<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENDOCARDIAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3815 41-1724963
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Identification Number) Classification Code Number)
</TABLE>
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
(612) 644-7890
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
JAMES W. BULLOCK
ENDOCARDIAL SOLUTIONS, INC.
1350 ENERGY LANE, SUITE 110
ST. PAUL, MINNESOTA 55108
(612) 644-7890
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. CUTLER DAVID B. MILLER
Dorsey & Whitney LLP Faegre & Benson LLP
Pillsbury Center South 2200 Norwest Center
220 South Sixth Street 90 South Seventh Street
Minneapolis, Minnesota 55402-3901 Minneapolis, Minnesota 55402-1498
(612) 340-2600 (612) 336-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........................ 3,450,000 shares $12.00 $41,400,000 $12,546
</TABLE>
(1) Including 450,000 shares of Common Stock which the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 29, 1997
PROSPECTUS
DATED , 1997
3,000,000 SHARES
[LOGO]
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being issued and
sold by Endocardial Solutions, Inc. ("ESI" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ECSI".
Of the 3,000,000 shares of Common Stock offered hereby, the Company intends to
sell, at the Price to Public, up to 750,000 shares of Common Stock to Medtronic,
Inc., an existing shareholder of the Company. See "Sale of Shares to Medtronic."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount Company(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $400,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as, and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that
certificates for such shares will be available for delivery at the offices of
Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1997.
<TABLE>
<S> <C>
PIPER JAFFRAY INC. VOLPE, WELTY & COMPANY
</TABLE>
<PAGE>
[Insert illustrations/photographs and description of EnSite System workstation]
To date, limited clinical testing of the EnSite catheter and workstation has
been performed and the EnSite catheter and workstation have not received
approval from the FDA for commercial sale in the United States or from
international regulatory authorities for sale outside the United States.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
EnSite-TM- is a trademark of the Company. This Prospectus also includes
trade names, trademarks and registered trademarks of companies other than ESI.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND THE
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED,
ALL INFORMATION IN THIS PROSPECTUS, INCLUDING FINANCIAL INFORMATION, SHARE AND
PER SHARE DATA (I) HAS BEEN ADJUSTED TO REFLECT THE PRO FORMA CONVERSION OF ALL
OUTSTANDING SHARES OF THE COMPANY'S SERIES A, SERIES B, SERIES C AND SERIES D
PREFERRED STOCK (THE "PREFERRED STOCK") INTO SHARES OF COMMON STOCK UPON CLOSING
OF THE OFFERING, (II) REFLECTS THE ONE-FOR-TWO REVERSE STOCK SPLIT OF THE COMMON
STOCK TO BE EFFECTED IN FEBRUARY 1997 AND (III) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Endocardial Solutions, Inc. ("ESI" or the "Company") designs, develops, and
manufactures a minimally invasive diagnostic system that diagnoses, within the
span of a few heartbeats, tachycardia, a potentially fatal abnormal heart
rhythm. The Company believes that its proprietary EnSite catheter and clinical
workstation (together, the "EnSite System") is a powerful new diagnostic tool
that will enable electrophysiologists to rapidly and comprehensively map
tachycardia and improve the selection of patient treatment options. The Company
has conducted clinical trials of the EnSite System in Europe on fifteen patients
for ventricular tachycardia and on seven patients for supraventricular (atrial)
tachycardia. The Company has begun a limited clinical trial on ventricular
tachycardia patients in the United States under an investigational device
exemption ("IDE") from the FDA. The Company anticipates that this and additional
clinical trials will be used to support a pre-market approval ("PMA")
application to obtain approval to market the EnSite System for the treatment of
ventricular tachycardia in the United States.
Tachycardias are caused by irregular electrical activity in the heart which
disrupts the heart's normal pumping action. Ventricular tachycardia ("VT") occur
in the lower chambers of the heart and frequently lead to serious complications,
including sudden cardiac death. Supraventricular tachycardia ("SVT"), including
atrial fibrillation and flutter, originate in the upper chambers of the heart
and often result in chest pain, fatigue and dizziness and, while generally not
life-threatening, are a leading cause of stroke in the United States.
It is estimated that in the United States approximately one million people
suffer from VT and approximately three million suffer from some form of SVT. A
majority of these four million VT and SVT patients suffer from complex forms of
tachycardia that have multiple points of origin in unpredictable locations in
the heart ("complex tachycardia"). To date, electrophysiologists have generally
been unable to adequately diagnose complex tachycardia due to the limited
capabilities of present technology. Currently available single-point contact
catheters require time-consuming and tedious procedures that generally produce
an insufficient amount of data to effectively locate, diagnose and optimally
treat complex tachycardia.
The Company's EnSite System is designed to enable electrophysiologists to
rapidly and precisely locate the multiple, unpredictable points of origin of
complex tachycardia. The EnSite System applies proprietary mathematical
algorithms to compute more than 3,000 points of electrical activity within a
heart chamber, producing a high resolution, real-time, three-dimensional color
display of the electrical activity in the heart chamber. The "virtual
electrogram" function of the EnSite System allows electrophysiologists to
instantly view the electrical activity at any of the more than 3,000 points. The
EnSite System is also capable of tracking and displaying the location and
movements of auxiliary catheters introduced into the chamber.
The Company's strategy is to establish the EnSite System as the leading
cardiac mapping tool for diagnosing complex tachycardia in the more than 700
electrophysiology laboratories in the United States
3
<PAGE>
and those in Europe and Japan. The Company believes that the EnSite System has
significant advantages over single-point contact catheters currently used to
diagnose tachycardia, including:
- ENHANCED DIAGNOSTIC CAPABILITY. The diagnostic power of the EnSite System
is designed to enable electrophysiologists to make more informed decisions
in choosing optimal treatment for tachycardia patients. The high
resolution, three-dimensional color map generated by the EnSite System
should greatly enhance electrophysiologists' diagnostic capabilities
through the system's ability to capture and display a significantly
greater amount of electrical data than can be generated with currently
available contact catheters.
- ABILITY TO MAP COMPLEX TACHYCARDIAS. ESI believes that its technology
will enable electrophysiologists to map complex forms of VT and SVT in the
majority of patients who cannot be mapped effectively using currently
available technology.
- REDUCED PROCEDURAL TIME. Currently available single-point contact
catheters can require several hours of overall procedural time to diagnose
simple tachycardia and can require between six and twelve hours to
diagnose complex tachycardia. The Company believes that the EnSite System
can reduce the overall procedure time significantly, greatly increasing
the number of patients who may be candidates for diagnosis using cardiac
mapping technology.
- REDUCED RADIATION EXPOSURE. The Company believes that the speed with
which its technology can map the heart's electrical activity and locate
auxiliary catheters will reduce the amount of time that patients and
medical staff are exposed to radiation from fluoroscopy, the effects of
which are cumulative.
- REDUCED COSTS. The Company believes that the EnSite System will reduce
the costs associated with treating complex tachycardia by significantly
reducing the amount of time required to locate and diagnose abnormal heart
rhythms and by enabling electrophysiologists to select potentially less
costly treatment for patients.
In April 1996, Medtronic, Inc. ("Medtronic") invested $10 million in the
Company through the purchase of Preferred Stock. In connection with this
investment, the Company entered into an agreement pursuant to which it granted
Medtronic a right of first offer to distribute the Company's products on an
exclusive basis outside of North America. Of the 3,000,000 shares of Common
Stock offered hereby, the Company intends to sell, at the Price to Public, up to
750,000 shares of Common Stock to Medtronic. See "Sale of Shares to Medtronic,"
"Principal Stockholders" and "Underwriting."
The Company's offices are located at 1350 Energy Lane, Suite 110, St. Paul,
Minnesota 55108, and its telephone number is (612) 644-7890. The Company was
incorporated in Minnesota in 1992 and was reincorporated in Delaware in 1995.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares
Common Stock to be outstanding after the
Offering................................... 8,759,031 shares (1)
Use of proceeds.............................. Continued development and testing of, and
clinical trials for, the EnSite System;
capital expenditures; research and
development, manufacturing and marketing
activities; and working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... ECSI
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development........................................................ $ 3,352 $ 3,639 $ 4,425
General and administrative...................................................... 857 1,088 1,911
Sales and marketing............................................................. 282 123 374
--------- --------- ---------
Operating loss.................................................................... (4,491) (4,850) (6,710)
--------- --------- ---------
Interest income, net.............................................................. 83 116 229
--------- --------- ---------
Net loss.......................................................................... $ (4,408) $ (4,734) $ (6,481)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share (2).................................................. $ (1.12)
---------
---------
Pro forma weighted average shares outstanding (2)................................. 5,809
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 6,157 $ 36,447
Working capital....................................................................... 5,549 35,839
Total assets.......................................................................... 7,200 37,490
Long-term debt and capital lease obligations, less current portion.................... 302 302
Deficit accumulated during the development stage...................................... (16,623) (16,623)
Total stockholders' equity............................................................ 6,214 36,504
</TABLE>
- ------------------------
(1) Excludes 897,782 shares of Common Stock issuable upon exercise of options
outstanding on such date, which have a weighted average exercise price of
$1.14 per share. Also excludes 56,607 shares of Common Stock issuable upon
exercise of outstanding warrants, which have a weighted average exercise
price of $4.16 per share. See "Description of Capital Stock."
(2) Computed on the basis described in Note 2 of Notes to Financial Statements.
(3) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered
hereby at an assumed public offering price of $11.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
DEPENDENCE ON SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF THE ENSITE SYSTEM
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the EnSite System, the
development of which is ongoing and the complete efficacy and safety of which
has not yet been demonstrated. The EnSite System is currently the Company's only
potential product, and the Company could be required to cease operations if the
system is not successfully commercialized. The EnSite System will require
further development, significant additional clinical trials and, ultimately,
United States and international regulatory approvals before it can be marketed
in the United States and internationally. There can be no assurance that
unforeseen problems will not occur in research and development, clinical
testing, regulatory submissions and approval, product manufacturing and
commercial scale-up, marketing or product distribution. Any such occurrence
could materially delay the commercialization of the EnSite System or prevent its
market introduction entirely. The Company will not generate any significant
revenue until such time, if ever, as the EnSite System is successfully
commercialized. There can be no assurance that the Company will ever derive
substantial revenues from the sale of the EnSite System. See "Business."
LIMITED CLINICAL TESTING EXPERIENCE
The Company has conducted only limited clinical trials in the United States
and in the United Kingdom. The Company has received an IDE from the FDA for, and
has begun, a limited clinical test of the EnSite System for diagnosing VT in
five patients in the United States. Of the nine VT patients which
were submitted in the Company's amendment to its IDE application with the FDA,
three experienced complications, including one death four days following the
procedure. In granting the IDE, the FDA expressed its belief that there is a
significant possibility that one or two of the complications were device
related. Based on the Company's evaluations, the Company believes these
complications were not device related and has submitted its response to the FDA.
Clinical data obtained to date are insufficient to demonstrate the safety and
efficacy of the EnSite System under applicable United States and international
regulatory guidelines. Accordingly, the Company believes it will be required to
conduct extensive clinical testing in the United States in order to support a
PMA application to the FDA for marketing approval. Patients selected for
clinical trials must meet stringent guidelines to undergo testing, and there can
be no assurance that patients can be enrolled in clinical trials on a timely
basis. Further, there can be no assurance that any of the Company's products
will prove to be safe and effective in clinical trials under United States or
international regulatory guidelines or that the Company will not encounter
problems in clinical testing that will cause a delay in the commercialization of
the EnSite System. Moreover, the clinical trials may identify significant
technical or other obstacles to be overcome prior to obtaining necessary
regulatory or reimbursement approvals. In addition, the Company's development of
the EnSite System for diagnosing atrial fibrillation is in its early stages. As
a result, the Company has not submitted an IDE application for any atrial
fibrillation diagnostic products. If the EnSite System does not prove to be safe
and effective in clinical trials, the Company's business, financial condition
and results of operations will be materially adversely affected. See
"Business--Government Regulation."
6
<PAGE>
LACK OF REGULATORY APPROVAL
The manufacture and sale of medical devices, including the EnSite System,
are subject to extensive regulation by numerous governmental authorities in the
United States, principally the FDA and corresponding state agencies, and in
other countries. In the United States, the Company's products are regulated as
medical devices and are subject to the FDA's premarket approval requirements,
which have not been satisfied. Securing FDA approvals requires the submission of
extensive clinical data and supporting information to the FDA. Although the
EnSite System is currently undergoing a clinical trial in the United States on
five patients suffering from VT, under an IDE approved by the FDA, the Company
cannot file with the FDA a PMA application to market the EnSite System for
diagnosing VT in the United States until more extensive clinical trials are
completed. The process of obtaining FDA and other required regulatory approvals
is lengthy, expensive and uncertain and frequently requires from one to several
years from the date of FDA filing, if premarket approval is obtained at all. In
addition, the use of the EnSite System to diagnose SVTs is in the initial stages
of clinical development. The Company believes that it will require an IDE
approval from the FDA to pursue clinical testing of the EnSite System for SVTs
in the United States and significant additional testing will be required to
support a subsequent PMA application.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
After mid-1998, the Company will be required to obtain the certifications
necessary to enable the CE mark to be affixed to the Company's products in order
to sell its products in member countries of the European Union. The Company has
not obtained such certifications and there can be no assurance it will be able
to do so in a timely manner. In addition, significant costs and requests for
additional information may be encountered by the Company in its efforts to
obtain regulatory approvals. Any such events could substantially delay or
preclude the Company from marketing its products internationally.
Regulatory approvals, if granted, may include significant limitations on the
indicated uses for which the product may be marketed. In addition, to obtain
such approvals, the FDA and certain foreign regulatory authorities may impose
numerous other requirements with which medical device manufacturers must comply.
FDA enforcement policy strictly prohibits the marketing of approved medical
devices for unapproved uses. In addition, product approvals could be withdrawn
for failure to comply with regulatory standards or the occurrence of unforeseen
problems following the initial marketing. The Company will be required to adhere
to applicable FDA regulations regarding Good Manufacturing Practices ("GMP") and
similar regulations in other countries, which include testing, control, and
documentation requirements. Ongoing compliance with GMP and other applicable
regulatory requirements will be monitored through periodic inspections by
federal and state agencies, including the FDA, and by comparable agencies in
other countries. Failure to comply with applicable regulatory requirements,
including the marketing of products for unapproved uses, could result in, among
other things, warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, refusal of the
government to grant premarket approval for devices, withdrawal of approvals and
criminal prosecution. Changes in existing regulations or adoption of new
governmental regulations or policies could prevent or delay regulatory approval
of the Company's products. Certain material changes to medical devices also are
subject to FDA review and approval.
There can be no assurance that the Company will be able to obtain PMA
approval for the EnSite System for use in diagnosing VT and SVT, the
certifications necessary for affixation of the CE mark on the Company's products
or other necessary regulatory approvals on a timely basis or at all. Delays in
receipt of or failure to receive such approvals, the loss of previously obtained
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulation."
7
<PAGE>
UNCERTAINTY OF AVAILABILITY OF TREATMENTS EMPLOYING ENSITE SYSTEM
The Company has developed its EnSite System to diagnose VT and assist
electrophysiologists in selecting among treatment options. Current treatments
for VT include drugs, implantable defibrillators, surgery and, potentially,
catheter ablation. The Company believes that the EnSite System will enable
increased use of catheter ablation for treating complex VT. Because ablation
treatment for VT is a relatively new and to date an untested treatment, the long
term effects of ablation on patients are unknown. As a result, the long term
success of ablation therapy in treating VT will not be known for several years.
To date, no medical devices for treating VT patients in the United States
through catheter ablation have been approved by the FDA. Such catheter ablation
devices require PMA approval by the FDA, and there can be no assurance that any
such device will be approved by the FDA, or that any FDA approval will be
granted in the near future. Accordingly, there can be no assurance that the
catheter ablation market will develop in the near term or ever. Moreover, even
if medical devices for catheter ablation are approved by the FDA, there can be
no assurance that the market for treating VT through catheter ablation will
develop or that the EnSite System will prove useful in diagnosing VT for
treatment by catheter ablation products approved by the FDA. The Company is not
in the process of developing a catheter for ablation treatment and is entirely
dependent upon other medical device companies for the development of such
devices. If the medical devices for treating ventricular tachycardia through
catheter ablation are not approved by the FDA or, even with such approval, if a
market for treating ventricular tachycardia by catheter ablation does not
develop, the business, financial condition and results of operations of the
Company would be materially adversely affected. See
"Business--Background--Ventricular Tachycardia."
UNCERTAINTY OF MARKET ACCEPTANCE; TRAINING OF PHYSICIANS REQUIRED
The commercial success of the EnSite System is dependent upon the number of
diagnostic procedures performed by electrophysiologists using the system. There
can be no assurance that the Company's EnSite System will gain any significant
degree of market acceptance among electrophysiologists, patients and health care
insurers and managed care providers. Electrophysiologists will not recommend
that diagnostic procedures be performed using the Company's products until such
time, if at all, as clinical data demonstrate the efficacy of such procedures as
compared to other diagnostic procedures currently available or under
development. See "--Significant Competition; Rapid Technology Change." Even if
the clinical efficacy of procedures using the EnSite System is established,
electrophysiologists and other physicians may elect not to recommend the
procedures for any number of other reasons, including inadequate levels of
reimbursement. Broad use of the EnSite System will require training of
electrophysiologists, and the time required to complete such training could
adversely affect market acceptance. Failure of the Company 's products to
achieve significant market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"--Uncertainty of Third-Party Reimbursement" and "Business--The EnSite System."
UNCERTAINTY OF ABILITY TO DIAGNOSE AND TREAT ATRIAL FIBRILLATION
The Company intends to apply the EnSite System to the diagnosis of atrial
tachycardia, including atrial fibrillation; however, the Company has conducted
clinical studies of its technology on only seven patients suffering from atrial
tachycardia. There can be no assurance that the Company will be able to
successfully extend its technology to the mapping of atrial fibrillation or
obtain regulatory approval to test and market any products developed using such
technology to map atrial fibrillation. In addition, the Company has made and
expects to continue to make significant research and development expenditures in
extending its technology to the diagnosis of atrial fibrillation. There can be
no assurance that the Company will realize any benefit from these expenditures.
Atrial fibrillation is a complex disease and the subject of continuing
research. The therapies presently available for atrial fibrillation are in the
developmental stage with no proven effectiveness. Even if the
8
<PAGE>
Company is successful in extending its technology to provide products that are
capable of diagnosing atrial fibrillation, there can be no assurance that
treatments for atrial fibrillation will exist that will require the diagnostic
capabilities of any products developed by the Company. As a result, there can be
no assurance that a commercial market will ever develop for any product
developed by the Company for the diagnosis of atrial fibrillation. See
"Business--Background--Supraventricular Tachycardia."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has generated no revenue and has sustained significant operating
losses each year since its inception. As of December 31, 1996, the Company had
an accumulated deficit of approximately $16.6 million. Net losses for the years
ended December 31, 1994, 1995 and 1996 were approximately $4.4 million, $4.7
million and $6.5 million. The Company expects such losses to continue at least
through 1999. There can be no assurance that the Company will ever generate
substantial operating revenues or achieve profitability. The Company's ability
to generate revenues from operations and achieve profitability is dependent upon
successful development, regulatory approval, manufacturing and commercialization
of the EnSite System and the Company's successful transition from a development
stage company to a manufacturing and sales company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
SIGNIFICANT COMPETITION; RAPID TECHNOLOGICAL CHANGE
The cardiac medical device market is highly competitive and characterized by
rapid innovation and technological change. The Company's EnSite System for the
mapping of ventricular tachycardia is a new technology that must compete with
more established mapping procedures and devices such as single-point contact
catheters that are currently widely used to map tachycardia and which are
generally less expensive and, unlike EnSite catheters, are generally reused
after resterilization. In addition, several competitors are developing new
approaches and new products for diagnosing ventricular tachycardia and atrial
fibrillation, including contact mapping systems using multi-electrode basket
contact catheters and single-point mapping technologies. Certain competitors
have integrated product lines that include products for both diagnosis and
ablation treatment, which may afford opportunities for product bundling and
other marketing advantages. Many of the Company's competitors have an
established presence in the field of electrophysiology and established
relationships with electrophysiology labs. Many of these competitors have
substantially greater financial and other resources than the Company, including
larger research and development staffs and more experience and capabilities in
conducting research and development activities, testing products in clinical
trials, obtaining regulatory approvals, and manufacturing, marketing and
distributing products. There can be no assurance that the Company will succeed
in developing and marketing technologies and products that are more clinically
efficacious or cost-effective than the more established products or the new
approaches and products developed and marketed by its competitors. Certain of
the Company's competitors may achieve patent protection, regulatory approval or
product commercialization more quickly than the Company, which may negatively
impact the Company's ability to compete. The failure of the Company to
demonstrate the efficacy and cost-effectiveness of its products as compared to
those of its competitors or the failure to develop new technologies and products
before its competitors would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Competition."
The medical device industry is subject to rapid technological innovation
and, consequently, the life cycle of any particular product is short. There can
be no assurance that alternative diagnostic systems or other discoveries and
developments with respect to mapping tachycardia will not render the Company's
products obsolete. Furthermore, the greater financial and other resources of
many of the Company's competitors may permit such competitors to respond more
rapidly than the Company to technological advances. See "Business--Competition."
9
<PAGE>
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to preserve and
continue to obtain patent protection for its proposed products and processes, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. As of the date of this Prospectus, two United States
patents have been issued covering certain aspects of the technology embodied in
the EnSite System. The Company has also filed and has pending several foreign
patent applications directed to various aspects of the technology underlying the
EnSite System. See "Business--Patents and Propriety Rights." The patent
positions of medical device companies, including the Company, are uncertain and
involve complex and evolving legal and factual questions. There can be no
assurance that any pending or future patent applications will result in issued
patents, that any current or future patents will not be challenged, invalidated
or circumvented, that the scope of any of the Company's patents will exclude
competitors or that the rights granted thereunder will provide any competitive
advantage to the Company, that any of the Company's patents will be held valid
if subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held by the Company. Furthermore,
there can be no assurance that others will not independently develop similar
technologies or duplicate any technology by the Company or that the Company's
technology will not infringe patents or other rights owned by others. Moreover,
the Company cannot be certain that it was the first to make the inventions
covered by each of its issued patents and its pending patent applications, or
that it was the first to file patent applications for such inventions. In
addition, there can be no assurance that competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use or sell its products
either in the United States or in international markets. Further, the laws of
certain foreign countries may not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and competitors may
resort to intellectual property litigation as a means of competition.
Intellectual property litigation is complex and expensive and the outcome of
such litigation is difficult to predict. There can be no assurance that the
Company will not become subject to patent infringement claims or litigation in a
court of law, or interference proceedings declared by the United States Patent
and Trademark Office to determine the priority of inventions or an opposition to
a patent grant in a foreign jurisdiction. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to the Company, may also
be necessary to enforce patent or other intellectual property rights of the
Company or to determine the scope and validity of other parties' proprietary
rights. There can be no assurance that the Company will have the financial
resources to assert patent infringement suits or defend itself from claims of
invalidity. An adverse determination in any litigation could subject the Company
to significant liabilities to third parties, require the Company to seek
licenses from or pay royalties to third parties that may be substantial.
Furthermore, there can be no assurance that the necessary licenses would be
available to the Company on satisfactory terms, if at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing, selling
or using its proposed products, any of which would have a material adverse
effect on the Company's business, financial condition, results of operations and
prospects.
In addition to patents, the Company relies on trade secrets and proprietary
knowledge, which it seeks to protect, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that the Company's proprietary information or confidentiality
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 to or independently developed by competitors. See "Business--Patents and
Proprietary Rights."
10
<PAGE>
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK
The Company has only limited experience in manufacturing the EnSite catheter
and the patient interface unit of the EnSite System's clinical workstation. The
Company currently manufactures its catheters and patient interface units in
limited quantities for laboratory and clinical testing and intends to
manufacture the EnSite catheter for commercial sale. The Company has no
experience manufacturing its products in the volumes that will be necessary for
the Company to achieve significant commercial sales, and there can be no
assurance that reliable, high-volume manufacturing capacity can be established
or maintained at commercially reasonable costs. If the Company receives FDA or
foreign approval for its products, it will need to expend significant capital
resources and develop the necessary expertise to establish large-scale
manufacturing capabilities. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply shortages, shortages of
qualified personnel, compliance with FDA and foreign regulations, and the need
for further FDA or foreign regulatory approval of new manufacturing processes.
