all of the foregoing hereinafter collectively referred to as "Communications")
shall be in writing, and shall be deemed to have been duly made or given when:
a) delivered personally with receipt acknowledged; b) sent by registered or
certified mail or equivalent, return receipt requested, or c) sent by facsimile
(which shall promptly be confirmed by a writing sent by registered or certified
mail or equivalent, return receipt requested), or d) sent by recognized
overnight courier for delivery within twenty-four (24) hours, in each case
addressed or sent to the parties at the following addresses and facsimile
numbers or to such other or additional address or facsimile as any party shall
hereafter specify by Communication to the other parties:
PDTI: PDT, Inc.
7408 Hollister Avenue
Santa Barbara, CA 93117
U.S.A.
Attn: President
Fax # 805-685-2959
With a copy to: Bryan Cave LLP
One Metropolitan Square
211 No. Broadway, Suite 3600
<PAGE>
St. Louis, MO 63102-2750
U.S.A.
Attn: James A. Kearns III or James L. Nouss, Jr.
Fax # 314-259-2020
P&U: Pharmacia & Upjohn AB
Lindhagensgatan 133
S-112 87 Stockholm,
Sweden
Attn: President,
Fax # 46 8 618 2668
With a copy to: Pharmacia & Upjohn AB
Lindhagensgatan 133
S-112 87 Stockholm, Sweden
Attn: General Counsel
Fax # 46 8 695 4708
Notice of change of address shall be deemed given when actually received,
all other Communications shall be deemed to have been given, received and dated
on the earlier of: (i) when actually received, or on the date when delivered
personally; (ii) one (1) day after being sent by facsimile (each promptly
confirmed by a writing as aforesaid) or overnight courier or four (4) business
days after mailing.
15.05 LEGAL CONSTRUCTION.
In case any one or more of the provisions contained in this Agreement shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision which shall be a reasonable substitute for such invalid
and unenforceable provision in light of the tenor of this Agreement, and, upon
so agreeing, shall incorporate such substitute provision in this Agreement.
15.06 ENTIRE AGREEMENT MODIFICATIONS, CONSENTS, WAIVERS.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof. This Agreement may not be modified or amended except
by an instrument or instruments in
<PAGE>
writing signed by the party against whom enforcement of any such modification
or amendment is sought. Each party hereto may, by an instrument in writing,
waive compliance by another party hereto with any term or provision of this
Agreement on the part of such other party to be performed or complied with.
The waiver by either party hereto of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
15.07 SECTION HEADINGS: CONSTRUCTION.
The section headings and titles contained herein are each for reference
only and shall not be deemed to affect the meaning or interpretation of this
Agreement. The words "hereby", "herein", "hereinabove", "hereinafter", "hereof"
and "hereunder", when used anywhere in this Agreement, refer to this Agreement
as a whole and not merely to a subdivision in which such words appear, unless
the context otherwise requires. The singular shall include the plural, the
conjunctive shall include the disjunctive and the masculine gender shall include
the feminine and neuter, and vice versa, unless the context otherwise requires.
15.08 EXECUTION COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each such
duplicate counterpart shall constitute an original, any one of which may be
introduced in evidence or used for any other purpose without the production of
its duplicate counterpart. Moreover, notwithstanding that any of the parties did
not execute the same counterpart, each counterpart shall be deemed for all
purposes to be an original, and all such counterparts shall constitute one and
the same instrument, binding on all of the parties hereto.
15.09 LIGHT SOURCE PROVIDER CONTRACT RIGHTS.
To assure compliance with the terms of this Agreement, PDTI shall provide
P&U copies of all contracts with Light Device Providers (confidential financial
information may be redacted). Any rights hereunder which extend to a Light
Device Provider (including the rights set forth in Sections 4.03, 4.07, 5.02,
7.03, 7.04, 7.05, 8.04, 9.02, 13.04 and 14.01) shall apply only to the extent
such Light Device Provider reciprocates and extends the equivalent rights to
P&U.
ARTICLE XVI- BINDING EFFECT: ASSIGNMENT
<PAGE>
16.01 EXECUTION COUNTERPARTS.
This Agreement shall inure to the benefit of and be binding upon each of
the parties hereto and their respective successors and assigns. Neither this
Agreement, nor any of the rights and obligations under this Agreement, may be
assigned, transferred or otherwise disposed of by either party without the prior
consent of the other party, unless such assignment, transfer or disposition is
to a successor to substantially all the business or assets of the transferor;
provided that such successor shall in any event agree in writing with the other
party to assume all obligations of the transferor under this Agreement in a
manner satisfactory to the other party. Subject to the foregoing limitations,
the Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties.