Any inability of the Company to establish and maintain large-scale manufacturing
capabilities would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's manufacturing facilities will be subject to periodic
inspection by United States and foreign regulatory authorities. In order to
manufacture products for sale in the United States, the Company's operations
must undergo GMP compliance inspections conducted by the FDA. To date, the
Company's facilities and manufacturing processes have not undergone any such
inspections. The Company will be required to comply with ISO 9001 standards in
order to sell its products in Europe. Any failure of the Company to comply with
GMP or ISO 9001 standards may result in the Company being required to take
corrective actions, such as modification of its manufacturing policies and
procedures. In addition, the Company may be required to cease all or part of its
operations for some period of time until it can demonstrate that appropriate
steps have been taken to comply with GMP or ISO 9001 regulations. There can be
no assurance that the Company will be found in compliance with GMP or ISO 9001
standards in future audits by regulatory authorities or that the Company will
not experience difficulties in the course of developing its manufacturing
capability. A failure to comply with GMP or ISO 9001, or to develop its
manufacturing capability in compliance with such standards, would prohibit the
Company from manufacturing and distributing its products and therefore have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SUPPLIERS
The Company purchases raw materials and certain key components of its
products, including the computer workstation and certain components for its
catheter from sole, single or limited source suppliers. For certain of these
components, there are relatively few alternative sources of supply. The Company
currently has no agreements that would assure delivery of raw materials and
components from such suppliers. Establishing additional or replacement suppliers
for any of the numerous components used in the Company's products, if required,
may not be accomplished quickly and could involve significant additional costs.
The inability of any of the Company's suppliers to provide an adequate supply of
components in a timely manner, or the inability of the Company to locate
qualified alternative suppliers for materials and components at a reasonable
cost, could adversely affect the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
NEED TO MANAGE EXPANDING OPERATIONS
In order to complete clinical trials in progress, prepare additional
products for clinical trials, and develop future products, the Company believes
that it will be required to expand its operations, particularly in the areas of
research and development, manufacturing, quality assurance and sales and
marketing. As the Company expands its operations in these areas, such expansion
will likely result in new and increased responsibilities for management
personnel. To accommodate any such growth and compete
11
<PAGE>
effectively, the Company will be required to implement and improve information
systems, procedures, and controls, and to expand, train, motivate and manage its
work force. The Company's future success will depend to a significant extent on
the ability of its current and future management personnel to operate
effectively, both independently and as a group. There can be no assurance that
the Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial and management systems or to expand, train,
motivate or manage employees as required by future growth, if any, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on Key Personnel; Need for Additional
Personnel" and "Business--Employees" and "Management."
LACK OF COMMERCIAL SALES AND MARKETING EXPERIENCE
The Company has no experience marketing the EnSite System and has not yet
entered into any marketing or distribution arrangements for the system or hired
sales personnel. There can be no assurance that the Company will be able to
build and maintain a suitable sales force or enter into satisfactory marketing
arrangements with third parties when commercial potential develops, if ever, or
that its sales and marketing efforts will be successful. See "Business--Sales
and Marketing."
RISKS RELATING TO INTERNATIONAL OPERATIONS
The Company plans to market the EnSite System through distributors in
international markets, subject to receipt of required foreign regulatory
approvals. Sales in foreign markets are initially expected to be the Company's
only source of revenue. The Company is obligated by agreement to extend a right
of first offer for distribution outside North America to Medtronic. See "Certain
Transactions." There can be no assurance that international distributors for the
Company's products will devote adequate resources to selling its products.
Changes in overseas economic conditions, currency exchange rates, foreign
tax laws or tariffs or other trade regulations could have a material adverse
effect on the Company's ability to market its products internationally and
therefore on its business, financial condition and results of operations. The
Company's business is also expected to subject it and its representatives,
agents and distributors to laws and regulations of the foreign jurisdictions in
which they operate or the Company's products are sold. The Company may depend on
foreign distributors and agents for compliance and adherence to foreign laws and
regulations. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and
there can be no assurance that new laws or regulations will not have an adverse
effect on the Company's business, financial condition and results of operations.
In addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States. See "Business--Sales and Marketing."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The success of the Company is dependent in large part upon the ability of
the Company to attract and retain key management and operating personnel.
Qualified individuals are in high demand and are often subject to competing
offers. In the future, the Company will need to add additional skilled personnel
in the areas of research and development, sales, marketing and manufacturing.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel needed for its business. The loss of the services of one
or more members of the Company's research, manufacturing or management group or
the inability to hire additional personnel as needed would likely have a
material adverse effect on the Company's business and prospects.
12
<PAGE>
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The proceeds of the Offering, together with cash flow from operations, are
expected to be sufficient to fund the Company's operations for at least two
years following the consummation of the Offering. The Company may require
substantial additional funds to meet its working capital requirements for
continued research and development, testing, regulatory approval and full-scale
commercial introduction of its EnSite System. In order to meet its needs beyond
this two-year period, the Company may be required to raise additional funds
through public or private financings, including the sale of equity or debt. Any
additional equity financings may be dilutive to purchasers in the Offering, and
debt financing, if available, may involve restrictive covenants. Adequate funds
for the Company's operations, whether from financial markets or from other
sources, may not be available when needed on terms attractive to the Company, if
at all. Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its programs designed to facilitate the commercial
introduction of the EnSite System or prevent such commercial introduction
altogether. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT
Sales of the Company's proposed products in most markets in the United
States and internationally will be dependent on availability of adequate
reimbursement for tachycardia diagnostic procedures from third-party healthcare
payors, such as government and private insurance plans, health maintenance
organizations and preferred provider organizations. In the United States, the
Company's products, if and when approved for commercial sale, would be purchased
primarily by medical institutions which then bill various third party payors,
such as Medicare, Medicaid and other government programs and private insurance
plans, for the health care services provided to their patients. Government
agencies, and certain private insurers and certain other payors generally
reimburse hospitals for medical treatment at a fixed rate based on the diagnosis
related group ("DRG") established by the federal Health Care Financing
Administration ("HCFA") which covers that treatment. The Company believes that
cardiac mapping procedures utilizing the EnSite catheter are eligible for
reimbursement under an existing DRG reimbursement code for cardiac mapping.
However, third-party payors are increasingly challenging the pricing of medical
products and procedures. Even if a procedure is covered by a DRG, payors may
deny reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate or not cost-effective, experimental or used for a
non-approved indication.
The Company believes that the improved mapping technology of the EnSite
System will enable catheter ablation for treating complex VT. This represents a
potentially significant new patient population for which reimbursement may be
sought under existing reimbursement codes. Third-party payors have challenged,
and in certain circumstances have ceased, reimbursement for procedures under
existing codes where the aggregate level of reimbursement has been significantly
increased and required, following further study, regarding safety and efficacy
establishment of new reimbursement codes. Further, it is anticipated that the
Company's EnSite catheter will be sold at a premium in comparison to existing
single point catheters used in current diagnostic or mapping procedures, in
addition to requiring an initial capital outlay for the companion clinical
workstation. In addition to establishing the safety and efficacy of the EnSite
System, and assuming little or no increase in the level of reimbursement for
cardiovascular procedures expected to utilize the Company's products, the
Company will be required to economically justify the relative increased cost of
utilizing the EnSite System by satisfactorily demonstrating the enhanced
benefits of the EnSite System to hospitals and physicians in terms of such
factors as enhanced patient procedural efficiencies, reduced radiation exposure
and improved patient outcomes. There can be no assurance that adequate levels of
reimbursement will be available to enable the Company to achieve or maintain
market acceptance of its products or maintain price levels which exceed the
Company's costs of developing and manufacturing its products. In addition, use
of the Company's products will also depend on the adequacy of third-party
reimbursement for treatments that would be used in connection with the
13
<PAGE>
Company's products, such as catheter ablation treatment. There can be no
assurance that adequate levels of reimbursement for ablation treatment will be
available to support the use of the Company's products. Without adequate support
from third-party payors, the market for the Company's products may be severely
limited. Moreover, the Company is unable to predict what additional legislation
or regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such
legislation or regulation would have on the Company. There is significant
uncertainty concerning third-party reimbursement of medical devices, and there
can be no assurance that third-party reimbursement will be available in the
future for the EnSite System or that any third-party reimbursement that is
obtained will be adequate. Any failure to obtain third-party reimbursement for
diagnostic procedures using the Company's products or treatment procedures that
rely on the Company's products could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business--Third-Party Reimbursement for the Company's Products."
The Company expects that there will be continued pressure on
cost-containment throughout the United States health care system. Reforms may
include mandated basic health care benefits, controls on health care spending
through limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending, the creation of large insurance purchasing
groups and fundamental changes to the health care delivery system. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative health care delivery systems and payment methodologies and
public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when such proposals may be adopted or what
impact they may have on the Company. See "Business--Third-Party Reimbursement
for the Company's Products."
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets there are private insurance systems as
well as government managed systems. There can be no assurance that reimbursement
for the Company's products will be available in international markets under
either government or private reimbursement systems. See "Business--Third-Party
Reimbursement for the Company's Products."
PRODUCT LIABILITY RISK
The Company faces an inherent business risk of exposure to product liability
claims in the event that an electrophysiology patient is adversely affected by
its products. The Company currently carries a product liability insurance policy
covering the Company's clinical trial operations with an aggregate limit of $5
million, although there can be no assurance that the Company's existing
insurance coverage limits are adequate to cover the Company from any liabilities
it might incur in connection with the distribution of its products. Although the
Company expects to obtain product liability insurance coverage in connection
with the commercialization of the EnSite System, there can be no assurance that
such insurance will be available on commercially reasonable terms, or at all, or
that such insurance, even if obtained, would adequately cover any product
liability claim. A product liability or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE
Prior to the Offering there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market will
develop or be sustained upon completion of the Offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price of the Common Stock will be determined by
negotiations between the
14
<PAGE>
Company and the Representatives of the Underwriters and may not be indicative of
the prices that will prevail in the public market.
The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in the Company's
operating results, announcements by the Company or its competitors regarding the
results of regulatory approval filings or clinical trials or testing,
developments or disputes concerning proprietary rights, technological
innovations or new commercial products, governmental regulatory action,
third-party reimbursement decisions, general conditions in the medical
technology industry, or other events or factors, many of which are beyond the
Company's control. In addition, the stock market has experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many medical technology companies and which have often been unrelated to the
operating performance of such companies. See "Underwriting."
SIGNIFICANT STOCKHOLDERS; ANTITAKEOVER CONSIDERATIONS
Upon completion of the Offering, the Company's directors and executive
officers beneficially will own in the aggregate approximately 5.6%, and certain
of the Company's other principal stockholders (which are affiliated with certain
of the Company's directors and executive officers) beneficially will own in the
aggregate approximately 53.5%, of the Company's outstanding Common Stock
(including shares subject to outstanding options and warrants). See "Principal
Stockholders." Certain substantial stockholders will be able to substantially
influence the business and affairs of the Company, including the election of
individuals to the Company's Board of Directors, and to otherwise affect the
outcome of certain actions that require stockholder approval, including the
adoption of amendments to the Company's certificate of incorporation, and
certain mergers, sales of assets and other business acquisitions or
dispositions.
Upon completion of the Offering, the Company will have authorized a class of
10,000,000 shares of undesignated preferred stock, $.01 par value, which may be
issued by the Company's Board of Directors on such terms, and with such rights,
preferences and designations, as the Company's Board of Directors may determine.
In addition, the Company's Bylaws provide for a classified Board of Directors
elected to staggered terms. Finally, the Company is subject to certain
provisions of the Delaware General Corporation Law which limit the voting rights
of shares acquired in certain acquisitions and restrict certain business
combinations. Some or all of the foregoing factors could have the effect of
discouraging certain attempts to acquire the Company which could deprive the
Company's stockholders of opportunities to sell their shares of Common Stock at
prices higher than prevailing market prices. See "Description of Capital Stock--
Preferred Stock" and "--Provisions of the Company's Amended and Restated
Certificate of Incorporation and Amended Bylaws and the Delaware General
Corporation Law."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 8,759,031 shares of Common Stock to
be outstanding upon completion of the Offering, the 3,000,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless they are held by "affiliates" of the Company within the
meaning of Rule 144 of the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 5,759,031 shares of Common Stock held by existing
stockholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act. The Company, its
directors, officers and certain of its stockholders (beneficially holding an
aggregate of 11,241,691 of such restricted shares) have agreed that they will
not sell, directly or indirectly, any Common Stock without the prior consent of
Piper Jaffray Inc. for a period of 180 days from the date of this Prospectus.
Beginning on the 181st day after the date of this Prospectus, when agreements
not to sell such shares expire, approximately 3,650,654 of the restricted shares
will become eligible for immediate sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, and approximately
15
<PAGE>
1,131,526 of the restricted shares may become eligible for immediate sale
without restriction pursuant to Rule 144(k). In addition, certain stockholders,
beneficially holding an aggregate of 4,705,603 shares of Common Stock, have the
right, subject to certain conditions, to include their shares in future
registration statements relating to the Company's securities and to cause the
Company to register certain Common Stock owned by them. See "Shares Eligible for
Future Sale" and "Underwriting."
NO DIVIDENDS
The Company has never paid or declared a dividend on its capital stock and
does not anticipate doing so for the foreseeable future. See "Dividend Policy."
DILUTION
Purchasers of the shares offered hereby will experience an immediate
dilution of $6.84 in net tangible book value per share of Common Stock from the
assumed initial public offering price of $11.00 per share. See "Dilution."
16
<PAGE>
SALE OF SHARES TO MEDTRONIC
As part of this Offering, the Company intends to sell at the Price to Public
up to 750,000 shares of Common Stock to Medtronic. Medtronic currently owns
976,850 shares of Common Stock of the Company, which represents approximately
17.0% of the Company's outstanding Common Stock. If Medtronic purchases 750,000
shares of the Common Stock offered hereby, Medtronic will own 19.7% of the
Company's outstanding Common Stock upon completion of this Offering. See
"Principal Stockholders" and "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $30.3 million ($34.9 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated expenses of the Offering and assuming an
initial public offering price of $11.00 per share.
The Company anticipates that the net proceeds, including interest earned
thereon, will be used to fund the following: continued development and testing
of, and including clinical trials for, the EnSite System; capital expenditures,
primarily the development of an initial and a full-scale commercial
manufacturing and assembly line; research and development, manufacturing and
marketing activities; and working capital and other general corporate purposes.
The amounts actually expended for these purposes will depend upon numerous
factors, including the results of clinical studies, the design and cost of the
Company's manufacturing and assembly line, the status of competitive products
and other factors. Pending the use of the net proceeds of the Offering, the
Company will invest the funds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock since its inception. The Company currently intends to invest any earnings
in the development and expansion of its business and does not intend to pay
dividends in the foreseeable future. The payment of dividends, if any, in the
future will be at the discretion of the Board of Directors and will depend on
the Company's earnings, financial condition, capital requirements and other
relevant factors.
17
<PAGE>
DILUTION
The Company's pro forma net tangible book value at December 31, 1996, was
approximately $6,168,000 or $1.07 per share. Pro forma net tangible book value
per share represents total assets, less intangible assets and total liabilities,
divided by the number of shares outstanding, adjusted on a pro forma basis for
the conversion into Common Stock of all of the Company's outstanding shares of
Preferred Stock. Without taking into account any changes in such net tangible
book value per share after December 31, 1996, other than to give effect to the
sale of the shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 per share and the receipt of the net proceeds of such
sale, the pro forma net tangible book value per share at December 31, 1996 would
have been approximately $36,458,000 or $4.16 per share. This represents an
immediate increase in net tangible book value per share of $3.09 to existing
stockholders and an immediate dilution of $6.84 per share to new investors. The
following table sets forth this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 11.00
Pro forma net tangible book value per share as of December 31, 1996...... $ 1.07
Increase per share attributable to new investors......................... 3.09
---------
Pro forma net tangible book value per share after the Offering............... 4.16
---------
Dilution per share to new investors.......................................... $ 6.84
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the differences between existing stockholders and investors in the
Offering with respect to the total number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid (assuming the sale of 3,000,000 shares of Common Stock at an initial public
offering price of $11.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 5,759,031 65.7% $ 22,190,458 40.2% $ 3.85
New investors....................................... 3,000,000 34.3 33,000,000 59.8 11.00
---------- ----- ------------- -----
Total........................................... 8,759,031 100.0% $ 55,190,458 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) The above calculations do not give effect to the exercise of (i) outstanding
options to purchase 897,782 shares of Common Stock at a weighted average
exercise price of $1.14 per share outstanding on December 31, 1996, (ii)
options to purchase up to an additional 558,791 shares of Common Stock
available for issuance under the Company's Stock Option Plan and (iii)
outstanding warrants to purchase 56,607 shares of Common Stock at a weighted
average exercise price of $4.16 per share issued in connection with
equipment leasing transactions. To the extent that these options and
warrants become exercisable and are exercised, there will be further
dilution to new investors. See "Description of Capital Stock."
18
<PAGE>
CAPITALIZATION
The following table sets forth (i) the pro forma capitalization of the
Company at December 31, 1996, giving effect to the conversion of all outstanding
shares of Preferred Stock into Common Stock and the one-for-two reverse stock
split of the Common Stock to be effected immediately prior to consumation of the
Offering and (ii) such pro forma capitalization as adjusted to give effect to
the issuance and sale by the Company of the 3,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share
and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
PRO FORMA,
PRO FORMA AS ADJUSTED
----------- -----------
(in thousands)
<S> <C> <C>
Long-term debt, less current portion.................................................... $ 302 $ 302
----------- -----------
Stockholders' equity:
Undesignated preferred stock, $.01 par value, 10,000,000 shares authorized; none
issued and outstanding.............................................................. -- --
Common Stock, $.01 par value, 40,000,000 shares authorized; 5,759,031 shares issued
and outstanding, pro forma; 8,759,031 shares issued and outstanding, pro forma as
adjusted (1)........................................................................ 58 88
Additional paid-in capital............................................................ 23,490 53,750
Deficit accumulated during the development stage...................................... (16,623) (16,623)
Deferred compensation (2)............................................................. (711) (711)
----------- -----------
Total stockholders' equity.......................................................... 6,214 36,504
----------- -----------
Total capitalization.............................................................. $ 6,516 $ 36,806
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Excludes 897,782 shares of Common Stock issuable upon exercise of options
outstanding on December 31, 1996, which had a weighted average exercise
price of $1.14 per share. Also excludes 56,607 shares of Common Stock
issuable upon exercise of outstanding warrants which had a weighted average
exercise price of $4.16 per share. Reflects an increase in the authorized
shares of Common Stock to 40,000,000 to be effected immediately prior to
consumation of the Offering. See "Description of Capital Stock."
(2) Represents the unamortized value of stock options granted during the year
ended December 31, 1996. See Note 8 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following selected financial data of the Company are qualified by reference
to and should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Financial Statements
and the Notes thereto included elsewhere herein. The statement of operations
data for the years ended December 31, 1994, 1995 and 1996, and for the period
from May 21, 1992 (inception) to December 31, 1996, and the balance sheet data
at December 31, 1995 and 1996 are derived from, and are qualified by reference
to, the audited Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with those Financial Statements and Notes thereto.
The statement of operations data for the period from May 21, 1992 (inception) to
December 31, 1992 and for the year ended December 31, 1993 and the balance sheet
data at December 31, 1992, 1993 and 1994 are derived from audited financial
statements not included herein.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 21, 1992 MAY 21, 1992
(INCEPTION) TO YEAR ENDED DECEMBER 31, (INCEPTION)
DECEMBER 31, ------------------------------------------ TO DECEMBER
1992 1993 1994 1995 1996 31, 1996
--------------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development................... $ 16 $ 686 $ 3,352 $ 3,639 $ 4,425 $ 12,118
General and administrative................. 56 285 857 1,088 1,911 4,197
Sales and marketing........................ -- 39 282 123 374 818
----- --------- --------- --------- --------- ------------
Operating loss............................... (72) (1,010) (4,491) (4,850) (6,710) (17,133)
Interest income (expense), net............... -- 5 83 116 229 433
----- --------- --------- --------- --------- ------------
Net loss................................... $ (72) $ (1,005) $ (4,408) $ (4,734) $ (6,481) $ (16,700)
----- --------- --------- --------- --------- ------------
----- --------- --------- --------- --------- ------------
Pro forma net loss per share (1)............. $ (1.12)
---------
---------
Pro forma weighted average shares outstanding
(1)........................................ 5,809
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 2 $ 4,719 $ 305 $ 1,864 $ 6,157
Working capital (deficit).................................... (35) 4,675 (195) 1,417 5,549
Total assets................................................. 2 4,934 1,013 2,595 7,200
Long-term debt and capital lease obligations, less current
portion.................................................... -- -- 12 160 302
Deficit accumulated during the development stage............. (72) (1,001) (5,409) (10,143) (16,623)
Total stockholders' equity (deficiency) (2).................. (35) 4,884 476 1,916 6,214
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2 of the Notes to Financial
Statements.
(2) The Company has not declared or paid any dividend for any of the periods
presented. See "Dividend Policy."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Prospectus.
See "Risk Factors."
GENERAL
ESI is a development stage company incorporated on May 21, 1992 in Minnesota
and reincorporated in Delaware on January 30, 1995. ESI is engaged in the
development of the EnSite diagnostic catheter and clinical workstation for use
by electrophysiologists in diagnosing and mapping abnormal heart rhythms known
as tachycardia.
From inception through December 31, 1996, the Company has incurred losses
totaling $16.7 million, consisting of $12.1 million in research and development
expenses, $4.2 million in general and administrative expenses and $818,000 in
sales and marketing expenses, offset by $433,000 in net interest income. The
Company's activities have consisted of research and product development, initial
clinical trials, fund raising and development of the manufacturing processes and
marketing strategies needed to support the commercial introduction of the
Company's products. The Company expects cumulative net losses to increase
through 1999 because of anticipated spending necessary to complete the design
and development of its products, obtain regulatory approvals, introduce its
products in international markets, and establish and maintain its U.S. sales and
marketing organization. The Company anticipates that sales in certain
international markets will precede sales in the United States.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
GENERAL. Net losses increased to $6.5 million during 1996 from $4.7 million
during 1995 and $4.4 million during 1994.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $4.4 million during 1996 from $3.6 million during 1995 and $3.4
million during 1994. The increases were due primarily to the addition of
employees in software development and applied research and associated costs, as
well as the cost of prototypes of the workstation.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.9 million during 1996 from $1.1 million during 1995 and $857,000
during 1994. The increases were due to the establishment of a quality assurance
department and increases in facilities, furniture and fixtures.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $374,000
during 1996, up from $123,000 during 1995 and $282,000 during 1994. The decrease
during 1995 is primarily the result of reduced utilization of external
consultants. The increase in 1996 was due primarily to the addition of employees
and increases in associated expenses.
OTHER INCOME. Other income increased during 1996 to $229,000, from $116,000
during 1995 and $83,000 during 1994. The increases generally reflect increased
interest earned on increased average levels of cash and securities held by the
Company resulting from the proceeds of the sale of the Company's Preferred
Stock. (See Note 5 of Notes to Financial Statements.)
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations since inception have been funded by proceeds from
sales of its Capital Stock totaling $22.2 million. As of December 31, 1996, the
Company had cash and cash equivalents of $6.2 million and working capital of
$5.5 million.
The Company has entered into an equipment lease agreement with a venture
leasing company which provides lease financing of up to $1.0 million under a
lease line of credit for the acquisition of furniture, fixtures and equipment.
The line of credit expires on July 15, 1997, and as of December 31, 1996, there
remained $591,000 available under the line of credit. In consideration for the
line of credit, the Company has issued to the lessor a warrant for the purchase
of 7,500 shares of Common Stock at an exercise price of $10.24 per share. See
"Description of Capital Stock--Warrants and Options."
Management of the Company expects that the Company's existing cash balance
and borrowings available under the line of credit discussed above, along with
the anticipated net proceeds of the Offering, will be sufficient to fund the
operations of the Company through at least the next two years. The Company's
future liquidity and capital requirements will depend on numerous factors,
including the timing of regulatory actions regarding the Company's products, the
results of clinical trials and competition, the extent to which the Company's
EnSite System gains market acceptance and the costs and timing of expansion of
sales, marketing and manufacturing activities. However, the Company may be
required to raise additional capital. There can be no assurance that such
capital will be available on acceptable terms, or at all. See "Risk
Factors--Future Capital Requirements; No Assurance Future Capital Will Be
Available."
22
<PAGE>
BUSINESS
THE COMPANY
Endocardial Solutions, Inc. ("ESI" or the "Company") designs, develops, and
manufactures a minimally invasive diagnostic system that diagnoses, within the
span of a few heartbeats, tachycardia, a potentially fatal abnormal heart
rhythm. The Company believes that its proprietary EnSite catheter and clinical
workstation (together, the "EnSite System") is a powerful new diagnostic tool
that will enable electrophysiologists to rapidly and comprehensively map
tachycardia and improve the selection of patient treatment options. The Company
has conducted clinical trials of the EnSite System in Europe on 15 patients for
ventricular tachycardia and on seven patients for supraventricular (atrial)
tachycardia. The Company has begun a limited clinical trial on ventricular
tachycardia patients in the United States under an investigational device
exemption ("IDE") from the FDA. The Company anticipates that this and additional
clinical trials will be used to support a pre-market approval ("PMA")
application to obtain approval to market the EnSite System for the treatment of
ventricular tachycardia in the United States.
BACKGROUND
The heart consists of four chambers: the ventricles, the lower two chambers,
and the atria, the upper two chambers. A normal heartbeat is the result of
electrical impulses generated at the sinoatrial node, the heart's natural
pacemaker located near the top of the right atrium. These impulses form a wave
of electrical activation that travels down the atria, causing them to contract
and fill the ventricles, the heart's primary pumping chambers, with blood. After
a brief delay in the atrioventricular node, located between the chambers, the
electrical activation wave enters the ventricles and produces a coordinated
contraction of the ventricles that pumps blood throughout the body's circulatory
system. The following diagrams illustrate the four chambers of the heart and the
pathway of electrical conduction within the heart.
[ILLUSTRATION]
When defects in the heart tissue interfere with the normal formation or
conduction of the heart's electrical activity, abnormal heart rhythms, known as
cardiac arrhythmias, develop. Cardiac arrhythmias have numerous causes,
including congenital defects, tissue damage due to heart attacks or
arteriosclerosis (the deposition of fatty substances in the inner layer of the
arteries) and other diseases, that accelerate, delay or redirect the
transmission of electrical activity, thereby disrupting the normal coordinated
contractions of the chambers. Arrhythmias characterized by an abnormally fast
heart rate (more than 100 beats per minute) are known as tachycardia.
23
<PAGE>
Tachycardia fall into two categories, ventricular tachycardia (VT) and
supraventricular tachycardia (SVT). VT are tachycardia that originate in the
ventricles. SVT originate in the atria or at the junction between the atria and
the ventricles. Approximately four million people in the United States suffer
from some form of tachycardia.
VENTRICULAR TACHYCARDIA
CHARACTERISTICS OF VENTRICULAR TACHYCARDIAS. Ventricular tachycardia, which
afflicts approximately one million Americans, is a potentially life-threatening
condition caused either by abnormally rapid impulse formation or by slow
ventricular conduction which interferes with the heart's normal electrical
activity and causes abnormally frequent contractions of the ventricles. Rapid
ventricular contractions often result in significantly reduced cardiac output
due to inefficient blood pumping. As a result, the body receives an inadequate
supply of oxygen, which can cause dizziness, unconsciousness, cardiac arrest and
death. VT conditions tend to become more serious over time. Individuals with VT
are at risk of imminent death due to its unpredictable nature.
Many VT result from heart attacks caused by coronary artery disease. When a
heart attack occurs due to a blockage in one or more coronary arteries, a
portion of the heart muscle (most often in the left ventricle) dies. As a
result, irregular borders consisting of intermixed healthy and scar tissue are
formed and VT typically originate at these sites. As the average age of the U.S.
population increases, it is expected that the number of persons who suffer heart
attacks and are at risk of VT will also increase.
VT is a highly complex and transient form of cardiac arrythmia which varies
significantly from patient to patient. A small percentage of ventricular
tachycardia patients have simple forms of the disease which are focused on a
single anatomic site within the ventricle. However, the vast majority of VT
patients suffer from complex VTs that (i) have multiple sites of aberrant
electrical activity, (ii) prevent sufficient cardiac output, making them
dangerous to induce in the patient (which is required for diagnosis) and (iii)
are nonsustained and, consequently, are only detectable for several heartbeats.
DIAGNOSING VENTRICULAR TACHYCARDIA. Patients suspected of suffering from VT
are initially screened by a cardiologist by means of external cardiac
monitoring, typically in the form of an electrocardiogram or Holter recording,
which captures electrical activity from surface leads placed on the patient's
chest for 24 hours. When further testing is warranted, the patient is referred
to a cardiac electrophysiologist for a cardiac electrophysiology ("EP") study.
An EP study evaluates the electrical integrity of the heart by stimulating
multiple intra-cardiac sites and recording the electrical response. During an EP
study a patient's clinical tachycardia is induced in a controlled setting in
order to diagnose the tachycardia and select an appropriate treatment or
combination of treatments. EP studies using currently available technology are
lengthy and tedious procedures which consist of probing the interior of the left
ventricle with single-point contact catheters, causing significant discomfort
for the patient. In order to analyze the information generated by single-point
contact catheters for the purpose of prescribing treatment, electrophysiologists
review the signals measured by these catheters as multiple rows of waveforms
displayed on a computer screen. Two or more catheters are often used to provide
more information to the electrophysiologist and thereby aid in identifying the
sites of origin of tachycardia. The electrophysiologist generally constructs a
mental image of the sites of the VT within the heart's chamber by calculating
the relative timing of electrical activation among the waveforms displayed on
the computer screen. The electrophysiologist then estimates the site or sites of
origin (which correspond to the physical positions of the catheters) through
two-dimensional fluoroscopic (x-ray) projections. As the tachycardia becomes
more complex, the electrophysiologist's reconstruction of the heart's electrical
activity and location of the sites of origin becomes more difficult.
The limited number of patients suffering from simple forms of VT have been
effectively diagnosed using existing single-point contact catheter technology
with diagnostic procedures that can be time consuming, tedious and invasive.
However, single-point contact catheters have limited utility in diagnosing
24
<PAGE>
complex ventricular tachycardia. The limited data produced in point-by-point
mapping often does not provide the electrophysiologist with sufficient
diagnostic power for a complete understanding of the ventricular tachycardia.
Moreover, when attempted, diagnosing complex ventricular tachycardia with
single-point, contact catheters can take from six to twelve hours and requires
significant use of fluoroscopy to guide the catheter, which exposes both the
patient and the medical staff to radiation.
In an effort to address the diagnostic shortcomings of single-point contact
catheters, there are currently under development several "basket" contact
catheters measuring multiple points of electrical activity simultaneously. These
basket catheters will require contact with the heart's surface for measurement
of electrical activity, and the Company believes that these catheters will
suffer from many of the shortcomings of single-point contact catheters.
TREATMENTS FOLLOWING DIAGNOSIS OF VENTRICULAR TACHYCARDIA. Once a patient's
VT is diagnosed, the electrophysiologist chooses among the various treatment
options available. Noncurative treatments include antiarrhythmic drugs and
implantable defibrillators, both of which attempt to ameliorate the patient's
condition and reduce the risks associated with the VT but do not eliminate the
cause of the tachycardia. Historically, the only curative treatment available
for VT was open heart surgery, but it has been rarely used due to its high
morbidity and mortality. More recently, however, catheter ablation, a
potentially curative treatment currently under development, has been used in a
limited number of cases for complex VT. Often electrophysiologists prescribe a
combination of drugs, defibrillators and ablation for the treatment of VT.
The table below describes the principal treatment options for VT.
<TABLE>
<CAPTION>
IMPLANTABLE
ANTIARRHYTHMIC DEFIBRILLATION CATHETER
DRUG TREATMENT DEVICES ABLATION
--------------------- -------------------- ---------------------
<S> <C> <C> <C>
Result of Treatment........................... Non-curative Non-curative Potentially Curative
Invasiveness.................................. Non-invasive Invasive Minimally invasive
Approximate Cost.............................. $16,000 initially $55,000 $16,000
and (approximately
$8,000 per year five to seven year
device life)
</TABLE>
Antiarrhythmic drugs, which are prescribed to chemically suppress the
arrhythmic activity, have to date been the most common treatment of VT.
Antiarrhythmic drugs are not curative and can result in considerable side
effects limiting the effectiveness of the drugs and the ability of patients to
use them over long periods of time.
Automatic implantable cardioverter defibrillators ("ICDs"), which detect and
stop a tachycardia once it has started by pacing or by applying high energy
pulses, have also become a common treatment for VT. The useful life of an ICD is
approximately three to five years, at the end of which time the ICD is generally
replaced in another surgical procedure. Many ICD patients also receive
antiarrhythmic drug therapy in an attempt to minimize the frequency of VT
episodes.
There is increasing interest in the United States and Europe in using
catheter ablation to treat VT. Catheter ablation is a minimally invasive and
potentially curative treatment in which a radio frequency current is emitted
from a catheter to selectively destroy the heart tissue responsible for the
abnormal electrical activity. The use of catheter ablation to date has been
limited due to the inability of single-point contact catheters to effectively
map complex VT cases. Although catheter ablation is not yet commonly prescribed
to treat VT and the devices have not yet been approved by the FDA for marketing
in the United States for treatment of VT, it is the subject of increasing
technological research and development.
25
<PAGE>
The Company believes catheter ablation could become a more commonly used
treatment for VT with advances in diagnostic technology such as that being
developed by the Company.
SUPRAVENTRICULAR TACHYCARDIA
Approximately three million of the four million people in the United States
who suffer from tachycardia have some form of SVT. Supraventricular tachycardia
is an abnormally rapid beating of the atria which may reduce the amount of blood
pumped into the ventricles, and, consequently, from the ventricles to the rest
of the body. Although SVT can be debilitating, causing chest palpitations,
fatigue and dizziness, it is generally not life-threatening. The principal types
of SVT are Wolff-Parkinson-White syndrome (WPW), Atrioventricular Nodal
Re-entrant Tachycardia (AVNRT), and atrial fibrillation and flutter.
Approximately one million people in the United States suffer from WPW and
AVNRT. The tachycardia associated with WPW and AVNRT are generally easy to
diagnose and locate due to their more simple, single-site nature and predictable
location within the atria. WPW and AVNRT have been effectively treated by
catheter ablation with available contact catheters.
Approximately two million people in the United States suffer from atrial
fibrillation or atrial flutter. Atrial fibrillation is characterized by a
disorganized and chaotic conduction of electrical activation, which results in
ineffective pumping of the atria. Under these conditions, blood tends to pool
and clot, increasing the risk of stroke. The American Heart Association
estimates that approximately 25 percent of all strokes in the United States are
caused by atrial fibrillation. The incidence of atrial fibrillation is linked to
aging and thus is expected to increase as the average age of the United States
population increases.
Typically, diagnosis of atrial fibrillation is easily discerned through an
electrocardiogram recording. Beyond initial detection, electrophysiologists have
had limited success in mapping atrial fibrillation using current single-point
technology due to its highly complex and chaotic nature. The inability to
effectively map and understand the origins of atrial fibrillation has hindered
the development of treatments for the disease.
Antiarrhythmic drugs and anticoagulation therapy are the most commonly
prescribed treatments for atrial fibrillation, but they are not curative and
have undesirable side effects. The only known curative treatment for atrial
fibrillation is a costly and rarely performed open heart surgical procedure
known as the surgical maze procedure. The incisions made in this surgery
electrically isolate the atria into regions that can no longer maintain
fibrillation. In addition, an atrial defibrillator is under development for
detecting and controlling atrial fibrillation with low energy shocks.
Catheters have been approved for ablation treatments in the atria; however,
due to the limited understanding of atrial fibrillation, to date they have not
proven effective. Catheters are under development for potentially curative
ablation of atrial fibrillation. One type of catheter under development is
designed to create linear lesions along the interior wall of the atrium to
electrically isolate regions of the chamber in a manner similar to the surgical
maze procedure. Other emerging methods are aimed at more localized ablation
treatment based on a hypothesis that atrial fibrillation is maintained in an
electrically localized region of the chamber, requiring detailed mapping.
The Company believes that the complexity of atrial fibrillation and the
search for effective and curative treatments, including catheter ablation, will
require a diagnostic mapping technology that provides much greater resolution
and diagnostic capabilities than currently available technology.
THE ESI SOLUTION
The Company is developing its proprietary EnSite System to address the need
for more rapid, comprehensive and cost-effective diagnosis of complex forms of
VT and SVT. The high resolution, three-dimensional, color display generated by
the EnSite System is designed to provide electrophysiologists
26
<PAGE>
greater diagnostic capabilities than single-point contact catheter mapping
devices currently available. The EnSite System will provide electrophysiologists
with a real time, virtual image of the electrical activity of the heart without
contacting the heart's surface. The EnSite System displays more than 3,000
points of electrical activity using the Company's proprietary algorithms.
Diagnosis will be enhanced by the "virtual electrogram" function of the EnSite
System workstation that allows electrophysiologists to instantaneously view the
electrical activity at any of the more than 3,000 points displayed by selecting
a specified point on the workstation's three-dimensional color map of the heart
with the workstation's mouse pointer. In addition, the locator function of the
EnSite System workstation will also enhance diagnosis and treatment by providing
electrophysiologists with real-time feedback as to the precise location of
auxiliary catheters introduced into the heart.
The Company believes that its EnSite System for mapping tachycardia has the
following benefits over currently available single-point contact catheters:
- ENHANCED DIAGNOSTIC CAPABILITY. The diagnostic power of the EnSite System
is designed to enable electrophysiologists to make more informed decisions
in choosing optimal treatment for tachycardia patients. The high
resolution, three-dimensional color map generated by the EnSite System
should greatly enhance electrophysiologists' diagnostic capabilities
through the system's ability to capture and display a significantly
greater amount of electrical data than can be generated with currently
available contact catheters.
- ABILITY TO MAP COMPLEX TACHYCARDIAS. ESI believes that its technology will
enable electrophysiologists to map complex forms of VT and SVT in the
majority of patients who cannot be mapped effectively using currently
available technology.
- REDUCED PROCEDURAL TIME. Currently available single-point contact
catheters can require several hours of overall procedural time to diagnose
simple tachycardia and can require between six and twelve hours to
diagnose complex tachycardia. The Company believes that the EnSite System
can reduce the overall procedure time significantly, greatly increasing
the number of patients who may be candidates for diagnosis using cardiac
mapping technology.
- REDUCED RADIATION EXPOSURE. The Company believes that the speed with which
its technology can map the heart's electrical activity and locate
auxiliary catheters will reduce the amount of time that patients and
medical staff are exposed to radiation from fluoroscopy, the effects of
which are cumulative.
- REDUCED COSTS. The Company believes that the EnSite System will reduce the
costs associated with treating complex tachycardia by significantly
reducing the amount of time required to locate and diagnose abnormal heart
rhythms and by enabling electrophysiologists to select potentially less
costly treatment for patients.
STRATEGY
The Company's strategy is to establish the EnSite System as the leading
diagnostic tool for diagnosing tachycardia in the more than 700
electrophysiology laboratories in the United States and those in Europe and
Japan. The key elements of the Company's strategy are as follows:
- DEMONSTRATE SAFETY AND CLINICAL EFFICACY. The EnSite System represents a
new technology for mapping tachycardia. In order to gain acceptance of
this technology in electrophysiology labs, the Company must demonstrate
the safety and effectiveness of the EnSite System through successful
clinical trials. Since October 1995, the Company has conducted clinical
trials in Europe on fifteen patients using the EnSite System for
diagnosing VT, and in December 1996 received an IDE from the FDA for, and
began in January 1997, a limited clinical trial on five patients in the
United States. The Company will file results of its studies and other
product information with the FDA and the appropriate bodies in Europe in
order to seek the required approvals for marketing in the United
27
<PAGE>
States and Europe. In addition, the Company will also seek to demonstrate
the clinical efficacy of the EnSite System through the publication of the
results of its studies and clinical trials and articles on its technology
in medical journals.
- FOCUS ON VENTRICULAR TACHYCARDIAS. The Company believes that the patient
population that suffers from complex VT that are difficult to map using
currently available technology presents a significant market opportunity
for the Company's EnSite System. ESI intends to focus on the ability of
its technology to provide improved speed, increased accuracy and
cost-effectiveness in mapping VT. This improved mapping power should
benefit electrophysiologists in performing diagnostic procedures and
prescribing treatments for an expanded patient population.
- EXTEND TECHNOLOGY TO ATRIAL FIBRILLATION. The Company believes that the
EnSite System can be extended from mapping VT to mapping atrial
tachycardia, including atrial fibrillation and flutter, both of which
share similar complex characteristics, such as multiple sites of origin in
unpredictable locations. The Company has conducted seven studies of its
technology for mapping atrial tachycardia in the United Kingdom, including
two patients suffering from atrial fibrillation and five patients
suffering from atrial flutter.
- LEVERAGE RELATIONSHIPS WITH LEADING ELECTROPHYSIOLOGISTS. The Company has
established a Scientific Advisory Board whose members are among the
world's leading electrophysiologists. Many of these board members have
been highly involved in the development of the Company's technology and
products and will be critical to successful development, testing, approval
and marketing of the Company's technology and products. The Company
intends to utilize its Scientific Advisory Board members to assist in
gaining market acceptance of its products.
THE ENSITE SYSTEM
The Company's EnSite System consists of the EnSite catheter and clinical
workstation that together form an integrated system. The EnSite System is
designed to map ventricular and atrial tachycardia.
THE ENSITE CATHETER
The EnSite catheter is a non-contact, single-use, multi-electrode array,
percutaneous catheter, designed for use with the EnSite clinical workstation.
The EnSite catheter's multi-electrode array senses electrical activity generated
from the endocardial wall while floating in the heart chamber. The array area of
the EnSite catheter is comprised of an inflatable polyurethane balloon within a
mechanically expandable multi-electrode array. The multi-electrode array
contains a wire braid consisting of 64 braided wires. A handle and cable
connector are located at the proximal end of the catheter to allow the physician
to position the distal end of the catheter, deploy the multi-electrode array and
make electrical connection from the array to the patient interface unit of the
EnSite System's workstation.
The EnSite catheter is inserted percutaneously over a standard guidewire
into a selected chamber of the heart. When positioned, the wire braid is
mechanically expanded and the balloon residing under the wire braid in the array
area of the catheter is inflated with a radiopaque solution to form an
ellipsoidal, multi-electrode array. When deployed, the array is small enough to
permit the normal functioning of the heart. In addition to the EnSite catheter,
a standard single-point diagnostic catheter is inserted in a chamber of the
heart in order to facilitate establishing the chamber's spatial boundaries. The
multi-electrode braid array collects data used to compute more than 3,000 points
of the heart chamber's electrical activity in the span of a few heartbeats by
gathering a large amount of the electrical conduction information from the
entire chamber and transmitting this information through the wire braid back
down the catheter shaft to the EnSite System's clinical workstation.
28
<PAGE>
THE ENSITE CLINICAL WORKSTATION
The EnSite System's clinical workstation consists of the Company's
proprietary patient interface unit and a Silicon Graphics-based workstation and
other third-party peripherals, such as a color monitor, a printer and an optical
disk drive. The patient interface unit is designed to amplify and digitize the
electrical information transmitted by the EnSite catheter. The patient interface
unit also accepts information generated by other auxiliary sensors, including as
many as 32 standard contact catheter electrodes, which allows the
electrophysiologist to monitor clinical events or capture additional data for
simultaneous display on the workstation. The workstation is programmed with
software containing the Company's proprietary algorithms, which process the
electrical information transmitted by the EnSite catheter and reconstruct the
heart's geometric layout and the distribution of electrical activity. The heart
and the electrical activity is displayed on the workstation as high resolution,
three-dimensional isopotential or isochronal color maps. The maps can be viewed
as a snapshot in time or as an animated playback at adjustable rates of speed.
The maps can also be viewed from any perspective in space and may be zoomed in
and out to facilitate rapid diagnosis and treatment of the tachycardia,
including identifying the optimal site or sites for ablation.
The electrical activity displayed on the workstation's three-dimensional map
can also be displayed as time-waveforms, called "Virtual Electrograms," at
multiple selected sites on the endocardium. Virtual Electrograms are produced by
the Company's software contained in the workstation. The electrophysiologist can
instantaneously select any of the more than 3,000 sites and waveforms to be
displayed by pointing and clicking with the workstation's mouse pointer at the
desired location on the map of the heart. The Virtual Electrogram function
provides the equivalent of positioning a standard contact catheter at the same
site on the endocardium--but without the need for actual physical contact.
The EnSite System's workstation also generates a locator signal that can be
emitted from selected electrodes on standard EP catheters introduced into the
heart along with the EnSite catheter. The locator signal provides
electrophysiologists with an interactive method for locating and positioning
auxiliary catheters. The locator function is designed to allow
electrophysiologists to diagnose and treat complex tachycardia with
significantly less use of fluoroscopy than is currently required when using
presently available single-point contact catheters. The locator signal is
detected and displayed on the workstation's three-dimensional map to provide
real-time feedback to the electrophysiologist as to the precise location of the
catheter and to assist in guiding the catheter (or catheters) to a specific site
on the endocardium.
The EnSite System is designed to function as a complete, integrated
electrophysiology laboratory system to provide a wide range of accurate and
versatile diagnostic tools in one product. In addition to displaying high
resolution, graphical, three-dimensional maps, the EnSite System provides
multi-channel recording from standard EP electrode catheters and standard
waveform displays. The Company intends to develop and market periodic software
upgrades and new applications for use with the EnSite System.
RESEARCH AND DEVELOPMENT
To date, the Company's primary activity has been research, development and
testing of the EnSite catheter and the clinical workstation. Virtually all of
the Company's research and development activity is performed internally by the
Company's team of 24 scientists, engineers and technicians, in consultation with
the Company's Scientific Advisory Board and outside consultants. The Company's
research and development team is divided among five groups: software
engineering, applied research, hardware engineering, clinical engineering and
catheter engineering. In addition, various members of the research and
development team support the design and development of the manufacturing
processes used in fabricating the EnSite catheter.
Among the research and development goals the Company is now pursuing are
completing necessary clinical tests, optimizing the functionality of the EnSite
System, finalizing the design of the EnSite System in anticipation of commercial
distribution, and extending the use of the system to diagnosing atrial
tachycardia. The Company expects that its future research and development
objectives will include
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developing new mapping and catheter configurations and software upgrades to
enhance the capabilities and ease-of-use of the EnSite System as well as
supporting the Company's manufacturing personnel in refining manufacturing
processes, improvements and scale-up in connection with the commercialization of
the EnSite System. The Company incurred research and development expenses of
approximately $3.4 million, $3.6 million and $4.4 million for the fiscal years
ended December 31, 1994, 1995 and 1996, respectively. The Company anticipates
that it will continue to make significant investments in research and
development.
MANUFACTURING
The Company manufactures its EnSite catheters in its 3,200 square foot
clean-room facility at its headquarters in St. Paul, Minnesota. The Company also
performs final assembly and system level testing of all hardware and software
components for the EnSite System clinical workstation at this facility.
The manufacturing process for the EnSite catheter involves a number of steps
and component parts. The Company assembles and tests each catheter individually
prior to sterilization and packaging, which it conducts in accordance with the
requirements of the FDA. The Company has designed its manufacturing processes to
utilize automation to the extent appropriate in order to increase production
volume and reduce costs.
The manufacturing of the EnSite System clinical workstation, including the
patient interface unit, involves the assembly, integration and testing of
components purchased from third parties. The Company purchases the basic
computer workstation from Silicon Graphics, and ESI software engineers program
the workstation with its proprietary software, including advanced mathematical
algorithms.
The Company purchases the raw materials and various component parts for the
EnSite System from a number of suppliers. The Company has adopted rigorous
quality control measures to ensure that the component parts it purchases meet
its specifications and standards. Certain of the components are purchased from
sole source suppliers, including certain components for its catheters and the
computer workstation. There are relatively few alternative sources of supply for
these components, and it may be difficult for the Company to locate additional
suppliers for these components.