16.02 RIGHT TO SEEK ASSURANCE.
In the event all or substantially all of the assets of either P&U or PDTI
are acquired by a third party, the non-acquired party shall have the right
pursuant to Section 16.01 to receive a written assurance from such third party
that the third party intends to faithfully perform all of the duties and
obligations of the acquired party set forth in this Agreement. The acquired
party shall take all action necessary to enable the non-acquired party to obtain
such written assurance.
ARTICLE XVII- RESOLUTION OF DISPUTES
17.01 RESOLUTIONS.
Any and all disputes arising out of or in connection with the performance
or nonperformance of this Agreement shall be negotiated in good faith by the
Presidents of PDTI and P&U, or their designees, to achieve a reasonable
resolution of such issue. If such matters cannot be resolved, then they shall be
submitted to arbitration in accordance with Section 17.02 hereof.
17.02 ARBITRATION.
Any and all disputes arising out of or in connection with the negotiation,
execution, or interpretation of this agreement shall be finally settled by
arbitration in accordance with the rules of the American Arbitration Association
before one (1) arbitrator. The arbitration will be held in New York,
<PAGE>
New York, on continuous business days. The award rendered shall be final and
binding upon the parties. Judgment on any award may be entered in any court
having jurisdiction over the parties or their assets. Notwithstanding
anything to the contrary contained in this paragraph, or to the extent any
claims relate to the validity, construction, scope, enforceability or
infringement of any Patent Rights, such claim shall not be required to be
submitted to arbitration hereunder and shall be resolved by a court of
competent jurisdiction. The costs of the arbitration shall be shared equally
by the parties.
IN WITNESS WHEREOF, the parties have cause this Agreement to be executed as
of the day and year first written above.
PDT, INC.
By /s/ DAVID E. MAI
---------------------------------
Title: President
PHARMACIA & UPJOHN AB
By /s/ GORAN PETTERSON By /s/ MATS LIDGARD
--------------------------------- --------------------------------
Title: VP Ophthalmology Title: VP Legal Affairs
<PAGE>
SCHEDULE 4.02
TO THE
LIGHT DEVICE SUPPLY AGREEMENT
between
PDT, INC.
and
PHARMACIA & UPJOHN AB
dated Effective Date
TRANSFER PRICE
With reference to Section 4.02 of the above Agreement the parties agree
that the transfer prices for SnET2 Light Devices provided by PDTI are as
follows:
1. LIGHT SOURCES. The transfer price from PDTI to P&U shall be ***** of
PDTI's list price.
2. DISPOSABLE DEVICES. The transfer price from PDTI to P&U shall be *****
of PDTI's list price.
Per Section 4.07, PDTI shall cause each Light Device Provider to provide
high quality and competitively priced SnET2 Light Devices and to meet the
market demand for such devices.
*****Confidential Treatment Requested
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
PRIMARY
Net loss $ (16,142,000) $ (11,710,000) $ (9,479,000)
--------------- --------------- --------------
--------------- --------------- --------------
Weighted average common shares
outstanding 11,786,429 9,486,212 8,003,850
Preferred stock converted to common shares -- 375,000 375,000
Common shares and stock options
issued during the twelve-month period
prior to the initial public offering using
the treasury stock method and assumed
offering price of $10.67 per share -- -- 737,076
--------------- --------------- --------------
Shares used in the computation 11,786,429 9,861,212 9,115,926
--------------- --------------- --------------
--------------- --------------- --------------
Net loss per share $ (1.37) $ (1.19) $ (1.04)
--------------- --------------- --------------
--------------- --------------- --------------
FULLY DILUTED
Net loss $ (16,142,000) $ (11,710,000) $ (9,479,000)
--------------- --------------- --------------
--------------- --------------- --------------
Weighted average commons shares
outstanding 11,786,429 9,486,212 8,003,850
Preferred stock converted to common shares -- 375,000 375,000
Common shares and stock options
issued during the twelve-month period
prior to the initial public offering using
the treasury stock method and assumed
offering price of $10.67 per share -- -- 737,076
--------------- --------------- --------------
Shares used in the computation 11,786,429 9,861,212 9,115,926
--------------- --------------- --------------
--------------- --------------- --------------
Net loss per share $ (1.37) $ (1.19) $ (1.04)
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S
FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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0
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