The Company is implementing a manufacturing quality program designed to meet
all domestic and international standards for manufacturing medical devices. The
Company will be required to meet the requirements of the FDA's good
manufacturing practices ("GMP") in order to distribute its products in the
United States and the requirements for ISO 9001 and CE Mark certification in
order to distribute products in Europe. As part of meeting such requirements,
the Company's facilities and manufacturing processes will be subject to
inspection and audit. If the Company fails to satisfy the GMP requirements or
obtain ISO 9001 and CE Mark certification, it may be required to alter its
manufacturing processes. Moreover, any such failure could have a material
adverse effect on the Company's ability to market its products, which could
adversely affect its business and results of operations.
SALES AND MARKETING
The Company intends to employ a direct sales force in the United States and
to use distributors for international markets. The Company has entered into an
agreement with Medtronic pursuant to which the Company has granted to Medtronic
a right of first offer to distribute, on an exclusive basis, the Company's
products outside of North America. See "Certain Transactions."
The Company intends to direct its sales and marketing efforts at prominent
domestic and international electrophysiology laboratories that perform the
majority of electrophysiology procedures. The Company believes that prominent
electrophysiology labs are generally more likely to keep abreast of and utilize
new technologies such as the EnSite System for diagnosing and treating
tachycardia. After the Company establishes a presence in major medical centers
housing such electrophysiology labs, it then
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intends to broaden its sales and marketing efforts to include the growing number
of smaller, community-based electrophysiology labs. As part of its strategy to
gain the awareness of and acceptance by electrophysiology laboratories, the
Company has focused on and intends to continue to focus on developing peer
reviewed journal articles authored by leading experts in electrophysiology,
sponsoring publication of papers based on research covering the performance and
benefits of the EnSite System and conducting informational seminars. In
addition, as part of its marketing program the Company expects to hold technical
seminars and training sessions to educate physicians and its direct sales force
and distributors in the use of the Company's products.
The Company believes that it will receive approval to sell its products in
international markets before it gains approval in the United States. See
"--Government Regulation" below. The Company plans to commence selling the
EnSite System in Europe promptly following obtaining the approval of the
European authorities to distribute its products within the countries comprising
the European Union, which the Company currently anticipates should occur
sometime during the first quarter of 1998. There can be no assurance, however,
that the Company will obtain such approval at such time, if at all.
PATENTS AND PROPRIETARY RIGHTS
The Company holds two issued United States patents and has three pending
United States patent applications and one pending international patent
application. The Company's success will depend in part on its ability to
preserve and continue to obtain patent protection for its products and
processes, to preserve its trade secrets and to operate without infringing or
violating the proprietary rights of third parties. The Company actively pursues
patent protection in the United States and foreign jurisdictions for each of the
areas of invention embodied in the EnSite System, and will actively pursue
patent protection for proprietary aspects of its technology in the future.
The Company's United States issued patents and patent applications cover a
number of aspects of the Company's intellectual property embodied in the EnSite
System, including recording signals from an electrode array inside a heart
chamber, measuring and computing the size of and distances within the heart
chamber, localizing electrodes on a standard contact electrode catheter using a
location signal, generating various forms of electronic mapping and constructing
a catheter using a balloon with a braid to provide for a large number of
electrodes. The Company intends to file additional patent applications to seek
protection for further proprietary aspects of its technology in the future.
The Company, like other firms that engage in the development and marketing
of medical devices, must address issues and risks relating to patents and trade
secrets. The coverage sought in a patent application can be denied or
significantly reduced before or after the patent is issued. Consequently there
can be no assurance that any of the Company's pending or future U.S. or foreign
patent applications will result in issued patents, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's current or future U.S. or foreign patents
will not be challenged, circumvented by competitors or others or that such
patents will be found to be valid or sufficiently broad to protect the Company's
technology. Since patent applications are secret until patents are issued in the
United States or corresponding applications are published in other countries,
and since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications, or that it was the first to file patent applications for such
inventions. In addition, there can be no assurance that competitors, many of
which have substantial resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products either in the United States or in international markets. Further, the
laws of certain foreign countries may not protect the Company's intellectual
property rights to the same extent as do the laws of the United States.
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In addition to patents, the Company relies on trade secrets and proprietary
knowledge, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others 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 to or independently developed by competitors.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation in a court of law, or
interference proceedings declared by the United States Patent and Trademark
Office (USPTO) to determine the priority of inventions or an opposition to a
patent grant in a foreign jurisdiction. The defense and prosecution of
intellectual property suits, USPTO interference or opposition proceedings and
related legal and administrative proceedings are both costly and time-consuming
and could result in substantial uncertainty to the Company. Litigation or
regulatory proceedings, which could result in substantial cost and uncertainty
to the Company, may also be necessary to enforce patent or other intellectual
property rights of the Company or to determine the scope and validity of other
parties' proprietary rights. Any litigation, opposition or interference
proceedings will result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel. There
can be no assurance that the Company will have the financial resources to defend
its patents from infringement or claims of invalidity. The Company is not
currently a party to any patent or other litigation. An adverse determination in
any litigation could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from or pay royalties to third
parties or prevent the Company from manufacturing, selling or using its proposed
products, any of which could have a material adverse effect on the Company's
business and prospects. See "Risk Factors-- Dependence on Patents and
Proprietary Technology."
COMPETITION
The Company believes that its competitive success will depend primarily upon
its ability to demonstrate the clinical efficacy of the EnSite System;
effectively create market awareness and acceptance of the system while
maintaining its proprietary nature; and manufacture and deliver the system on a
timely basis. The tachycardia diagnostic mapping field of the medical device
industry has attracted a high level of interest both from companies with an
established presence in the field of electrophysiology and from more recently
formed companies. The Company's competitors include companies that offer
standard, single-point contact diagnostic catheters, including Bard
Electrophysiology, a division of C.R. Bard, Inc.; EP Technologies, a division of
Boston Scientific Corporation; Electro-Catheter Corporation; Cordis Webster,
Inc., a division of Johnson & Johnson; Daig Corporation, a division of St. Jude
Medical, Inc. and CardioRhythm, Inc., a division of Medtronic, Inc. The Company
also competes with companies that are developing multi-point, basket contact
catheters for diagnosing tachycardia that use multiple electrodes to provide
more data points for the measurement of the heart's electrical activity. The
Company believes that these basket contact catheters under development can
currently measure multiple points of electrical activity in the heart. This
group of companies includes Cardiac Pathways Corporation, EP Technologies, and
Cordis-Webster, Inc. The Company is also aware of other medical device
companies, such as Biosense, Inc. and Cardima, Inc., that are developing
alternatives to single-point contact catheter mapping technology.
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The Company believes that participants in the market for mapping tachycardia
compete on the basis of basis of clinical effectiveness, ease of use, cost and
on the basis of acceptance by health care professionals. Competition is also
affected by the length of time required for products to be developed and receive
regulatory approval. The medical device industry is characterized by rapid and
significant technological change. As a result, the Company's success will depend
in part on its ability to respond quickly to medical and technological changes
through the development and introduction of new products.
Many of the Company's competitors and potential competitors have
substantially greater capital resources, research and development staffs and
facilities than the Company. In addition, most of the Company's competitors and
potential competitors have substantially greater experience than the Company in
researching and developing new products, testing products in clinical trials,
obtaining regulatory approvals and manufacturing and marketing medical devices.
There can be no assurance that the Company will succeed in developing and
marketing technologies and products that are clinically more efficacious and
cost-effective than the more established diagnostic products or the new
approaches and products developed and marketed by its competitors. Moreover,
there can be no assurance that the Company will succeed in developing new
technologies and products that are available prior to its competitors' products.
The failure by the Company to demonstrate the efficacy and cost-effective
advantages of its products over those of its competitors could have a material
adverse effect on the Company's business and results of operations. See "Risk
Factors--Significant Competition; Rapid Technological Change."
THIRD-PARTY REIMBURSEMENT FOR THE COMPANY'S PRODUCTS
In the United States, health care providers, including hospitals and
physicians, that purchase medical products for treatment of their patients
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or a part of the
costs and fees associated with the procedures performed using these products.
The Company's success will be dependent upon, among other things, the ability of
health care providers to obtain satisfactory reimbursement from third-party
payors for medical procedures in which the Company's products are used. If FDA
approval is received, third-party reimbursement would depend upon decisions by
the Health Care Financing Administration ("HCFA") for Medicare, as well as by
individual health maintenance organizations and private insurers and other
payors. Government agencies and certain private insurers and other payors
determine whether to provide coverage for a particular procedure and reimburse
health care providers for medical treatment at a fixed rate based on the
diagnosis-related group ("DRG") established by the HCFA. The fixed rate of
reimbursement is based on the procedure performed, and is unrelated to the
specific type or number of devices used in a procedure. If a procedure is not
covered by a DRG, payors may deny reimbursement. The Company believes that
cardiac mapping procedures utilizing the EnSite catheter would be eligible for
reimbursement under the existing DRG reimbursement code for cardiac mapping. The
current reimbursement levels for cardiac mapping procedures in the United
States, including hospital charges and physician fees, are typically between
$8,000 and $16,000. However, third party payors are increasingly challenging the
pricing of medical products and procedures. Even if a procedure is covered by a
DRG, payors may deny reimbursement if they determine that the device used in the
treatment was unnecessary, inappropriate or not cost-effective, experimental or
used for a non-approved indication. In this regard, the Company believes that
the improved mapping technology of the EnSite System will enable catheter
ablation for treating complex VT. This represents a potentially significant new
patient population for which reimbursement may be sought under existing
reimbursement codes. Third party payors have challenged, and in certain
circumstances, have ceased reimbursement for procedures under existing codes
where the aggregate level of reimbursement has been significantly increased and
required, following further study regarding safety and efficacy, establishment
of new reimbursement codes. Further, it is anticipated that the Company's EnSite
catheter will be sold at a premium in comparison to existing single point
catheters used in current diagnostic or mapping procedures, in addition to
requiring an initial capital outlay for the companion clinical workstation. In
addition to establishing the safety and efficacy of the EnSite System, and
assuming little or no increase in the level of reimbursement for cardiovascular
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procedures expected to utilize the Company's products, the Company will be
required to economically justify the relative increased cost of utilizing the
EnSite System by satisfactorily demonstrating the enhanced benefits of the
EnSite System to hospitals and physicians in terms of such factors as enhanced
patient procedural efficiencies, reduced radiation exposure and improved patient
outcomes.
Medicare coverage is generally available for items and related services
involving devices that have been classified by the FDA as
"non-experimental/investigational" (Category B) devices and that are furnished
in accordance with the FDA-approved IDE governing clinical trials. Based on the
Company's IDE approval from the FDA for the EnSite System, the system has been
classified as a Category B device. Even with items or services involving
Category B devices, however, Medicare coverage may be denied if any other
coverage requirements are not met, for example, if the treatment is not
medically necessary for the specific patient. There can be no assurance that the
Company's systems will be covered when they are used in clinical trials and, if
covered, whether the payment amounts for their use will be considered to be
adequate by hospitals and physicians. If the devices are not covered or the
payments are considered to be inadequate, the Company may need to bear
additional costs to sponsor such trials, and such costs could have a material
adverse effect on the Company's business, financial condition and results of
operation.
Capital costs for medical equipment purchased by hospitals are currently
reimbursed separately from DRG payments. Recent federal legislation reduced
capital cost reimbursements under the Medicare capital cost pass-through system.
The legislation requires that the aggregate amount of reimbursement in fiscal
years 1992 through 1995 be reduced by approximately 10% per year. Such
reductions have had an adverse impact on reimbursements to hospitals for the
capital cost of equipment such as the EnSite clinical workstation.
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems as
well as government managed systems. Market acceptance of the Company's products
will depend on the availability and level of reimbursement in international
markets targeted by the Company. There can be no assurance that the Company will
obtain reimbursement in any country within a particular time, for a particular
time, for a particular amount, or at all.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the Company's products will be required to obtain
reimbursement. The Company believes that less invasive procedures generally
provide less costly overall therapies as compared to conventional drug, surgery
and other treatments. The Company anticipates that hospital administrators and
physicians would justify the use of the Company's products by the attendant cost
savings and clinical benefits that the Company believes would be derived from
the use of its products. However, there can be no assurance that this will be
the case. Accordingly, reimbursement for the Company's products may not be
available in the United States or in international markets under either
government or private reimbursement systems, and physicians may not advocate
reimbursement for procedures using the Company's products. Failure by hospitals
and other users of the Company's products to obtain reimbursement from
third-party payors, or changes in government and private third-party payors'
policies toward reimbursement for procedures employing the Company's products,
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the Company is unable to predict
what additional legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation would have on the Company.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. The Company anticipates
that Congress, state legislatures and the private sector will continue to review
and assess alternative health care delivery and payment systems. Potential
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approaches that have been considered include mandated basic health care
benefits, controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending, the
creation of large insurance purchasing groups, price controls and other
fundamental changes to the health care delivery system. Legislative debate is
expected to continue in the future, and market forces are expected to demand
reduced costs. The Company cannot predict what impact the adoption of any
federal or state health care reform measures, future private sector reform or
market forces may have on its business. See "Risk Factors--Uncertainty of
Third-Party Reimbursement."
GOVERNMENT REGULATION
UNITED STATES
The Company's EnSite System is regulated in the United States as a medical
device by the FDA under the Federal Food, Drug, and Cosmetic Act ("FDC Act") and
requires premarket approval by the FDA prior to commercialization. In addition,
certain material changes or modifications to medical devices also are subject to
FDA review and approval. Pursuant to the FDC Act, the FDA regulates the
research, testing, manufacture, safety, labeling, storage, record keeping,
advertising, distribution and production of medical devices in the United
States. Noncompliance with applicable requirements can result in warning
letters, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket approval for devices, and criminal prosecution. Medical devices are
classified into one of three classes, Class I, II or III, on the basis of the
controls deemed by the FDA to be necessary to reasonably ensure their safety and
effectiveness. Class I devices are subject to general controls (E.G., labeling,
premarket notification and adherence to GMPs). Class II devices are subject to
general controls and to 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 not been found substantially
equivalent to legally marketed devices), and require clinical testing to ensure
safety and effectiveness and FDA approval prior to marketing and distribution.
The FDA also has the authority to require clinical testing of Class I and Class
II devices. A PMA application must be filed if the proposed device is not
substantially equivalent to a legally marketed predicate device or if it is a
Class II device for which the FDA has called for such applications.
If human clinical trials of a device are required and if the device presents
a "significant risk," the manufacturer or the distributor of the device is
required to file an IDE application prior to commencing human clinical trials.
The IDE application must be supported by data, typically including the results
of animal and, possibly, mechanical testing. If the IDE application is approved
by the FDA, human clinical trials may begin at a specific number of
investigational sites with a maximum number of patients, as approved by the FDA.
Sponsors of clinical trials are permitted to sell those devices distributed in
the course of the study provided such costs do not exceed recovery of the costs
of manufacture, research, development and handling. The clinical trials must be
conducted under the auspices of an independent institutional review board
("IRB") established pursuant to FDA regulations.
The Company conducted clinical trials of its EnSite Systems in the United
Kingdom in late 1995 and 1996 under an authorization of the Medical Devices
Agency ("the MDA") of the British government. These studies involved a total of
15 patients with ventricular tachycardia. The Company submitted its IDE
application to the FDA in May 1996 based on the results of the initial four
patient trial plus extensive pre-clinical testing. Based on consultation with
the FDA, and to further support its IDE submission, the Company conducted nine
additional ventricular patient trials and submitted this data in November 1996
in an amendment to the IDE application. In the amendment, the Company reported
that three of the nine patients in this study suffered complications, including
one death four days following the procedure. In December 1996, the FDA granted
the Company an IDE to conduct in the United States a limited clinical trial of
the EnSite System for left ventricular tachycardia mapping in five patients at
one institution. In
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granting the IDE, the FDA expressed its belief that there is a significant
possibility that one or two of the complications were device related and that
further testing may be required to address this concern. However, based on the
Company's evaluation, the Company believes these complications were not device
related and has submitted its response to the FDA. The Company intends to
conduct extensive additional clinical trials in the United States. The Company
anticipates that these clinical trials will be used to support a PMA application
to obtain approval to market the EnSite System in the United States.
The Company conducted an initial study of its technology for mapping atrial
tachycardia in seven patients in the United Kingdom during the second half of
1996. The Company believes that it will require an IDE approval from the FDA to
pursue clinical testing of the EnSite System for SVTs in the United States and
significant testing will be required to support a subsequent PMA application.
A PMA application must be supported by extensive data, including preclinical
and clinical trial data, as well as extensive literature to prove the safety and
effectiveness of the device. Following receipt of a PMA application, if the FDA
determines that the application is sufficiently complete to permit a substantive
review the FDA will "file" the application. Under the FDC Act, the FDA has 180
days to review a PMA application, although the review of such an application
more often occurs over a protracted time period, and generally takes
approximately two years or more from the date of filing to complete.
The PMA application approval process can be expensive, uncertain and
lengthy. A number of devices for which premarket approval has been sought have
never been approved for marketing. The review time is often significantly
extended by the FDA, which may require more information or clarification of
information already provided in the filing. During the review period, an
advisory committee likely will be convened to review and evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing facility
to ensure compliance with the FDA's GMP requirements prior to approval of an
application. If granted, the approval of the PMA application may include
significant limitations on the indicated uses for which a product may be
marketed.
The Company plans to file a PMA application with the FDA for approval to
sell the EnSite System commercially in the United States when the clinical
studies are completed. There can be no assurance that the Company will be able
to obtain necessary PMA application approvals to market the EnSite System, or
any other products, on a timely basis, if at all, and delays in receipt or
failure to receive such approvals the loss of previously received approvals, or
failure to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, and to list its products with the FDA. As such,
the Company will be inspected by both the FDA for compliance with the FDA's GMP
and other applicable regulations. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, testing and control activities. Further, the Company
is required to comply with various FDA requirements for design, safety,
advertising and labeling. The Company has not yet undergone an FDA GMP
inspection.
The Company is required to provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its medical
devices, as well as product malfunctions that would likely cause or contribute
to death or serious injury if the malfunction were to recur. In addition, the
FDA prohibits an approved device from being marketed for unapproved
applications. If the FDA believes that a company is not in compliance with the
law, it can institute proceedings to detain or seize products, issue a recall,
enjoin future violations and assess civil and criminal penalties against the
company, its officers and its employees. Failure to comply with the regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
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The advertising of most FDA-regulated products is subject to both FDA and
Federal Trade Commission jurisdiction. The Company also is subject to regulation
by the Occupational Safety and Health Administration and by other governmental
entities.
Regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition or results of operations.
INTERNATIONAL
International sales of the Company's products are subject to the regulatory
agency product registration requirements of each country. The regulatory review
process varies from country to country. There can be no assurance that such
approvals will be obtained on a timely basis or at all.
The Company is in the process of implementing policies and procedures which
are intended to allow the Company to receive ISO 9001 qualification of its
processes. The ISO 9000 series of standards for quality operations have been
developed to ensure that companies know the standards of quality to which they
must adhere to receive certification. The European Union has promulgated rules
which require that medical products receive by mid-1998 the right to affix the
CE Mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European medical device directives. ISO 9000
certification is one of the CE Mark certification requirements. Failure to
receive the right to affix the CE Mark will prohibit the Company from selling
its products in member countries of the European Union. There can be no
assurance that the Company will be successful in meeting certification
requirements.
PRODUCT LIABILITY AND INSURANCE
The development, manufacture and sale of medical products entail significant
risk of product liability claims and product failure claims. The Company has
conducted only limited clinical trials and does not yet have, and will not have
for a number of years, sufficient clinical data to allow the Company to measure
the risk of such claims with respect to its products. The Company faces an
inherent business risk of financial exposure to product liability claims in the
event that the use of its products results in personal injury or death. The
Company also faces the possibility that defects in the design or manufacture of
the Company's products might necessitate a product recall. There can be no
assurance that the Company will not experience losses due to product liability
claims or recalls in the future. The Company currently maintains product
liability insurance with coverage limits of $5 million per occurrence and $5
million annually in the aggregate and there can be no assurance that the
coverage limits of the Company's insurance policies will be adequate. In
addition, the Company will require increased product liability coverage if any
potential products are successfully commercialized. Such insurance is expensive,
difficult to obtain and may not be available in the future on acceptable terms,
or at all. Any claims against the Company, regardless of their merit or eventual
outcome, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
EMPLOYEES
The Company had a total of 50 full-time employees as of December 31, 1996.
Of this number, 24 persons were engaged in research and development or clinical
activities, 5 were involved in regulatory and quality assurance, 14 were
involved with manufacturing and 7 were involved with administration, sales and
marketing and support functions. No employee of the Company is covered by a
collective bargaining agreement. In addition to its full-time workforce, the
Company has consulting or other contractual relationships with four other
individuals. The Company expects to add such new employees as are necessary to
expand its manufacturing capacity for future commercial production.
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FACILITIES
The Company leases approximately 17,500 square feet in St. Paul, Minnesota.
The facility is leased through September 1997. The Company has an option to
extend the lease through March 1999. The Company believes that this facility
will be adequate to meet its needs through the full commercial introduction of
its planned products.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of the executive officers, key management
personnel and directors of the Company as of the date hereof are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
James W. Bullock.................................... 40 President, Chief Executive Officer and Director
Dennis J. McFadden.................................. 44 Vice President, Finance and Chief Financial Officer
Frank J. Callaghan.................................. 43 Vice President, Research and Development
Richard J. Omilanowicz.............................. 44 Vice President, Manufacturing
Graydon E. Beatty................................... 40 Chief Technical Officer and Director
David A. Teicher.................................... 46 Director of Regulatory Affairs and Quality Assurance
Patrick J. Wethington............................... 28 Director of Marketing
Leota L. Pearson.................................... 37 Controller
James E. Daverman (1)(2)............................ 47 Director
Robert G. Hauser, M.D............................... 57 Director
Ronald H. Kase (1).................................. 38 Director
Steven R. LaPorte................................... 46 Director
Peter H. McNerney (1)(2)............................ 46 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
JAMES W. BULLOCK has been President, Chief Executive Officer and a Director
of the Company since May 1994. In addition, Mr. Bullock served as the Chief
Financial Officer of the Company from May 1994 until May 1996. From April 1992
until joining the Company, Mr. Bullock served as President and Chief Operating
Officer of Stuart Medical, Inc., a cardiac monitoring start-up company. From
April 1990 to April 1992, Mr. Bullock served as Vice President of Sales and
Marketing of the Stackhouse Division of Bird Medical Technologies, a medical
device company. From 1978 to 1990, Mr. Bullock served in a variety of marketing
and sales management positions, most recently as Vice President of Sales, for
the Pharmaseal Division of Baxter International Inc., a medical products
company.
DENNIS J. MCFADDEN has been Vice President, Finance and Chief Financial
Officer of the Company since May 1996. From May 1995 until joining the Company,
Mr. McFadden served as Chief Financial Officer of Diametrics Medical, Inc., a
manufacturer of blood analysis systems. From August 1994 to April 1995, Mr.
McFadden acted as management consultant to Cascade Medical, Inc., a
privately-held medical products company, and from March 1993 to July 1994, Mr.
McFadden served as Chief Financial Officer of Cascade Medical, Inc. From 1985 to
February 1993, Mr. McFadden performed in a number of financial roles, including
Corporate Treasurer and Chief Financial Officer for the entry level systems
division at Cray Research, Inc., a manufacturer of supercomputers.
FRANK J. CALLAGHAN has been Vice President of Research and Development of
the Company since November 1995. From 1987 until joining the Company, Mr.
Callaghan served as a Director of Research and Development at Teletronics Pacing
Systems, Inc., a manufacturer of cardiac rhythm management devices. From 1983 to
1987 Mr. Callaghan served in several capacities, including Manager, Systems
Technology, at Cordis Corporation, a manufacturer of angiographic and
implantable devices.
RICHARD J. OMILANOWICZ has been Vice President of Manufacturing of the
Company since November 1994. From May 1993 until joining the Company, Mr.
Omilanowicz served as General Manager of
39
<PAGE>
McKechnie Plastic Components, a custom injection molding company. From 1980 to
May 1993, Mr. Omilanowicz served in several capacities at the Pharmaseal
Division of Baxter International Inc., most recently as Director of Research,
Development and Engineering.
GRAYDON E. BEATTY is a founder of the Company and has been Chief Technical
Officer of the Company since May 1995 and a Director since August 1992. Since
the Company's inception in May 1992, Mr. Beatty has served in several technical
and management positions. In addition, from May 1992 until December 1993, Mr.
Beatty served as a consultant with GMN Consulting, an engineering consulting
firm, and as a consulting engineer of AngeMed, a division of Angeion Corp., a
cardiovascular device Company, from February 1992 to September 1992. Mr. Beatty
was Senior Development Engineer of Bio-Medical Design Group, Inc., an
electrophysiology system developer, from December 1991 to May 1992. From 1989 to
December 1991, Mr. Beatty served as Principal Research Engineer at Cardiac
Pacemakers, Inc., a cardiovascular device company.
DAVID A. TEICHER was Director of Regulatory Affairs and Quality Assurance of
the Company from May 1995 to December 1995 and resumed that position in March
1996. Mr. Teicher served as Director of Regulatory and Clinical Affairs of
Instent, Inc. from January 1996 to February 1996. From June 1991 to March 1995,
Mr. Teicher served as Director of Regulatory Affairs, New Technology for SciMed
Life Systems, Inc., a manufacturer of cardiology devices, and as Director of
Regulatory Affairs and Quality Assurance of SciMed Blood Systems Division, a
manufacturer of heart bypass devices, from October 1990 to June 1991. Mr.
Teicher served as Manager of Corporate Regulatory Affairs with Intermedics
Pacemakers, a manufacturer of cardiac pacemakers, from 1987 to September 1990,
and as an investigator biomedical engineer with the FDA from 1976 to 1987.
PATRICK J. WETHINGTON has been Director of Marketing of the Company since
November 1996. From March 1994 to October 1996, Mr. Wethington was the marketing
manager for tachycardia products for Guidant/CPI's implantable cardioverter
defibrillator pulse generator and endocardial lead business. From June 1992 to
March 1994, Mr. Wethington served as a field clinical representative for
Guidant/CPI's cardiac rhythm management products. From September 1990 to June
1992, Mr. Wethington served as a sales and marketing consultant for several
businesses, including 3M, Dayton Hudson Corp. and Syner Service Corporation.
LEOTA L. PEARSON has been Controller of the Company since July 1994. From
November 1993 until joining the Company, Ms. Pearson served as Controller of
General Litho Services, Inc., a printing company. Ms. Pearson completed her MBA
in June 1993. From 1983 to May 1990, Ms. Pearson served as Controller of
Orthomet, Inc., a manufacturer and distributor of orthopedic devices. Ms.
Pearson is a Certified Public Accountant.
JAMES E. DAVERMAN has been a Director of the Company since July 1994. Mr.
Daverman has served as a Managing General Partner and is a founder of Marquette
Venture Partners, a venture capital investment firm, since January 1987. Mr.
Daverman is a director of Colla Genex Pharmaceuticals, Inc., a pharmaceutical
company.
ROBERT G. HAUSER, M.D., has been a Director of the Company since October
1995. Dr. Hauser has been a cardiologist at the Minneapolis Heart Institute
since September 1992, and has served as President of the Cardiovascular Services
Division of Abbott Northwestern Hospital since May 1995 and Executive Director
of the Minneapolis Heart Institute since July 1994. From 1988 to July 1992, Dr.
Hauser served as President and Chief Executive Officer of Cardiac Pacemakers,
Inc., a cardiovascular device company.
RONALD H. KASE has been a Director of the Company since March 1993. Mr. Kase
joined New Enterprise Associates, a venture capital investment firm, in January
1991 and is a limited partner of New Enterprise Associates V, Limited
Partnership. Mr. Kase also serves as a director of several privately held health
care companies.
40
<PAGE>
STEVEN R. LAPORTE has been a Director of the Company since September 1996.
Mr. LaPorte has served as Vice President and General Manager of the CardioRhythm
Division of Medtronic since January 1994. From 1989 to January 1994, Mr. LaPorte
served as Vice President of Operations for the Neurological Division of
Medtronic, and from 1979 to 1989, as a project manager and then Director of the
Corporate Information Services division of Medtronic.
PETER H. MCNERNEY has been a Director of the Company since January 1995. Mr.
McNerney has been a partner with Coral Ventures, a venture capital investment
firm, since July 1992. From 1989 to June 1992, Mr. McNerney was Managing Partner
of the Kensington Group, a health care management consulting company. Mr.
McNerney serves as a director of Biomira, Inc., a cancer immuno therapy company,
Optical Sensors, Inc., an automated blood gas sensor company, and Aksys, Ltd., a
home hemodyalisis company.
The Company's Board of Directors is divided into three classes as nearly
equal in number as possible, with each class serving a three-year term. One of
the three classes of the Board of Directors is elected each year. The terms of
the Company's current Board of Directors expire as follows: Mr. Beatty and Mr.
Bullock, 1998; Dr. Hauser, Mr. McNerney and Mr. LaPorte, 1999; and Mr. Daverman
and Mr. Kase, 2000.
Messrs. Kase, Daverman, McNerney and LaPorte were elected to the Board of
Directors as designees of various series of Preferred Stock pursuant to
agreements with the Company that will terminate upon closing of the Offering.
COMMITTEES
The Board of Directors has established a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations concerning executive
salaries and incentive compensation for employees of the Company, subject to
ratification by the full Board of Directors, and administers the Company's 1993
Long-Term Incentive and Stock Option Plan (the "Stock Option Plan"), the
Directors' Stock Option Plan (the "Directors' Plan") and the Company's 1997
Employee Stock Purchase Plan.
The Audit Committee reviews the results and scope of the audit and other
services provided by the Company's independent auditors, as well as the
Company's accounting principles and its system of internal controls, and reports
the results of its review to the full Board of Directors and to management.
DIRECTORS' COMPENSATION
For their services to the Company, outside directors receive stock options
under the Directors' Plan and each director is reimbursed for expenses actually
incurred in attending meetings of the Board of Directors and its committees. One
existing non-employee director has been granted options to purchase Common Stock
under the Directors' Plan. See "--Stock Plans."
LIMITATION OF LIABILITY
The Company has adopted provisions in its Amended and Restated Certificate
of Incorporation that eliminate to the fullest extent permissible under Delaware
General Corporation Law the liability of its directors to the Company or its
stockholders for monetary damages. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.
The Company's amended Bylaws provide that the Company shall indemnify its
directors, officers, agents and employees to the fullest extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware General Corporation
Law.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
41
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the cash and noncash compensation for 1996
awarded to or earned by the Chief Executive Officer and all other executive
officers of the Company whose salary and bonus earned in 1996 exceeded $100,000
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS SARS(#)(1) COMPENSATION
- ------------------------------------------------------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C>
James W. Bullock............................................ $ 180,000 $ 20,000 285,000 $ --
President, Chief Executive Officer and Director
Frank J. Callaghan.......................................... 120,000 7,698 70,000 50,735(2)
Vice President, Research and Development
Richard J. Omilanowicz...................................... 119,954 -- 70,000 --
Vice President, Manufacturing
Graydon E. Beatty........................................... 110,000 -- 25,000 --
Chief Technical Officer and Director
</TABLE>
- ------------------------
(1) Represents options granted pursuant to the Company's Stock Option Plan.
(2) Represents reimbursement of relocation expenses.
OPTION GRANTS
The following table summarizes options granted during the year ended
December 31, 1996 to the Named Executive Officers.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED(1) IN 1996(2) PER SHARE(3) DATE 5%($) 10%($)
- ---------------------------------------------- ----------- ------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James W. Bullock.............................. 70,000 23.9% $ 2.40 06/05/06 $ 105,654 $ 267,749
Frank J. Callaghan............................ 10,000 3.4% 5.00 12/30/06 31,445 76,687
Richard J. Omilanowicz........................ 12,500 4.3% 5.00 12/30/06 39,306 99,609
Graydon E. Beatty............................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Each option represents the right to purchase one share of Common Stock. The
options shown in this column are all incentive stock options granted
pursuant to the Stock Option Plan. The options granted to Messrs. Bullock,
Callaghan and Omilanowicz, for 70,000, 10,000 and 12,500 shares,
respectively, become exercisable on a monthly basis over forty-eight months
beginning six months following such grant. To the extent not already
exercisable, the options generally become exercisable in the event of a
42
<PAGE>
merger in which the Company is not the surviving corporation, a transfer of
all of the Company's stock, a sale of substantially all of the Company's
assets or a dissolution or liquidation of the Company.
(2) In 1996, the Company granted employees options to purchase an aggregate of
292,500 shares of Common Stock.
(3) The exercise price may be paid in cash, or in the case of Mr. Bullock, in
cash, by promissory note or in shares of Common Stock with a market value as
of the date of grant equal to the exercise price or a combination of any of
the above.
(4) The compounding assumes a ten year exercise period for all options grants.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall stock
market conditions. The amounts reflected in the table may not necessarily be
achieved.
OPTION VALUES
The following table summarizes the value of options held at December 31,
1996 by the Named Executive Officers. No options held by such executive officers
were exercised during 1996.
AGGREGATED OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
James W. Bullock......................................... 121,875 163,125 $ 1,299,188 $ 1,594,713
Frank J. Callaghan....................................... 16,250 53,750 173,225 586,375
Richard J. Omilanowicz................................... 23,524 46,476 249,791 434,259
Graydon E. Beatty........................................ 22,500 2,500 243,000 27,000
</TABLE>
- ------------------------
(1) Value based on the difference between the fair market value of the shares of
Common Stock at December 31, 1996 ($11.00), as determined by the Board of
Directors, and the exercise price of the options.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL AGREEMENTS
The Company has employment agreements and change-in-control agreements with
the following executive officers.
On December 28, 1994, the Company entered into an agreement with Mr. Bullock
providing for an annual salary of $170,000, benefits consistent with the
Company's employment policies and an annual minimum salary increment of five
percent on each of the first three anniversaries of the commencement of
employment. Pursuant to the agreement, the Company granted to Mr. Bullock an
option to purchase 165,000 shares of the Company's Common Stock at an exercise
price of $0.34 per share, to be vested monthly over a period of 48 months. In
addition, the agreement provides for severance pay, in the event of his
termination without cause, equal to 12 months' salary prior to completion of one
year of service, nine months' salary prior to completion of two years of
service, six months' salary prior to completion of three
43
<PAGE>
years of service and three months' salary prior to completion of four years of
service, and no severance pay thereafter.
In June 1996, the Company entered into a change-in-control agreement with
Mr. McFadden providing for severance pay in the event the Company terminates Mr.
McFadden's employment without cause, or Mr. McFadden resigns his employment for
good reason (as such terms are defined in the agreement) after a change in
control of the Company. The amount of the payment to Mr. McFadden will be an
amount equal to 12 months' salary if termination is prior to completion of six
months of service, nine months' salary if termination occurs between six and 12
months of service, six months' salary if termination occurs between 12 and 18
months of service and three months' salary if termination occurs after 18 months
of service.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kase, Mr. McNerney and Mr. Daverman served as members of the Company's
Compensation Committee during 1995. Mr. Kase is a limited partner in New
Enterprise Associates V, Limited Partnership. New Enterprise Associates V,
Limited Partnership is affiliated with ONSET Enterprise Associates, L.P.,
Chemicals & Materials Enterprise Associates, Limited Partnership and Catalyst
Ventures. Mr. Daverman is the Managing General Partner of Marquette Venture
Partners II, L.P. and MVP II Affiliates Fund, L.P. Mr. McNerney is a Partner of
Coral Partners IV, Limited Partnership. See "Principal Stockholders."
In March 1993, the Company sold 775,000 shares of Series A Preferred Stock
(convertible into an aggregate of 387,500 shares of Common Stock) to New
Enterprise Associates V, Limited Partnership Catalyst Ventures, ONSET Enterprise
Associates, L.P. and Chemicals & Materials Enterprise Associates pursuant to
preferred stock purchase agreements on substantially similar terms as were sold
to non-affiliated purchasers. See "Certain Transactions."
In October 1993 and November 1993, the Company borrowed an aggregate of
$250,000 from Series A Preferred Stockholders, payable in January 1994 or
convertible into Series B Preferred Stock at a price equal to the price paid per
share by investors purchasing Series B Preferred Stock. In December 1993, the
investors exercised the conversion option, and the Company issued 147,058 shares
of Series B Preferred Stock (convertible into an aggregate of 73,529 shares of
Common Stock). See "Certain Transactions."
From December 1993 through March 1995, the Company sold 6,682,506 shares of
Series B Preferred Stock (convertible into an aggregate of 3,341,253 shares of
Common Stock) to New Enterprise Associates V, Limited Partnership, ONSET
Enterprise Associates, L.P., Chemicals & Materials Enterprise Associates,
Limited Partnership, Catalyst Ventures, Sprout Capital VI, L.P., DLJ Capital
Corporation, Marquette Venture Partners II, L.P., MVP II Affiliates Fund, L.P.
and Coral Partners IV, Limited Partnership pursuant to preferred stock purchase
agreements on substantially similar terms as were sold to non-affiliated
purchasers. See "Certain Transactions."
STOCK PLANS
STOCK OPTION PLAN
Pursuant to the 1993 Long-Term Stock Option Plan (the "Stock Option Plan"),
directors, officers, other employees and consultants of the Company may receive
options to purchase Common Stock. The Stock Option Plan provides for the grant
of both incentive stock options intended to qualify for preferential tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"), and nonqualified stock options that do not qualify
for such treatment. Only employees of the Company, including officers and
directors who are employees of the Company, are eligible to receive Incentive
Stock Options. The exercise price of all incentive stock options granted under
the Stock Option Plan must equal or exceed the fair market value of the Common
Stock at the time of
44
<PAGE>
grant. The Stock Option Plan also provides for grants of stock appreciation
rights, restricted stock awards and performance awards. The Stock Option Plan is
administered by the Compensation Committee.
A total of 1,500,000 shares of Common Stock have been reserved for issuance
under the Stock Option Plan. As of December 31, 1996, the Company had
outstanding options to purchase an aggregate of (i) 897,782 shares, at a
weighted average exercise price of $1.14 per share, pursuant to the Stock Option
Plan and (ii) no shares granted outside of the Stock Option Plan.
DIRECTORS' PLAN
The Company has adopted a Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the automatic grant of nonstatutory
stock options to purchase 10,000 shares of Common Stock to nonemployee directors
at the time of their election as director, and an option to purchase 5,000
shares of Common Stock on the date of each subsequent annual shareholder
meeting, subject to certain limitations. Options granted on the date an
individual is elected as a director of the Company become vested and thereby
exercisable with respect to 33 1/3% of the shares on the date of such election,
33 1/3% of such shares on the twelve month anniversary date after such election
and 33 1/3% of such shares on the date of the second twelve month anniversary
date after such election; provided, however, that an unvested portion of such
option grant shall only vest so long as the nonemployee director remains a
director on the date such portion vests, and that vested options shall terminate
seven years after the date a director ceases to be a director or on the date of
termination of the option, whichever occurs earlier of the Company. Options
granted on the date of each annual meeting of shareholders become exercisable
six months after the date of grant. The option price for nonemployee directors
is equal to the fair market value of a share of Common Stock as of the date of
grant. The Company has reserved a total of 200,000 shares of Common Stock for
issuance under the Director's Plan, all of which are currently available for
future grant.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted a 1997 Employee Stock Purchase Plan (the "Stock
Purchase Plan") covering an aggregate of 200,000 shares of Common Stock. The
Stock Purchase Plan will become effective upon consummation of this Offering and
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. All employees that have met the service eligibility
requirements will be eligible to participate in the Stock Purchase Plan.
Participating employees will be able to direct the Company to make payroll
deductions of one to fifteen percent of their compensation during a purchase
period for the purchase of shares under the Stock Purchase Plan. The purchase
period for any offering, with the exception of the initial offering period, will
be no more than three months. The Stock Purchase Plan will provide participating
employees with the right, subject to certain limitations, to purchase the
Company's Common Stock at a price equal to 85% of the lesser of the fair market
value of the Company's Common Stock on the first day or the last day of the
applicable purchase period, except that the price on the first day of the
initial purchase period will be the price per share at which the shares of the
Common Stock are first sold to the public in this Offering, as specified on the
cover page of this Prospectus. The Stock Purchase Plan will terminate on such
date as the Board of Directors may determine, or automatically as of the date on
which all of the shares the Company has reserved for purchase under the Stock
Purchase Plan have been sold.
45
<PAGE>
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board to assist the
Company with its product design and development and clinical trial activities,
as well as other medical and scientific areas relating to the Company's
business. The Company has a Proprietary Information and Inventions Agreement
with each member of the Scientific Advisory Board.
The Scientific Advisory Board is currently comprised of the following
cardiologists:
<TABLE>
<CAPTION>
NAME AFFILIATIONS
- ----------------------------------------- -----------------------------------------------------------------------
<S> <C>
Martin Borggrefe, M.D., Ph.D. Consultant Cardiologist and Director of Clinical Electrophysiology,
Department of Cardiology and Angiology, Westfalische
Wilhelms-University, Munster, Germany.
D. Wyn Davies, M.D., FRCP Consultant Cardiologist, St. Mary's Hospital, London, England.
Warren M. Jackman, M.D., FACC Professor of Medicine, George Lynn Cross Research Professor and
Director of Clinical Electrophysiology, The University of Oklahoma
Health Sciences Center.
Alan H. Kadish, M.D., FACC Chester and Deborah Cooley Associate Professor of Internal Medicine,
Director of Electrophysiology Services and Electrocardiology,
Northwestern University.
George J. Klein, M.D., FRCP, FACC Professor, Department of Medicine, University of Western Ontario;
Director, Arrhythmia Service, University Hospital, London, Ontario.
Karl-Heinz Kuck, M.D., FACC Chief of Cardiology, Professor of Internal Medicine and Cardiology,
Director, Electrophysiology Laboratory, Allgemeines Krankenhaus St.
Georg, Hamburg, Germany.
Fred Morady, M.D., FACC Director, Clinical Electrophysiology Laboratory, Professor of Internal
Medicine, Department of Internal Medicine, Division of Cardiology,
University of Michigan.
Bruce L. Wilkoff, M.D., FACC Director of Cardiac Pacing and Tachyrhythmia Devices, Director of the
Cardiovascular Computer Unit, Staff Cardiologist, Cardiac Pacemakers
and Electrophysiology Section, Department of Cardiology, The
Cleveland Clinic Foundation; Associate Professor of Internal
Medicine, Cleveland Clinic Foundation Health Science Center, Ohio
State University.
</TABLE>
46
<PAGE>
CERTAIN TRANSACTIONS
Since March 1993, the Company has sold shares of Preferred Stock as follows:
in March 1993, the Company issued 775,000 shares of Series A Preferred Stock at
a price of $1.00 per share; in December 1993, the Company issued 2,882,354
shares of Series B Preferred Stock at a price of $1.70 per share; in December
1993 (as described below), the Company issued 147,058 shares of Series B
Preferred Stock in connection with the conversion of loans in the aggregate
amount of $250,000 made by certain Series A Preferred Stockholders to the
Company; in January 1995 and in March 1995, the Company issued 3,588,388 and
64,706 shares of Series B Preferred Stock, respectively, at a price of $1.70 per
share; and in April 1996, the Company issued 1,953,700 shares of Series C
Preferred Stock at a price of $5.12 per share. Each share of the Company's
Preferred Stock will convert into one-half share of Common Stock upon completion
of the Offering. Certain of these shares were sold or issued to the Company's
five percent stockholders and entities affiliated with directors. The Company
sold such securities pursuant to preferred stock purchase agreements on
substantially similar terms as were sold to nonaffiliated purchasers. The
following table summarizes the Series A, Series B and Series C Preferred Stock
purchased by the Company's five percent stockholders and entities affiliated
with directors, and their affiliates:
<TABLE>
<CAPTION>
COMMON STOCK ISSUABLE UPON
CONVERSION OF PREFERRED STOCK
--------------------------------
<S> <C> <C> <C>
STOCKHOLDERS SERIES A SERIES B SERIES C
- ----------------------------------------------------------- --------- ---------- ---------
New Enterprise Associates V, Limited Partnership and
affiliated entities (1).................................. 362,500 1,419,118 --
Marquette Venture Partners II, L.P. and MVP II Affiliates
Fund, L.P................................................ -- 735,294 --
Sprout Capital VI, L.P. and DLJ Capital Corporation........ -- 482,347 --
Coral Partners IV, Limited Partnership..................... -- 441,177 --
Medtronic Asset Management, Inc............................ -- -- 976,850
</TABLE>
- ------------------------
(1) Includes 50,000 shares of Series A Preferred Stock and 411,765 shares of
Series B Preferred Stock held by ONSET Enterprise Associates, L.P., 50,000
Shares of Series A Preferred Stock and 88,236 Shares of Series B Preferred
Stock held by Catalyst Ventures and 50,000 Shares of Series A Preferred
Stock and 183,824 Shares of Series B Preferred Stock held by Chemicals &
Materials Enterprise Associates, Limited Partnership.
The investors in all of the above transactions have rights to require the
Company to register shares pursuant to the Securities Act. See "Shares Eligible
for Future Sale."
Mr. Kase, a director of the Company, is a limited partner in New Enterprise
Associates V, Limited Partnership.
Mr. Daverman, a director of the Company, is the Managing General Partner and
founder of Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.
Mr. McNerney, a director of the Company, is a partner of Coral Management
Partners IV, the General Partner of Coral Partners IV, Limited Partnership.
Mr. LaPorte, a director of the Company, is Vice President and General
Manager of Medtronic CardioRhythm, an affiliate of Medtronic.
The Company paid $694,000, $475,000 and $59,000 in 1994, 1995 and 1996,
respectively, to Novel Biomedical, Inc. in connection with research and
development activities performed for the Company. The owner of Novel Biomedical,
Inc., Jonathan Kagan, is a founder and stockholder of the Company.
On October 29, 1993 and November 29, 1993, the Company borrowed a total of
$250,000 from certain Series A Preferred stockholders through the issuance of
promissory notes. The promissory notes earned
47
<PAGE>
interest at a rate of 7.00% and were convertible into shares of Series B
Preferred Stock at a price equal to the price paid per share by investors
purchasing Series B Preferred Stock. The notes were converted into 147,058
shares of Series B Preferred Stock on December 23, 1993.
In April 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with a wholly-owned subsidiary of Medtronic, pursuant to
which the Company sold to Medtronic 1,953,700 shares of the Company's Series C
Preferred Stock for a purchase price of $10 million. See "Principal
Stockholders." The Shares of Series C Preferred Stock issued to Medtronic
automatically convert to an equal number of shares of Common Stock upon
completion of the Offering. Pursuant to the Investment Agreement, the Company
has granted Medtronic a right of first offer with respect to the exclusive
distribution of the EnSite System and related products in territories outside of
North America. Under such right of first offer, Medtronic has the right for
forty-five days from the date the Company delivers notice of its intention to
distribute products in a territory outside of North America to enter into a
distribution agreement with the Company covering that territory. If the Company
and Medtronic are not able to reach agreement during such forty-five day period,
the Company then has 180 days to enter into distribution arrangements for the
territory with a third party on terms no less favorable to the Company than the
last most favorable offer made by Medtronic. If no third party distribution
agreement is reached within the 180 day time period, Medtronic's first offer
right is reinstated. The Company also granted Medtronic certain rights to have
the shares of Common Stock issued upon conversion of the Series C Preferred
Stock registered under the federal securities laws. See "Shares Eligible for
Future Sale." The Company intends to sell up to 750,000 shares of Common Stock
of the Company (of the 3,000,000 shares offered hereby) to Medtronic at the
Price to the Public indicated on the cover page of this Prospectus. Medtronic
currently owns 1,953,700 shares of Preferred Stock of the Company, which
assuming conversion into 976,850 shares of Common Stock in connection with the
Offering, represents 17.0% of the Company's outstanding Common Stock. If
Medtronic purchases 750,000 shares of the Common Stock offered hereby, Medtronic
will own 19.7% of the Company's outstanding Common Stock upon completion of this
Offering. See "Sale of Shares to Medtronic," "Principal Stockholders" and
"Underwriting."
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of the date hereof (after giving effect to the
conversion of the outstanding shares of Preferred Stock into Common Stock upon
the closing of the Offering) and as adjusted to reflect the sale by the Company
of the 3,000,000 shares of Common Stock offered hereby, by: (i) each person who
is known by the Company to beneficially own more than five percent of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executive
Officers and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES OWNED
SHARES ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING(1) OFFERING(1)
- -------------------------------------------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
Entities affiliated with New Enterprise Associates V, Limited Partnership 1,319,853 22.9% 15.1%
(2) ....................................................................
2490 Sand Hill Road
Menlo Park, CA 94025
Medtronic Asset Management, Inc. ......................................... 976,850 17.0 19.7(3)
7000 Central Avenue NE
Minneapolis, MN 55432
Marquette Venture Partners II, L.P. (4) .................................. 735,294 12.8 8.4
520 Lake Cook Road, Suite 450
Deerfield, IL 60015
Sprout Capital VI, L.P. (5) .............................................. 482,347 8.4 5.5
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
ONSET Enterprises, L.P. (6) .............................................. 461,765 8.0 5.3
2490 Sand Hill Road
Menlo Park, CA 94025
Coral Partners IV, ....................................................... 441,177 7.7 5.0
Limited Partnership
60 South Sixth Street Suite 3510
Minneapolis, MN 55402
Graydon E. Beatty (7)..................................................... 274,584 4.8 3.1
James W. Bullock (8)...................................................... 158,855 2.7 1.8
James E. Daverman (9)..................................................... -- -- --
Robert G. Hauser, M.D. (8)................................................ 16,667 * *
Ronald H. Kase (10)....................................................... -- -- --
Steven R. LaPorte (11).................................................... -- -- --
Peter H. McNerney (12).................................................... -- -- --
Frank J. Callaghan (8).................................................... 22,500 * *
Richard J. Omilanowicz (8)................................................ 29,145 * *
All executive officers and directors as a group (10 persons)(13).......... 4,442,940 73.8 57.6
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of the date hereof ("Currently Exercisable Options") are deemed
outstanding for computing the percentage benefically owned by the person
holding such options but are not deemed outstanding for
49
<PAGE>
computing the percentage beneficially owned by any other person. Except as
indicated by footnote, the Company believes that the persons named in this
table, based on information provided by such persons, have sole voting and
investment power with respect to the shares of Common Stock indicated.
(2) Represents 947,794 shares held by New Enterprises Associates V, Limited
Partnership, 233,824 shares held by Chemicals & Materials Enterprise
Associates, Limited Partnership and 138,236 shares held by Catalyst
Ventures.
(3) Includes 750,000 shares that the Company intends to sell to Medtronic in
this Offering. See "Sale of Shares to Medtronic."
(4) Includes 20,426 shares held by MVP II Affiliates Fund, L.P.
(5) Includes 65,986 shares held by DLJ Capital Corporation.
(6) An affiliate of New Enterprise Associates.
(7) Includes 24,584 shares issuable pursuant to Currently Exercisable Options.
(8) Represents shares issuable pursuant to Currently Exercisable Options.
(9) Excludes shares beneficially owned by Marquette Venture Partners II, L.P.
and MVP II Affiliates Fund, L.P. See Note 4 above. Mr. Daverman is a
Managing General Partner of Marquette Venture Partners II, L.P. Mr. Daverman
disclaims beneficial ownership of these shares, except to the extent of his
proportionate interest in Marquette Venture Partners II, L.P.
(10) Excludes shares beneficially owned by entities affiliated with New
Enterprise Associates. See Note 2. Mr. Kase is a limited partner of New
Enterprise Associates V, Limited Partnership. Mr. Kase disclaims beneficial
ownership of these shares, except to the extent of his proportionate
interest in New Enterprise Associates V, Limited Partnership.
(11) Excludes shares beneficially owned by Medtronic Asset Management, Inc. See
Note 3 above. Mr. LaPorte is Vice President and General Manager of Medtronic
CardioRhythm, an affiliate of Medtronic. Mr. LaPorte disclaims beneficial
ownership of these shares.
(12) Excludes shares beneficially owned by Coral Partners IV, Limited
Partnership. Mr. McNerney is a partner of Coral Management Partners IV, the
General Partner of Coral Partners IV, Limited Partnership. Mr. McNerney
disclaims beneficial ownership of these shares, except to the extent of his
proportionate interest in Coral Partner IV, Limited Partnership.
(13) See Notes 7, 8, 9, 10, 11 and 12 above. Includes an additional 6,250 shares
of Common Stock issuable upon the exercise of outstanding options held by
Mr. McFadden.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the total number of shares of all classes
of stock which the Company has authority to issue will be 40,000,000 shares of
Common Stock, $.01 par value, and 10,000,000 shares of undesignated preferred
stock, $.01 par value. As of December 31, 1996, there were 5,759,030 shares of
Common Stock outstanding (assuming conversion into Common Stock of all
outstanding shares of Preferred Stock), which were held of record by 68
stockholders, and no shares of undesignated preferred stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There is no
cumulative voting for the election of directors so that holders of more than 50%
of the outstanding Common Stock of the Company can elect all directors. Subject
to preferences that may be applicable to any outstanding preferred stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of the Company out of funds legally available
therefor and in liquidation proceedings. Holders of Common Stock have no
preemptive or subscription rights and there are no redemption rights with
respect to such shares. The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
As of December 31, 1996, there were outstanding 775,000, 6,682,506 and
1,953,700 shares of Series A, Series B and Series C Preferred Stock,
respectively, and no shares of Series D Preferred Stock. All shares of
outstanding Preferred Stock will be converted into an aggregate of 4,705,603
shares of Common Stock upon the closing of this Offering.
The Company's Board of Directors is authorized, without further stockholder
action, to issue preferred stock in one or more series and to fix the voting
rights, liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock.
Although there is no current intention to do so, the Board of Directors of
the Company may, without stockholder approval, issue shares of a class or series
of preferred stock with voting and conversion rights which could adversely
affect the voting power or dividend rights of the holders of Common Stock and
may have the effect of delaying, deferring or preventing a change in control of
the Company.
WARRANTS AND OPTIONS
The Company has issued a warrant to purchase 5,000 shares of Common Stock at
an exercise price of $.10 per share to Tikkun Resource Development. Such warrant
is currently exercisable and expires in November 2003. Upon completion of the
Offering, such warrant will be exercisable for 2,500 shares of Common Stock at
an exercise price of $.20 per share.
The Company has issued, in connection with equipment leasing arrangements, a
warrant to purchase 93,213 shares of its Series B Preferred Stock at an exercise
price of $1.70 per share and a warrant to purchase 15,000 shares of its Series D
Preferred Stock at an exercise price of $5.12 per share. Such warrants are
currently exercisable and expire in November 2004 and August 2006, respectively.
Upon completion of the Offering, such warrants will be exercisable for 46,607
and 7,500 shares of Common Stock at exercise prices of $3.40 and $10.24 per
share, respectively.
As of December 31, 1996, the Company had issued options to purchase a total
of 897,782 shares of Common Stock at a weighted average exercise of $1.14 per
share. See "Management--Stock Plans."
51
<PAGE>
The above described warrants and all options granted under the Stock Option
Plan provide for antidilution adjustments in the event of certain mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits or other changes in the corporate structure of the Company.
PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AND AMENDED BYLAWS AND THE DELAWARE GENERAL CORPORATION LAW
The existence of authorized but unissued preferred stock, described above,
and certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended Bylaws and Delaware law, described below, could have
an antitakeover effect. These provisions are intended to provide management
flexibility, to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board of Directors and to discourage an unsolicited takeover of the
Company if the Board of Directors determines that such a takeover is not in the
best interests of the Company and its stockholders. However, these provisions
could have the effect of discouraging certain attempts to acquire the Company
which could deprive the Company's stockholders of opportunities to sell their
shares of Common Stock at prices higher than prevailing market prices.
Pursuant to the Amended Bylaws, the Board of Directors of the Company is
divided into three classes serving staggered three-year terms. As a result, at
least two shareholders' meetings will generally be required for shareholders to
effect a change in control of the Board of Directors.
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the transaction
is approved by the Board of Directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Common Stock will be
Norwest Bank Minnesota, National Association.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market price and impair the
Company's ability to raise additional funds.
Upon completion of the Offering, the Company will have outstanding an
aggregate of 8,759,031 shares of Common Stock, assuming the issuance of
3,000,000 shares of Common Stock offered by the Company hereby. Of the total
outstanding shares of Common Stock, 3,000,000 shares will be freely tradeable
without restriction or further registration under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act (whose sales would be subject to certain volume limitations
and other restrictions described below).
The remaining 5,759,031 shares of Common Stock held by existing stockholders
upon completion of the Offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act. The Company, its officers,
directors and certain of its stockholders (beneficially holding an aggregate of
11,241,691 of such restricted shares) have agreed that they will not sell,
directly or indirectly, any Common Stock without the prior consent of Piper
Jaffray Inc. for a period of 180 days from the date of this Prospectus.
Beginning on the 181st day after the date of this Prospectus, when agreements
not to sell such shares expire, approximately 3,650,654 of the restricted shares
will become eligible for immediate sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, and approximately 1,131,526 of
the restricted shares may become eligible for immediate sale without restriction
pursuant to Rule 144(k).
In general, under Rule 144, as currently in effect, if at least two years
have elapsed from the date that shares of Common Stock were acquired from the
Company or an affiliate of the Company, then the holder is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (87,590 shares immediately after the Offering) or (ii) generally,
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale, subject to
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above.
The Company intends to file registration statements under the Securities
Act, covering approximately 1,500,000, 200,000 and 200,000 shares of Common
Stock reserved for issuance under, respectively, the Stock Option Plan the
Directors' Plan and the Stock Purchase Plan. Such registration statements are
expected to be filed soon after the date of this Prospectus and will
automatically become effective upon filing. Accordingly, shares registered under
such registration statements will be available for sale in the open market,
unless such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above. See "Management--Stock Plans."
In addition, after the Offering, the holders of approximately 4,705,603
shares of Common Stock (issued upon the automatic conversion of the Company's
Preferred Stock as a result of the Offering) (together, the "Registrable
Securities") will be entitled to certain rights to cause the Company to register
the sale of such shares under the Securities Act. After the Offering, if the
Company proposes to register any of its securities under the Securities Act for
its own account, holders of Registrable Securities are entitled to notice of
such registration and are entitled to include Registrable Securities therein,
provided, among other conditions, that the underwriters of any such offering
have the right to limit the number of shares included in such registration. The
holders of the Registrable Securities may require the Company to prepare and
file a registration statement under the Securities Act at its expense, and the
Company is required to use its best efforts to effect such registration, subject
to certain conditions and limitations;
53
<PAGE>
provided that the Company shall not be required to obtain the effectiveness of
any such registration statement until 180 days after the date of this
Prospectus, at the earliest. The Company is not obligated to effect more than
two of these stockholder-initiated registrations. Holders of Registrable
Securities with an aggregate proposed offering price of not less than $500,000
may require the Company to file not more than two additional registration
statements on Form S-3 under the Securities Act, subject to certain conditions
and limitations. Registration of such shares would result in such shares
becoming freely tradeable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration.
The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the perception
that such sales will occur could adversely affect the market price or the future
ability to raise capital through an offering of its equity securities. See "Risk
Factors--Shares Eligible for Future Sale; Registration Rights."
54
<PAGE>
UNDERWRITING
The Company has entered into a Purchase Agreement (the "Purchase Agreement")
with the underwriters listed in the table below (the "Underwriters"), for whom
Piper Jaffray Inc. and Volpe, Welty & Company are acting as representatives (the
"Representatives"). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company has agreed to sell to the Underwriters, and each
of the Underwriters has severally agreed to purchase, the following number of
shares of Common Stock set forth opposite each Underwriter's name in the table
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Piper Jaffray Inc................................................................
Volpe, Welty & Company...........................................................
----------
Total...................................................................... 3,000,000
----------
----------
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not more than $ per
share. Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the Offering, the initial public offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of the Purchase Agreement, to
purchase up to an additional 450,000 shares of Common Stock at the same price
per share to be paid by the Underwriters for the other shares offered hereby. If
the Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.
The Representatives have informed the Company that neither they, nor any
other member of the National Association of Securities Dealers, Inc. (the
"NASD") participating in the distribution of the Offering, will make sales of
shares of Common Stock offered hereby to accounts over which they exercise
discretionary authority without the prior specific written approval of the
customer.
The Offering of the shares of Common Stock is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the Offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The officers and directors of the Company and certain other stockholders
designated by the Representatives, which will beneficially own in the aggregate
11,241,691 shares of Common Stock after the
55
<PAGE>
Offering, have agreed that they will not directly or indirectly, sell, contract
to sell, make any short sale, pledge or otherwise dispose of any shares of
Common Stock options to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock owned by them prior
to the date of the Prospectus for a period of 180 days after the date of this
Prospectus, without the prior written consent of Piper Jaffray Inc. See "Shares
Eligible For Future Sale." The Company has agreed that it will not, without the
Representatives' prior written consent, offer, sell, issue or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
during the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options and warrants granted prior
to the date hereof, and may grant additional options under the Stock Option
Plans and Directors' Plan.
Of the 3,000,000 shares of Common Stock offered hereby, the Company intends
to sell, at the Price to Public, up to 750,000 shares of Common Stock to
Medtronic. See "Sale of Shares to Medtronic." Any such sale will be made on the
same terms as sales to other investors, except that Medtronic shall have agreed
to the 180-day lock-up described above. Any purchases by Medtronic of shares in
the Offering will be for investment purposes only and not with a view to
distributing the shares to the public.
Piper Jaffray Healthcare Capital Limited Partnership (SBIC) ("PJHCLP"), and
The Companion Fund Partnership, a general partnership, own of record and
beneficially 157,313 and 24,326 shares of Common Stock of the Company,
respectively. An entity affiliated with Piper Jaffray Inc., a Representative, is
the general partner of PJHCLP. Certain employees of Piper Jaffray Inc. are
general partners of The Companion Fund Partnership. The shares were purchased in
connection with private placements of Preferred Stock.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock has been determined by
negotiation among the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management and the consideration of
the above factors in relation to the market valuation of companies in related
businesses. The initial public offering price for the Common Stock should not be
considered as an indication of the actual value of the Common Stock offered
hereby. In addition, there can be no assurance that the Common Stock may be
resold at a price equal to or greater than the initial public offering price.
See "Risk Factors--No Prior Public Market; Possible Volatility of Price."
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, and to contribute to payments the Underwriters may be required to make in
respect thereof.
VALIDITY OF SHARES
The validity of the securities offered hereby will be passed upon for the
Company by Dorsey & Whitney LLP, Minneapolis, Minnesota, and for the
Underwriters by Faegre & Benson LLP, Minneapolis, Minnesota.
EXPERTS
The financial statements as of December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, and the period from May
21, 1992 (inception) to December 31, 1996, included in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and such
financial statements are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
56
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed with the Securities and
Exchange Commission (the "Commission"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits and schedules thereto. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C. and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of certain fees prescribed by the Commission. A copy of
the Registration Statement is also available on the Commission's EDGAR site on
the World Wide Web at: http:\\www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
57
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statement of Changes in Stockholders' Equity............................................................... F-5
Statements of Cash Flows................................................................................... F-7
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Endocardial Solutions, Inc.
We have audited the accompanying balance sheets of Endocardial Solutions,
Inc. (a development stage company) as of December 31, 1995 and 1996, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996, and for the
period from May 21, 1992 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Endocardial Solutions, Inc.
at December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, and for
the period from May 21, 1992 (inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
January 9, 1997
F-2
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
1995 1996
-------------- -------------- PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31,
1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 1,863,788 $ 6,157,491
Prepaid expenses and other current assets...................... 72,211 75,053
-------------- --------------
Total current assets............................................. 1,935,999 6,232,544
Furniture and equipment.......................................... 944,136 1,496,404
Less accumulated depreciation.................................... 381,067 656,695
-------------- --------------
563,069 839,709
Deposits......................................................... 47,034 81,709
Patents, less accumulated amortization (1995--$22,019;
1996--$37,339).................................................. 48,851 46,164
-------------- --------------
Total assets..................................................... $ 2,594,953 $ 7,200,126
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 233,761 $ 265,856
Accrued salaries and expenses.................................. 77,585 164,766
Current portion of long-term debt and capital lease
obligations.................................................. 207,173 252,955
-------------- --------------
Total current liabilities........................................ 518,519 683,577
Long-term debt and capital lease obligations..................... 160,470 302,291
Stockholders' equity:
Undesignated Preferred Stock, $.01 par value:
Authorized shares--10,000,000 pro forma
Issued and outstanding shares--none.......................... -- -- $ --
Series A Preferred Stock, $.01 par value:
Authorized shares--775,000
Issued and outstanding shares--775,000....................... 7,750 7,750 --
Series B Preferred Stock, $.01 par value:
Authorized shares--6,799,096
Issued and outstanding shares--6,682,506..................... 66,825 66,825 --
Series C Preferred Stock, $.01 par value:
Authorized shares--1,953,700
Issued and outstanding shares--1,953,700..................... -- 19,537 --
Common Stock, $.01 par value:
Authorized shares--17,000,000; pro forma 40,000,000
Issued and outstanding shares--1995--1,028,563;
1996--1,053,428; pro forma--5,759,031...................... 10,286 10,534 57,590
Additional paid-in capital..................................... 11,973,840 23,444,359 23,491,415
Deficit accumulated during the development stage............... (10,142,737) (16,623,338) (16,623,338)
Deferred compensation.......................................... -- (711,409) (711,409)
-------------- -------------- --------------
Total stockholders' equity....................................... 1,915,964 6,214,258 $ 6,214,258
-------------- -------------- --------------
--------------
Total liabilities and stockholders' equity....................... $ 2,594,953 $ 7,200,126
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 21, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------------- DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development.......................... $ 3,351,600 $ 3,638,868 $ 4,424,905 $ 12,118,323
General and administrative........................ 858,527 1,087,905 1,911,242 4,197,557
Sales and marketing............................... 281,564 122,848 373,348 816,977
------------- ------------- ------------- --------------
Operating loss...................................... (4,491,691) (4,849,621) (6,709,495) (17,132,857)
Other income (expense):
Interest income................................... 89,592 198,878 293,585 590,316
Interest expense.................................. (6,132) (82,993) (64,691) (157,029)
------------- ------------- ------------- --------------
83,460 115,885 228,894 433,287
------------- ------------- ------------- --------------
Net loss for the period and deficit accumulated
during development stage........................... $ (4,408,231) $ (4,733,736) $ (6,480,601) $ (16,699,570)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Net loss per share.................................. $ (3.12) $ (3.33) $ (4.53) $ (11.98)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Weighted average number of common shares
outstanding........................................ 1,411,168 1,422,757 1,429,239 1,393,954
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Supplemental loss per share:
Pro forma net loss per share...................... $ (1.12)
-------------
-------------
Pro forma weighted average number of shares
outstanding..................................... 5,809,225
-------------
-------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C COMMON
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
---------------------- ---------------------- -------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 21, 1992 (inception)...... -- $ -- -- $ -- -- $ -- --
Original issuance of Common Stock at
$.01 per share....................... -- -- -- -- -- -- 750,000
Sale of Common Stock at $.12 per share
at various dates throughout the
period............................... -- -- -- -- -- -- 250,000
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ---------
Balance at December 31, 1992............. -- -- -- -- -- -- 1,000,000
Sale of Common Stock at $.60 per share
in January 1993...................... -- -- -- -- -- -- 10,000
Recapitalization resulting from
election of C Corporation status..... -- -- -- -- -- -- --
Sale of Series A Preferred Stock at
$1.00 per share in March 1993........ 775,000 7,750 -- -- -- -- --
Sale of Series B Preferred Stock at
$1.70 in December 1993, net of
offering costs....................... -- -- 2,882,354 28,823 -- -- --
Conversion of notes payable to Series B
Preferred Stock at $1.70 per share in
December 1993........................ -- -- 147,058 1,471 -- -- --
Exercise of stock options.............. -- -- -- -- -- -- 937
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ---------
Balance at December 31, 1993 (brought
forward)................................ 775,000 7,750 3,029,412 30,294 -- -- 1,010,937
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE DEFERRED
PAID-IN DEVELOPMENT COMPEN-
AMOUNT CAPITAL STAGE SATION TOTAL
--------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at May 21, 1992 (inception)...... $ -- $ -- $ -- $ -- $ --
Original issuance of Common Stock at
$.01 per share....................... 7,500 -- -- -- 7,500
Sale of Common Stock at $.12 per share
at various dates throughout the
period............................... 2,500 27,500 -- -- 30,000
Net loss............................... -- -- (72,321) -- (72,321)
--------- ---------- ------------ --------- -----------
Balance at December 31, 1992............. 10,000 27,500 (72,321) -- (34,821)
Sale of Common Stock at $.60 per share
in January 1993...................... 100 5,900 -- -- 6,000
Recapitalization resulting from
election of C Corporation status..... -- (76,228) 76,228 -- --
Sale of Series A Preferred Stock at
$1.00 per share in March 1993........ -- 767,250 -- -- 775,000
Sale of Series B Preferred Stock at
$1.70 in December 1993, net of
offering costs....................... -- 4,863,208 -- -- 4,892,031
Conversion of notes payable to Series B
Preferred Stock at $1.70 per share in
December 1993........................ -- 248,529 -- -- 250,000
Exercise of stock options.............. 9 198 -- -- 207
Net loss............................... -- -- (1,004,677) -- (1,004,677)
--------- ---------- ------------ --------- -----------
Balance at December 31, 1993 (brought
forward)................................ 10,109 5,836,357 (1,000,770) -- 4,883,740
</TABLE>
F-5
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C COMMON
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
---------------------- ---------------------- -------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- ----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 (carried
forward)................................ 775,000 $ 7,750 3,029,412 $ 30,294 -- $ -- 1,010,937
Exercise of stock options.............. -- -- -- -- -- -- 3,750
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ---------
Balance at December 31, 1994........... 775,000 7,750 3,029,412 $ 30,294 -- -- 1,014,687
Sale of Series B Preferred Stock at
$1.70 per share in January and March
1995, net of offering costs.......... -- -- 3,653,094 36,531 -- -- --
Value of warrants granted in connection
with lease agreement................. -- -- -- -- -- -- --
Exercise of stock options.............. -- -- -- -- -- -- 13,876
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ---------
Balance at December 31, 1995............. 775,000 7,750 6,682,506 66,825 -- -- 1,028,563
Sale of Series C Preferred Stock at
$5.12 per share in April 1996, net of
offering costs....................... -- -- -- -- 1,953,700 19,537 --
Value of warrants granted in connection
with lease agreements................ -- -- -- -- -- -- --
Exercise of stock options.............. -- -- -- -- -- -- 24,865
Deferred compensation related to stock
options.............................. -- -- -- -- -- -- --
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- --------- ---------
Balance at December 31, 1996............. 775,000 $ 7,750 6,682,506 $ 66,825 1,953,700 $ 19,537 1,053,428
--------- ----------- --------- ----------- --------- --------- ---------
--------- ----------- --------- ----------- --------- --------- ---------
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE DEFERRED
PAID-IN DEVELOPMENT COMPEN-
AMOUNT CAPITAL STAGE SATION TOTAL
----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 (carried
forward)................................ $ 10,109 $5,836,357 $(1,000,770) $ -- $4,883,740
Exercise of stock options.............. 38 787 -- -- 825
Net loss............................... -- -- (4,408,231) -- (4,408,231)
----------- ---------- ------------ ---------- ----------
Balance at December 31, 1994........... 10,147 5,837,144 (5,409,001) -- 476,334
Sale of Series B Preferred Stock at
$1.70 per share in January and March
1995, net of offering costs.......... -- 6,116,721 -- -- 6,153,252
Value of warrants granted in connection
with lease agreement................. -- 15,846 -- -- 15,846
Exercise of stock options.............. 139 4,129 -- -- 4,268
Net loss............................... -- -- (4,733,736) -- (4,733,736)
----------- ---------- ------------ ---------- ----------
Balance at December 31, 1995............. 10,286 11,973,840 (10,142,737) -- 1,915,964
Sale of Series C Preferred Stock at
$5.12 per share in April 1996, net of
offering costs....................... -- 9,972,008 -- -- 9,991,545
Value of warrants granted in connection
with lease agreements................ -- 7,680 -- -- 7,680
Exercise of stock options.............. 248 6,151 -- -- 6,399
Deferred compensation related to stock
options.............................. -- 1,484,680 -- (1,484,680) --
Amortization of deferred
compensation......................... -- -- -- 773,271 773,271
Net loss............................... -- -- (6,480,601) -- (6,480,601)
----------- ---------- ------------ ---------- ----------
Balance at December 31, 1996............. $ 10,534 $23,444,359 ($16,623,338) $ (711,409) $6,214,258
----------- ---------- ------------ ---------- ----------
----------- ---------- ------------ ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 21, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------------- DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (4,408,231) $ (4,733,736) $ (6,480,601) $ (16,699,570)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 128,741 242,684 291,712 695,361
Amortization of deferred compensation........... -- -- 773,271 773,271
Value of warrants granted in connection with
lease agreements.............................. -- 15,846 7,680 23,526
Loss on disposal of equipment................... 8,689 -- 784 9,473
Changes in operating assets and liabilities:
Prepaid expenses and other assets............. (22,176) (90,927) (37,517) (156,762)
Accounts payable.............................. 432,013 (232,539) 32,095 265,856
Accrued salaries and expenses................. 25,150 36,438 87,181 164,766
-----------------------------------------------------------
Net cash used in operating activities............... (3,835,814) (4,762,234) (5,325,395) (14,924,079)
INVESTING ACTIVITIES
Purchases of furniture and equipment................ (593,611) (146,286) (553,816) (1,464,236)
Patent expenditures................................. (22,306) (28,553) (12,634) (83,504)
Proceeds from sale of equipment..................... 3,612 -- -- 3,612
------------- ------------- ------------- --------------
Net cash used in investing activities............... (612,305) (174,839) (566,450) (1,544,128)
FINANCING ACTIVITIES
Proceeds from notes payable......................... -- 504,629 409,125 1,163,754
Principal payments on notes payable and capital
lease obligations................................. (17,321) (166,241) (221,522) (405,084)
Proceeds from issuance of common stock.............. 825 4,268 6,403 46,745
Proceeds from issuance of preferred stock........... -- 6,153,252 9,991,542 21,820,283
------------- ------------- ------------- --------------
Net cash provided by (used in) financing
activities........................................ (16,496) 6,495,908 10,185,548 22,625,698
------------- ------------- ------------- --------------
Increase (decrease) in cash and cash equivalents.... (4,464,615) 1,558,835 4,293,703 6,157,491
Cash and cash equivalents at beginning of period.... 4,769,568 304,953 1,863,788 --
------------- ------------- ------------- --------------
Cash and cash equivalents at end of period.......... $ 304,953 $ 1,863,788 $ 6,157,491 $ 6,157,491
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Purchase of equipment through capital lease
obligations....................................... $ 47,655 $ -- $ 409,125 $ 456,780
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Conversion of note payable for Series B Preferred
Stock............................................. $ 250,000 $ -- $ -- $ 250,000
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS
Endocardial Solutions, Inc. (the "Company") designs, develops and
manufactures a minimally invasive and integrated diagnostic system that locates
and facilitates treatment of cardiac tachyarrhythmias. Tachyarrhythmias are
abnormal heart rhythms caused by disorders interfering with the normal
electrical activity of the heart, which, if undetected and untreated, can cause
palpitations, dizziness and fainting, or sudden cardiac death. The Company is
developing products to diagnose ventricular tachycardia, a widespread, complex
and serious form of tachyarrhythmia and intends to utilize its technology to
produce products to diagnose atrial arrhythmias, including atrial fibrillation.
The Company believes that its proprietary technology will enable physicians to
rapidly and accurately map the heart's electric activity and locate the abnormal
heart rhythms through three-dimensional imaging.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 1996, the
Company's cost of investments in government securities approximated market
value, with no resulting unrealized gains and losses recognized.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets ranging
from 3 to 7 years.
PATENTS
Patent costs are being amortized on a straight-line basis over five years.
The Company periodically reviews its patents for impairment in value. Any
adjustment from the analysis is charged to operations.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and tax
bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
F-8
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("Statement 123"). The Company adopted the disclosure only
provisions of Statement 123. Accordingly, the Company has made pro forma
disclosures of what net loss and loss per share would have been had the
provisions of Statement 123 been applied to the Company's stock options.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods presented. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), shares
convertible into common stock issued by the Company at prices less than the
initial offering price during the 12 months immediately preceding the initial
public offering, plus stock options and warrants granted at exercise prices less
than the initial public offering price during the same period, have been
included in the determination of shares used in calculating the net loss per
share, using the treasury method, as if they were outstanding for all periods
presented.
Pro forma net loss per share computed in accordance with Accounting
Principles Board Opinion No. 15 and SAB No. 83, after giving effect to the
conversion of all series of convertible preferred stock into common stock, would
be $(1.12) for the year ended December 31, 1996 on 5,809,225 pro forma weighted
average number of shares outstanding.
AUTOMATIC CONVERSION OF PREFERRED STOCK
Upon the closing of the offering covered by this Prospectus, all outstanding
shares of convertible preferred stock will automatically be converted in to an
aggregate of 4,705,603 shares of common stock. Assuming conversion of the
convertible preferred stock, but without giving effect to the offering itself,
the unaudited pro forma amounts of stockholders' equity at December 31, 1996 are
presented in the balance sheet.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
During January 1995, the Company executed a two-year and a three-year loan
agreement for approximately $245,000 and $259,000, respectively. The two-year
and three-year loan agreements accrue interest at 11.5% and 10.5% per annum,
respectively, and are payable in monthly installments of $11,377 and $8,358
including interest, respectively. The total amount payable under the loan
agreements as of December 31, 1995 and 1996 was approximately $368,000 and
$160,000, respectively.
F-9
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The Company leases certain research and development equipment under leases
which are accounted for as capital leases for financial statement purposes. The
cost of furniture and equipment in the accompanying balance sheets includes the
following amounts under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Research and development equipment..................................... $ 47,655 $ 456,780
Less accumulated amortization.......................................... 22,700 69,096
--------- ----------
Net assets under capital leases........................................ $ 24,955 $ 387,684
--------- ----------
--------- ----------
</TABLE>
Future minimum lease payments under capital leases and principal maturities
of long-term debt consisted of approximately the following as of December 31,
1996:
<TABLE>
<CAPTION>
CAPITAL LONG-TERM
LEASES DEBT TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Year ending December 31:
1997................................................... $ 154,699 $ 122,091 $ 276,790
1998................................................... 154,699 38,378 193,077
1999................................................... 136,434 -- 136,434
---------- ----------- ----------
Total minimum payments................................... 445,832 160,469 606,301
Less amount representing interest........................ 51,055 -- 51,055
---------- ----------- ----------
Present value of net minimum payments.................... 394,777 160,469 555,246
Less current portion..................................... 130,864 122,091 252,955
---------- ----------- ----------
Long-term obligations, net of current portion............ $ 263,913 $ 38,378 $ 302,291
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Interest paid for the years ended December 31, 1994, 1995 and 1996 was
$6,132, $82,993 and $64,691, respectively.
4. OPERATING LEASES
The Company leases its office facility and certain equipment under operating
lease agreements which expire on various dates through 1999. Under the office
facility agreement, the Company is required to pay a base rent plus certain
operating expenses. Rent expense was $87,152, $275,311 and $178,419 for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-10
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. OPERATING LEASES (CONTINUED)
Future minimum lease commitments required under non-cancelable operating
leases with remaining terms in excess of one year as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
1997............................................................ $ 477,027
1998............................................................ 356,578
1999............................................................ 53,949
---------
$ 887,554
---------
---------
</TABLE>
5. PREFERRED STOCK
On March 26, 1993, the Company issued 775,000 shares of Series A Preferred
Stock to investors at $1.00 per share. On December 22, 1993, the Company issued
2,882,354 shares of Series B Preferred Stock to investors at $1.70 per share. On
January 31, 1995 and on March 7, 1995, the Company issued 3,588,388 and 64,706
shares of Series B Preferred Stock, respectively, to investors at $1.70 per
share. The Series A and Series B Preferred Stock have certain voting and
registration rights, are convertible into common stock on a one-for-one basis
and have preference over common stock upon liquidation.
On October 29, 1993 and on November 29, 1993, the Company borrowed $125,000
on each date from certain Series A Preferred stockholders. The notes earned
interest at 7% and were either payable January 15, 1994 or convertible into
Series B Preferred Stock at a price equal to the price paid per share by
investors purchasing Series B Preferred Stock. The notes were converted into
147,058 shares of Preferred Stock on December 23, 1993.
On April 24, 1996, the Company issued 1,953,700 shares of Series C Preferred
Stock to investors at $5.12 per share from which the Company received net
proceeds of $9,992,000. The Series C Preferred Stock has certain voting and
registration rights, is convertible into common stock on a one-for-one basis and
has preference over common stock upon liquidation.
6. STOCK AUTHORIZATION AND STOCK SPLIT
Subsequent to December 31, 1996, the Board of Directors approved a reverse
stock split of 1-for-2 for the Company's common stock. Accordingly, all share,
per share, weighted average share, and stock option information has been
restated to reflect the split. The reverse stock split will have no effect upon
the numbers of shares of preferred stock issued and outstanding (as opposed to
the conversion prices of the preferred stock and the numbers of shares of common
stock into which the preferred stock will convert). Accordingly, all preferred
stock and preferred stock price amounts have not been adjusted for the reverse
stock split. In addition, the Board of Directors approved an increase in the
authorized shares of capital stock to 50,000,000 including 40,000,000 shares of
common stock and 10,000,000 shares of undesignated preferred stock.
7. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan to provide incentives to employees and
consultants. The options can either be incentive stock options (ISO) or
nonstatutory stock options (NSO). Options granted under
F-11
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
the plan are at prices not less than fair market value on the date of the grant.
The plan authorizes the issuance of options to officers, other key employees and
advisors. The following table summarizes activity under the plan:
<TABLE>
<CAPTION>
PLAN OPTIONS
SHARES OUTSTANDING
AVAILABLE -------------------- SHARES PRICE PER
FOR GRANT NSO ISO EXERCISABLE SHARE
---------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......................... 243,000 24,063 104,500 35,646 $.20 - $.22
Additional shares reserved for issuance............. 375,000 -- -- --
Granted............................................. (290,000) 27,500 262,500 -- .20 - .34
Canceled............................................ 20,000 -- (20,000) (2,500) .20 - .34
Exercised........................................... -- (3,750) -- (3,750) .22
Becoming exercisable................................ -- -- -- 78,312 .20 - .34
---------- --------- --------- -----------
Balance at December 31, 1994.......................... 348,000 47,813 347,000 107,708 .20 - .34
Granted............................................. (301,500) 33,500 268,000 -- .34
Canceled............................................ 47,062 -- (47,062) -- .20 - .34
Exercised........................................... -- -- (13,876) (13,876) .20 - .34
Becoming exercisable................................ -- -- -- 130,161 .20 - .34
---------- --------- --------- -----------
Balance at December 31, 1995.......................... 93,562 81,313 554,062 223,993 .20 - .34
Additional shares reserved for issuance............. 350,000 -- -- -- --
Granted............................................. (298,750) 6,250 292,500 -- .34 - 5.00
Canceled............................................ 11,478 -- (11,478) -- .20 - .34
Exercised........................................... -- (10,313) (14,552) (24,865) .20 - .34
Becoming exercisable................................ -- -- -- 176,527 .20 - 3.70
---------- --------- --------- -----------
Balance at December 31, 1996.......................... 156,290 77,250 820,532 375,655 $.20 - $5.00
---------- --------- --------- -----------
---------- --------- --------- -----------
</TABLE>
Options issued under the plan expire at various dates during the period from
April 2003 through December 2006.
In November 1994, the Company entered into a three year operating lease
agreement for research and development equipment. In connection with the
agreement, the Company granted the lessor a warrant to purchase 93,213 shares of
Series B Preferred Stock at $1.70 per share. The warrant expires five years from
the grant date and was deemed to have a value of $15,846. Such value was
expensed during the year ended December 31, 1995.
In October 1996, the Company entered into various three year capital lease
agreements for research and development equipment. In connection with the
agreements, the Company granted the lessor a warrant to purchase 15,000 shares
of the Company's Series D Preferred Stock at a purchase price of $5.12 per
share. The warrant expires five years from the grant date and was deemed to have
a value of $7,680. Such value was expensed during the year ended December 31,
1996.
The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
Interpretations in accounting for its employee stock options
F-12
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
because, as discussed below, the alternative fair value accounting provided for
under FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates ranging
from 5.0% to 6.2%; volatility factor of the expected market price of the
Company's common stock of .41 and a weighted-average expected life of the option
of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Pro forma net loss................................................ $ 4,841,089 $ 6,836,294
Pro forma net loss per common share............................... $3.40 $4.78
</TABLE>
8. DEFERRED COMPENSATION
For options granted during the year ended December 31, 1996 to purchase a
total of 296,250 shares of common stock at exercise prices ranging from $.34 to
$5.00 per share, the Company recognized $1,484,680 as deferred compensation
expense for the excess of the deemed value for accounting purposes of the common
stock issuable upon exercise of such options over the aggregate exercise price
of such options. The deferred compensation expense is amortized ratably over the
vesting period of the options. For the year ended December 31, 1996, $773,271
was expensed.
The remaining unamortized deferred compensation expense is expected to be
charged to operations as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 402,101
1998.............................................................. 216,516
1999.............................................................. 92,792
---------
$ 711,409
---------
---------
</TABLE>
F-13
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $15,850,000. The net operating loss carryforwards are available to
offset future taxable income and begin to expire in the year 2007. No benefit
has been recorded for such loss carryforwards, and utilization in future years
may be limited under Section 382 of the Internal Revenue Code if significant
ownership changes have occurred.
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Net operating loss carryforwards................................ $ 4,054,000 $ 6,340,000
Less valuation allowance........................................ (4,054,000) (6,340,000)
------------- -------------
Deferred tax asset.............................................. $ -- $ --
------------- -------------
------------- -------------
</TABLE>
10. RELATED PARTY TRANSACTION
The Company paid approximately $694,000, $475,000 and $59,000 for the years
ended December 31, 1994, 1995 and 1996, respectively, to Novel Biomedical in
connection with research and development performed for the Company. The owner of
Novel Biomedical is a founder and stockholder of the Company.
F-14
<PAGE>
No dealer, salesperson or other person is authorized to give any information or
to make representations not contained in this Prospectus in connection with the
offer made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the affairs of the Company since the
date hereof or the information herein is correct as of any time subsequent to
the date of this Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Sale of Shares to Medtronic.................... 17
Use of Proceeds................................ 17
Dividend Policy................................ 17
Dilution....................................... 18
Capitalization................................. 19
Selected Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business....................................... 23
Management..................................... 39
Certain Transactions........................... 47
Principal Stockholders......................... 49
Description of Capital Stock................... 51
Shares Eligible for Future Sale................ 53
Underwriting................................... 55
Validity of Shares............................. 56
Experts........................................ 56
Additional Information......................... 57
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
PIPER JAFFRAY INC.
VOLPE, WELTY & COMPANY
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby and do
not include underwriting commissions and discounts. All such expenses, except
for the SEC, are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 12,546
NASD filing fee................................................... 5,000
Nasdaq Stock Market listing fee................................... 40,000
Legal fees and expenses........................................... 150,000
Accounting fees and expenses...................................... 80,000
Blue Sky fees and expenses........................................ 10,000
Transfer Agent's and Registrar's fees............................. 10,000
Printing and engraving expenses................................... 75,000
Miscellaneous..................................................... 17,454
---------
Total..................................................... $ 400,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred arising under the Securities Act of 1933, as
amended (the "Securities Act"). Article VIII, Section 8.01 of the Company's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Company's Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as an injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. Reference is made to section six of the
Purchase Agreement contained in Exhibit 1.1 hereto, indemnifying officers and
directors of the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information set forth below gives effect to (i) a one-for-two reverse
split of the Company's capital stock to be effected upon closing of the Offering
and (ii) the automatic conversion of all shares of Preferred Stock into shares
of Common Stock upon the closing of the Offering.
Since January 28, 1994, the Company has issued and sold the following
securities that were not registered under the Securities Act:
1. In November 1994, the Company issued a warrant to purchase an aggregate
of 46,607 shares of the Company's Series B Preferred Stock, with an
exercise price of $3.40 per share, to Comdisco, Inc.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
2. In January 1995, the Company issued and sold 1,794,194 shares of Series
B Preferred Stock at $3.40 per share, convertible into the same number of
shares of Common Stock, to a total of 12 investors, including certain
existing shareholders, venture capital firms and investment partnerships,
for an aggregate purchase price of $6,100,258.
3. In March 1995, the Company issued and sold 32,353 shares of Series B
Preferred Stock at $3.40 per share, convertible into the same number of
shares of Common Stock, to a total of 2 investors for an aggregate
purchase price of $110,000.
4. In April 1996, the Company issued and sold 976,850 shares of Series C
Preferred Stock at $10.24 per share, convertible into the same number of
shares of Common Stock, to Medtronic for an aggregate purchase price of
$10,000,000.
5. In August 1996, the Company issued a warrant to purchase an aggregate of
7,500 shares of the Company's Series D Preferred Stock, with an exercise
price of $10.24 per share, to Comdisco, Inc.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not involving
a public offering. The recipients of the securities in each such transaction
represented their intention to acquire the securities for investment purposes
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationship with the Company or otherwise, to information about
the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement
3.1 Certificate of Incorporation of the Company (current)
3.2 Amended and Restated Certificate of Incorporation of the Company (as proposed to be effective upon
closing of the Offering)
3.3 Amended Bylaws of the Company
4.1 Form of Certificate of Common Stock
4.2 Warrant Agreement dated November 18, 1993 between the Company and Tikkun Resource Development
relating to warrant issued to Tikkun Resource Development to purchase shares of Common Stock.
4.3 Warrant Agreement dated November 15, 1994 between the Company and Comdisco, Inc. relating to
Warrant issued to Comdisco, Inc. to purchase shares of Series B Preferred Stock
4.4 Warrant Agreement dated August 20, 1996 between the Company and Comdisco, Inc. relating to Warrant
issued to Comdisco, Inc. to purchase shares of Series D Preferred Stock
5.1* Opinion of Dorsey & Whitney LLP
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.1 Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority
of St. Paul, together with Amendment Nos. 1, 2 and 3 thereto dated February 6, 1995, May 16, 1995
and June 4, 1996, respectively
10.2 Master Lease Agreement dated November 14, 1994, as amended, between the Company and Comdisco, Inc.,
with Exhibits
10.3 1993 Long-Term Incentive and Stock Option Plan, including forms of option agreements
10.4 Directors' Stock Option Plan
10.5 1997 Employee Stock Purchase Plan
10.6 Employment Agreement dated May 25, 1994 between the Company and James W. Bullock
10.7 Change in Control Agreement dated June 28, 1996 between the Company and Dennis J. McFadden
10.8 Investment Agreement dated April 26, 1996 between the Company and Medtronic, Inc.
10.9 Amended and Restated Investors Rights Agreement dated January 31, 1995, together with Amendments
thereto dated March 1, 1995 and April 26, 1996, respectively, between the Company and the holders
of the Company's Series A and Series B Preferred Stock
11.1 Statement Re: Computation of Net Loss Per Share
23.1 Consent of Ernst & Young LLP
23.2* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
The undersigned registrant further undertakes that:
(1) It will provide to the Underwriters at the closing specified in the Purchase
Agreement certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on January 28, 1997.
ENDOCARDIAL SOLUTIONS, INC.
By:
-----------------------------------------
James W. Bullock
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on January 28, 1997.
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
Officer and Director
- ------------------------------ (principal executive
James W. Bullock officer)
Chief Financial Officer
and Vice President,
- ------------------------------ Finance (principal
Dennis J. McFadden financial and accounting
officer)
GRAYDON E. BEATTY* Director
RONALD H. KASE* Director
PETER H. MCNERNEY* Director
JAMES E. DAVERMAN* Director
ROBERT G. HAUSER, M.D.* Director
STEVEN R. LAPORTE* Director
*By: -------------------------
James W. Bullock
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on January 28, 1997.
ENDOCARDIAL SOLUTIONS, INC.
By: /s/ JAMES W. BULLOCK
-----------------------------------------
James W. Bullock
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on January 28, 1997.
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
/s/ JAMES W. BULLOCK Officer and Director
- ------------------------------ (principal executive
James W. Bullock officer)
Chief Financial Officer
/s/ DENNIS J. MCFADDEN and Vice President,
- ------------------------------ Finance (principal
Dennis J. McFadden financial and accounting
officer)
GRAYDON E. BEATTY* Director
RONALD H. KASE* Director
PETER H. MCNERNEY* Director
JAMES E. DAVERMAN* Director
ROBERT G. HAUSER, M.D.* Director
STEVEN R. LAPORTE* Director
*By: /s/ JAMES W. BULLOCK
-------------------------
James W. Bullock
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 * Purchase Agreement
3.1 Certificate of Incorporation of the Company (current)
3.2 Amended and Restated Certificate of Incorporation of the Company (as proposed to be effective upon
closing of the Offering)
3.3 Amended Bylaws of the Company
4.1 Form of Certificate of Common Stock
4.2 Warrant Agreement dated November 18, 1993 between the Company and Tikkun Resource Development relating
to warrant issued to Tikkun Resource Development to purchase shares of Common Stock.
4.3 Warrant Agreement dated November 15, 1994 between the Company and Comdisco, Inc. relating to Warrant
issued to Comdisco, Inc. to purchase shares of Series B Preferred Stock
4.4 Warrant Agreement dated August 20, 1996 between the Company and Comdisco, Inc. relating to Warrant
issued to Comdisco, Inc. to purchase shares of Series D Preferred Stock
5.1 * Opinion of Dorsey & Whitney LLP
10.1 Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority of St.
Paul, together with Amendment Nos. 1, 2 and 3 thereto dated February 6, 1995, May 16, 1996 and June 4,
1996, respectively
10.2 Master Lease Agreement dated November 14, 1994, as amended, between the Company and Comdisco, Inc., with
Exhibits
10.3 1993 Long-Term Incentive and Stock Option Plan, including forms of option agreements
10.4 Directors' Stock Option Plan
10.5 1997 Employee Stock Purchase Plan
10.6 Employment Agreement dated May 25, 1994 between the Company and James W. Bullock
10.7 Change in Control Agreement dated June 28, 1996 between the Company and Dennis J. McFadden
10.8 Investment Agreement dated April 26, 1996 between the Company and Medtronic, Inc.
10.9 Amended and Restated Investors Rights Agreement dated January 31, 1995, together with Amendments thereto
dated March 1, 1995 and April 26, 1996 respectively, between the Company and the holders of the
Company's Series A and Series B Preferred Stock
11.1 Statement Re: Computation of Net Loss Per Share
23.1 Consent of Ernst & Young LLP
23.2 * Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Power of Attorney
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ENDOCARDIAL SOLUTIONS, INC.
To form a corporation pursuant to the Delaware General Corporation
Law, the undersigned hereby certifies as follows:
ARTICLE 1.
The name of this corporation is Endocardial Solutions, Inc.
ARTICLE 2.
The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE 3.
The corporation shall have perpetual duration.
ARTICLE 4.
The registered office of this corporation in Delaware is Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, and the name of
its registered agent is The Corporation Trust Company.
ARTICLE 5.
5.1 AUTHORIZED SHARES.
The total number of shares of stock which this corporation is
authorized to issue is 32,000,000 shares, par value $.01 per share, of which
17,000,000 shares are designated Common Stock and 15,000,000 shares are
undesignated preferred stock.
5.2 UNDESIGNATED PREFERRED STOCK.
Authority is hereby expressly vested in the board of directors,
subject to the provisions of this Article 5 and to the limitations prescribed by
law, to authorize the issue from time to time of one or more series of preferred
stock and with respect to each such series to fix by resolution or resolutions
adopted by the affirmative vote of a majority of the whole board of directors
providing for the issue of such series
<PAGE>
the voting powers, full or limited, if any, of the shares of such series and the
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof.
5.3 DESIGNATION OF PREFERRED STOCK
Shares of the Corporation's Preferred Stock, par value $.01 per share,
shall be designated as follows: (i) 775,000 shares as the "Series A Preferred
Stock" (the "Series A Preferred") and (ii) 6,799,096 as the "Series B Preferred
Stock" (the "Series B Preferred"). The Series A Preferred and the Series B
Preferred are collectively referred to herein as the "Series Preferred."
1. DIVIDEND RIGHTS.
(a) Holders of Series Preferred, in preference to the holders of any
other stock of the Corporation ("Junior Stock"), shall be entitled to receive,
when and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of eight percent (8%) of
the Original Issue Price (as hereinafter defined) per annum on each outstanding
share of Series Preferred (as adjusted for any stock dividends, combinations or
splits with respect to such shares) from and after the Original Issue Date (as
hereinafter defined). The Original Issue Price of the Series A Preferred shall
be one dollar ($1.00). The Original Issue Price of the Series B Preferred shall
be one dollar and seventy cents ($1.70). Such dividends shall be payable only
when, as and if declared by the Board of Directors and shall be non-cumulative.
(b) So long as any shares of Series Preferred shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Corporation be purchased, redeemed, or otherwise acquired
for value by the Corporation (except for acquisitions of Common Stock by the
Corporation pursuant to agreements which permit the Corporation to repurchase
such shares upon termination of services to the Corporation or in exercise of
the Corporation's right of first refusal upon a proposed transfer) until all
dividends (set forth in Section 1(a) above) on the Series Preferred shall have
been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series Preferred in an amount equal per share (on an as-
if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to 1. a dividend payable in Common Stock, 2. the acquisition of shares of
any Junior Stock in exchange for shares of any other Junior Stock, or 3. any
repurchase of any outstanding securities of the Corporation that is unanimously
approved by the Corporation's Board of Directors.
2
<PAGE>
2. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the
Series Preferred shall be voted with the shares of the Common Stock of the
Corporation and not as a separate class, at any annual or special meeting of
shareholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis (an "As-
if-converted Basis"): each holder of shares of Series Preferred shall be
entitled to such number of votes as shall be equal to the whole number of shares
of Common Stock into which such holder's aggregate number of shares of Series
Preferred are convertible (pursuant to Section 5 hereof) immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent.
(b) For so long as the authorized size of the Corporation's Board of
Directors is five (5) or more, the holders of Series Preferred, voting as a
separate class and on an As-if-converted Basis, shall be entitled to elect two
(2) members of the Corporation's Board of Directors, to remove from office
either or both such directors and to fill any vacancy caused by the resignation,
death or removal of either or both such directors; the holders of Common Stock,
voting as a separate class, shall be entitled to elect one (1) member of the
Board of Directors, so long as such director is satisfactory to the holders of a
majority of the Series Preferred (voting on an As-if-converted Basis), to remove
from office such director and to fill any vacancy caused by the resignation,
death or removal of such director; and the holders of Common Stock and Series
Preferred, voting together as a class (with the Series Preferred voting on an
As-if-converted Basis), shall be entitled to elect all remaining members of the
Board of Directors.
(c) For so long as at least 500,000 shares of Series Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least two-thirds of the
outstanding Series Preferred voting together as a single class on an As-if-
converted Basis shall be necessary for effecting or validating the following
actions:
(i) Any amendment, alteration, or repeal of any provision of the
Certificate of Incorporation or the Bylaws of the Corporation (including any
filing of a certificate of designation pursuant to Section 151 of the Delaware
Corporation Law), that affects adversely the voting powers, preferences, or
other special rights or privileges, qualifications, limitations, or restrictions
of the Series Preferred;
(ii) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Common or Preferred Stock;
(iii) Any authorization or any increase, whether by
reclassification or otherwise, in the authorized amount of any class of shares
or series of equity securities of the Corporation ranking on a parity with or
senior to
3
<PAGE>
the Series Preferred in right of redemption, liquidation preference, voting or
dividends;
(iv) Any redemption, repurchase, payment of dividends or other
distributions with respect to Junior Stock (except for acquisitions of common
stock by the Corporation pursuant to agreements which permit the Corporation to
repurchase such shares upon termination of services or in exercise of the
Corporation's right of first refusal upon a proposed transfer);
(v) Any agreement to sell, lease or otherwise dispose of all or
substantially all of the assets, property or business of the Corporation, or to
merge or consolidate the Corporation with any person, or permit any other person
to merge into it, or any other reorganization except for mergers, consolidations
or reorganizations in which the Corporation is the surviving corporation and,
after giving effect to the merger, consolidation, or reorganization, the holders
of the Corporation's outstanding capital stock immediately preceding such merger
own at least fifty percent (50%) of the outstanding capital stock of the
surviving corporation;
(vi) Any increase or decrease in the authorized number of
members of the Corporation's Board of Directors;
(vii) Any action that results in the payment or declaration of
any dividend on any shares of Common Stock or Preferred Stock; or
(viii) Any voluntary dissolution or liquidation of the
Corporation.
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of Series
Preferred shall be entitled to be paid out of the assets of the Corporation an
amount per share of Series Preferred equal to Original Issue Price plus all
declared and unpaid dividends on such shares for each share of Series Preferred
held by them.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock and Series Preferred on an as-if-
converted to Common Stock basis until such time as the holders of Series A
Preferred have received a total liquidation amount of three dollars ($3.00) per
share (as adjusted for stock splits, recapitalizations and the like) and the
holders of Series B Preferred have received a total liquidation amount of five
dollars and ten cents ($5.10) per share (as adjusted for stock splits,
recapitalizations and the like). The remaining assets of the
4
<PAGE>
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock.
(c) The following events shall be considered a liquidation under
Section 3(a):
(i) any consolidation or merger of the Corporation with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the shareholders of the Corporation immediately prior
to such consolidation, merger or reorganization, own less than 50% of the
surviving or successor entity immediately after such consolidation, merger or
reorganization or any transaction or series of related transactions in which in
excess of fifty percent (50%) of the Corporation's voting power is transferred;
or
(ii) a sale, lease or other disposition of all or substantially all of
the assets of the Corporation.
(d) If, upon any liquidation (or any transaction deemed to be a
liquidation), distribution, or winding up, the assets of the Corporation shall
be insufficient to make payment in full to all holders of Series Preferred, then
such assets shall be distributed among the holders of Series Preferred at the
time outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
4. REDEMPTION.
(a) The Corporation shall be obligated to redeem the Series Preferred
as follows:
(i) At any time after March 15, 1999, the holders of at least
two-thirds of the then outstanding shares of Series Preferred, voting together
as a single class on an As-if-converted Basis, may require the Corporation to
redeem the Series Preferred in eight equal quarterly installments (each a
"Redemption Date"). The redemption described in the foregoing sentence shall
commence one year following the affirmative vote of the holders of the Series
Preferred. The Corporation shall effect such redemptions on the applicable
Redemption Date by paying in cash in exchange for the shares of Series Preferred
to be redeemed a sum equal to the Original Issue Price per share of Series
Preferred (as adjusted for any stock dividends, combinations or splits) plus
declared and unpaid dividends with respect to such shares. The number of shares
of Series Preferred that the Corporation shall be required to redeem on any one
Redemption Date shall be equal to the amount determined by dividing (i) the
aggregate number of shares of Series Preferred outstanding immediately prior to
the Redemption Date by (ii) the number of remaining Redemption Dates (including
the Redemption Date to which such calculation applies).
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(ii) At least thirty (30) days but no more than sixty (60) days
prior to the first Redemption Date, the Corporation shall send a notice (a
"Redemption Notice") to all holders of Series Preferred to be redeemed setting
forth (a) the Redemption Price for the shares to be redeemed; and (b) the place
at which such holders may obtain payment of the Redemption Price upon surrender
of their share certificates. If the Corporation does not have sufficient funds
legally available to redeem all shares to be redeemed at the Redemption Date,
then it shall redeem such shares pro rata (based on the portion of the aggregate
Redemption Price payable to them) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(b) On or prior to the Redemption Date, the Corporation shall deposit
the Redemption Price of all shares to be redeemed with a bank or trust company
having aggregate capital and surplus in excess of $10,000,000, as a trust fund,
with irrevocable instructions and authority to the bank or trust company to pay,
on and after such Redemption Date, the Redemption Price of the shares to their
respective holders upon the surrender of their share certificates. The balance
of any funds deposited by the Corporation pursuant to this Section 4(b)
remaining unclaimed at the expiration of one year following such Redemption Date
shall be returned to the Corporation promptly upon its written request.
(c) On or after such Redemption Date, each holder of shares of Series
Preferred to be redeemed shall surrender such holder's certificates representing
such shares to the Corporation and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof. From and after such
Redemption Date, unless there shall have been a default in payment of the
Redemption Price or the Corporation is unable to pay the Redemption Price due to
not having sufficient legally available funds, all dividends on the shares of
Series Preferred to be redeemed shall cease to accrue and all rights of the
holders of such shares as holders of Series Preferred (except the right to
receive the Redemption Price without interest upon surrender of their
certificates), shall cease and terminate with respect to such shares, provided
that in the event that shares of Series Preferred are not redeemed due to a
default in payment by the Corporation or because the Corporation does not have
sufficient legally available funds, such shares of Series Preferred shall remain
outstanding and shall be entitled to all of the rights and preferences provided
herein.
5. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following rights
with respect to the conversion of the Series Preferred into shares of Common
Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 5, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of
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Common Stock. With respect to any shares of Series Preferred for which a notice
of redemption has been given pursuant to Section 4(a), the right of conversion
of those shares shall terminate upon redemption. The number of shares of Common
Stock to which a holder of Series Preferred shall be entitled upon conversion
shall be the product obtained by multiplying the Conversion Rate (as hereinafter
defined) for such series of Preferred Stock then in effect (determined as
provided in Section 5(b)) by the number of shares of Series Preferred being
converted.
(b) CONVERSION RATE. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing the Original Issue Price of the Series A
Preferred by the Series A Conversion Price, calculated as provided in
Section 5(c). The conversion rate in effect at any time for conversion of the
Series B Preferred (the "Series B Conversion Rate") shall be the quotient
obtained by dividing the Original Issue Price of the Series B Preferred by the
Series B Conversion Price, calculated as provided in Section 5(c).
(c) CONVERSION PRICE. The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A Preferred
(the "Series A Conversion Price"). Such initial Series A Conversion Price shall
be adjusted from time to time in accordance with this Section 5. All references
to the Series A Conversion Price herein shall mean the Series A Conversion Price
as so adjusted. The conversion price for the Series B Preferred shall initially
be the Original Issue Price of the Series B Preferred (the "Series B Conversion
Price"). Such initial Series B Conversion Price shall be adjusted from time to
time in accordance with this Section 5. All references to the Series B
Conversion Price herein shall mean the Series B Conversion Price as so adjusted.
Those sections of this Agreement which refer to adjustment of the Conversion
Price shall apply independently to the Series A Conversion Price and Series B
Conversion Price.
(d) MECHANICS OF CONVERSION. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
Preferred, and shall give written notice to the Corporation at such office that
such holder elects to convert the same. Such notice shall state the number of
shares of Series Preferred being converted. Thereupon, the Corporation shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, to the extent sufficient funds are
not then legally available therefor, in Common Stock (at the Common Stock's fair
market value determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of Series Preferred
being converted. Such conversion shall be deemed to have been made at the close
of business on the date of such surrender of the certificates representing the
shares of Series Preferred to be converted, and the person entitled to receive
the
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shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock on such date.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after issuance of any shares of Series B
Preferred pursuant to the terms of the Series B Preferred Stock Purchase
Agreement dated as of January 25, 1995 among the Corporation and certain other
persons (the "Original Issue Date") effect a subdivision of the outstanding
Common Stock, the Conversion Price in effect immediately before that subdivision
shall be proportionately decreased. Conversely, if the Corporation shall at any
time or from time to time after the Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this Section 5(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Conversion Price that is then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction (1) the numerator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (2) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Price shall be adjusted pursuant
to this Section 5(f) to reflect the actual payment of such dividend or
distribution.
g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Corporation which
they would have received had their Series Preferred been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and
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including the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the holders of
the Series Preferred or with respect to such other securities by their terms.
h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series Preferred is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 5 or in
Section 3(c)), in any such event each holder of Series Preferred shall have the
right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
i. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5 or in Section 3(c)), as a part of such
capital reorganization, provision shall be made so that the holders of the
Series Preferred shall thereafter be entitled to receive upon conversion of the
Series Preferred the number of shares of stock or other securities or property
of the Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 5 with respect to the rights
of the holders of Series Preferred after the capital reorganization to the end
that the provisions of this Section 5 (including adjustment of the Conversion
Price then in effect and the number of shares issuable upon conversion of the
Series Preferred) shall be applicable after that event and be as nearly
equivalent as practicable.
j. SALE OF SHARES BELOW CONVERSION PRICE.
(i) Subject to Section 5(j)(vi) below, if at any time or from
time to time after the Original Issue Date, (a) the Corporation issues or sells,
or is deemed by the express provisions of this Section 5(j) to have issued or
sold, Additional Shares of Common Stock (as hereinafter defined), other than as
a dividend or other distribution on any class of stock as provided in
Section 5(f) above, and other than a
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<PAGE>
subdivision or combination of shares of Common Stock as provided in Section 5(e)
above, for an Effective Price (as hereinafter defined) less than the then
effective Series B Conversion Price, and (b) either any holder of such Series B
Preferred has been offered the right to purchase at least its Pro Rata Share (as
hereinafter defined) of such issuance or sale, but does not participate in such
issuance or sale to the full extent of its Pro Rata Share, or the provisions of
this Section 5(j)(i) have been applicable to a holder of such Series B Preferred
prior to such sale, issuance or deemed sale or issuance, then and in each such
case the then existing Series B Conversion Price shall be reduced, as of the
opening of business on the date of such issue or sale, to a price determined by
multiplying the Series B Conversion Price by a fraction (i) the numerator of
which shall be (A) the number of shares of Common Stock outstanding (including
all shares of Common Stock issuable upon conversion of all outstanding Series
Preferred) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the aggregate consideration received (as defined in
Section 5(j)(vii)) by the Corporation for the total number of Additional Shares
of Common Stock so issued would purchase at such Conversion Price, and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
(including all shares of Common Stock issuable upon conversion of all
outstanding Series Preferred) immediately prior to such issue or sale plus the
total number of Additional Shares of Common Stock so issued. For purposes of
this Section 5(j)(i): a holder's "Pro Rata Share" as of any date shall be equal
to the proportion determined on such date by dividing the number of shares of
Common Stock obtainable upon conversion of all such holder's Series B Preferred
by the number of shares of Common Stock then outstanding (including all shares
issuable upon conversion or exercise of, or in exchange for, all outstanding
Convertible Securities (as hereinafter defined)).
(ii) Subject to Section 5(j)(vi) below, if at any time or from
time to time after the Original Issue Date, (a) the Corporation issues or sells,
or is deemed by the express provisions of this Section 5(j) to have issued or
sold, Additional Shares of Common Stock (as hereinafter defined), other than as
a dividend or other distribution on any class of stock as provided in
Section 5(f) above, and other than a subdivision or combination of shares of
Common Stock as provided in Section 5(e) above, for an Effective Price (as
hereinafter defined) less than the then effective Series B Conversion Price and
(b) any holder of such Series B Preferred either has not been offered the right
to purchase at least its Pro Rata Share of such issuance or sale or has been
offered the right to purchase at least its Pro Rata Share of such issuance or
sale and participates in such issuance or sale at least to the extent of its Pro
Rata Share of such issuance or sale and the provisions of Section 5(j)(i) above
are not and have never been applicable to such holder prior to such sale,
issuance or deemed sale or issuance, then as of the opening of business on the
date of such issue or sale, the Series B Conversion Price will be reduced (x) if
the Effective Price at which any Additional Share of Common Stock is issuable,
or deemed to be issuable, is greater than or equal to $1 per share (as adjusted
proportionally for any combination, split or other division of shares after the
Original Issue Date), to the Effective Price at which Additional Shares of
Common Stock have been issued or
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<PAGE>
sold or is deemed to have been issued or sold, and (y) if the Effective Price at
which any Additional Share of Common Stock is issuable, or deemed to be
issuable, is less than $1 per share (as so adjusted), to a price determined by
first reducing the Series B Conversion Price to the lesser of $1 and the Series
B Conversion Price in effect immediately prior to the adjustment pursuant
hereto, and then by multiplying the Series B Conversion Price by a fraction
(i) the numerator of which shall be (A) the number of shares of Common Stock
outstanding (including all shares of Common Stock issuable upon conversion of
all outstanding Series Preferred) immediately prior to such issue or sale, plus
(B) the number of shares of Common Stock which the aggregate consideration
received (as defined in Section 5(j)(vii)) by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding (including all shares of Common Stock
issuable upon conversion of all outstanding Series Preferred) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued.
(iii) If and whenever the provisions of Section 5(j)(i) and
Section 5(j)(ii) above are BOTH applicable to any issuance or sale or deemed
issuance or sale of any share of Common Stock for a consideration per share less
than the Series B Conversion Price of any Series B Preferred in effect
immediately prior to the time of such issuance or sale, then promptly after
receipt of written notice from the Corporation each and every holder of such
Series B Preferred shall surrender the certificate or certificates representing
the shares of such Series B Preferred owned by such holder to the Corporation at
its principal office. As soon as possible after the surrender of such
certificate or certificates of such Series B Preferred by the holders thereof,
the Corporation will deliver:
(A) a certificate or certificates representing the number of
shares of such Series B Preferred owned by each holder subject to the provisions
of Section 5(j)(i) above pursuant to which the Series B Conversion Price was
thereby adjusted and the shares represented by such certificate or certificates
will be designated as a new separate series of Preferred Stock; and
(B) a certificate or certificates representing the number of
shares of such Series B Preferred owned by each holder subject to the provisions
of Section 5(j)(ii) above pursuant to which the Series B Conversion Price was
thereby adjusted and the shares represented by such certificate or certificates
will be designated as a new separate series of Preferred Stock.
(iv) Each new separate series of Series B Preferred to be issued
pursuant to Section 5(j)(iii) will be designated as Series B-1, Series B-2,
Series B-3, etc. and will be deemed (for all purposes other than this Section
5(j)) to be Series B Preferred hereunder. All such series of any class will be
identical in all respects hereunder except for the different Conversion Price
for each series determined pursuant to this Section 5(j).
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(v) If at any time or from time to time after the Original Issue
Date, the Corporation issues or sells, or is deemed by the express provisions of
this Section 5(j) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in Section 5(f) above, and other than a subdivision
or combination of shares of Common Stock as provided in Section 5(e) above, for
an Effective Price less than the then effective Series A Conversion Price, then
and in each such case the then existing Series A Conversion Price shall be
reduced, as of the opening of business on the date of such issue or sale, to a
price determined by multiplying the Series A Conversion Price by a fraction
(i) the numerator of which shall be (A) the number of shares of Common Stock
outstanding (including all shares of Common Stock issuable upon conversion of
all outstanding Series Preferred) immediately prior to such issue or sale, plus
(B) the number of shares of Common Stock which the aggregate consideration
received (as defined in Section 5(j)(vii)) by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding (including all shares of Common Stock
issuable upon conversion of all outstanding Series Preferred) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued.
(vi) Sections 5(j)(i), (ii) and (iii) above will not apply to
any issuance, or deemed issuance, of Additional Shares of Common Stock which
occurs upon or after consummation of a Qualifying Equity Issuance (as
hereinafter defined). If at any time or from time to time after the
consummation of a Qualifying Equity Issuance the Corporation issues or sells, or
is deemed by the express provisions of this Section 5(j) to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined), other than as a
dividend or other distribution on any class of stock as provided in Section 5(f)
above, and other than a subdivision or combination of shares of Common Stock as
provided in Section 5(e) above, for an Effective Price less than the then
effective Series B Conversion Price, then and in each such case the then
existing Series B Conversion Price shall be reduced, as of the opening of
business on the date of such issue or sale, to a price determined in accordance
with Section 5(j)(i). For purposes hereof, "consummation of a Qualifying Equity
Issuance" means the receipt by the Corporation of net proceeds of at least
$5,250,000 from the issuance and sale of its Common Stock or Preferred Stock
(the "New Stock") in a single transaction (which may have multiple closings
within a period not exceeding sixty (60) days) at an Effective Price in excess
of $1.70 per share of Common Stock (as adjusted proportionally for any
combination, split or other division of shares after the Original Issue Date);
provided that (x) each of the purchasers thereof purchase such New Stock on the
same terms and conditions as each other purchaser thereof, (y) at least 1/3 of
each type or class of New Stock issued in such transaction is purchased by a
person or entity which, immediately prior to such transaction was neither a
holder of any capital stock nor an affiliate of the Corporation or of a holder
of any of the Corporation's capital stock, and (z) the terms of any "anti-
dilution" or other
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provision or agreement which directly or indirectly adjusts the number of shares
of Common Stock or other equity participation issuable with respect to the New
Stock, based upon subsequent issuances or deemed issuances of the Corporation's
capital stock, will be no more favorable to the holders of the New Stock than
the terms of the immediately preceding sentence would be if applied to such
holders, assuming for such purposes that the "Conversion Price" of the New
Stock, if any, is not less than the Effective Price with respect to such
issuance of New Stock and that the Common Stock issuable with respect to the New
Stock shall be included in the calculation of clause (ii) of such sentence.
(vii) For the purpose of making any adjustment required under
this Section 5(j), the consideration received by the Corporation for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issue or sale but without deduction
of any expenses payable by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Corporation for a consideration which covers both, be computed as
the portion of the consideration so received that may be reasonably determined
in good faith by the Board of Directors to be allocable to such Additional
Shares of Common Stock, Convertible Securities or rights or options.
(viii) For the purpose of the adjustment required under this
Section 5(j), if the Corporation issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Conversion Price, in each case the Corporation
shall be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without
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reference to such clauses; provided further that if the minimum amount of
consideration payable to the Corporation upon the exercise or conversion of
rights, options or Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Corporation
upon the exercise or conversion of such rights, options or Convertible
Securities is subsequently increased, the Effective Price shall be again
recalculated using the increased minimum amount of consideration payable to the
Corporation upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Conversion Price, as
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Corporation upon such
exercise, plus the consideration, if any, actually received by the Corporation
for the granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Corporation (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions
of Series Preferred.
(ix) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation or deemed to be issued pursuant to
this Section 5(j), whether or not subsequently reacquired or retired by the
Corporation other than (1) shares of Common Stock issued upon conversion of the
Series Preferred; (2) up to but not exceeding One Million Four Hundred Eighty
Seven Thousand Seven Hundred Fifty (1,487,750) shares of Common Stock (and/or
options, warrants or other Common Stock purchase rights, and the Common Stock
issued pursuant to such options, warrants or other rights) issued or to be
issued to employees, officers or directors of, or consultants or advisors to the
Corporation or any subsidiary pursuant to stock purchase or stock option plans
or other arrangements that are approved by the Board; and (3) up to Ninety Three
Thousand Two Hundred Thirteen (93,213) shares of Series B Preferred Stock issued
pursuant to the exercise of warrants outstanding as of the Original Issue Date.
The "Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined
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by dividing the total number of Additional Shares of Common Stock issued or
sold, or deemed to have been issued or sold by the Corporation under this
Section 5(j), into the aggregate consideration received, or deemed to have been
received by the Corporation for such issue under this Section 5(j), for such
Additional Shares of Common Stock.
k. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of the Series Preferred, if the
Series Preferred is then convertible pursuant to this Section 5, the
Corporation, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series Preferred at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Corporation for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Conversion Price at the time in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series
Preferred.
l. NOTICES OF RECORD DATE. Upon (i) any taking by the 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 or
other distribution, or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any transfer of all or substantially all the assets of the
Corporation to any other person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
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m. AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred shall automatically be
converted into shares of Common Stock, based on the then effective Conversion
Price, at any time upon the affirmative vote of the holders of at least two-
thirds of the outstanding shares of the Series A Preferred. Each share of
Series B Preferred shall automatically be converted into shares of Common Stock,
based on the then effective Conversion Price, at any time upon the affirmative
vote of the holders of at least two-thirds of the outstanding shares of the
Series B Preferred. Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective applicable
Conversion Price, immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation in which (i) the per share price is at least $7.00
(as adjusted for stock splits, recapitalizations and the like), and (ii) the
gross cash proceeds to the Corporation are at least $10,000,000 (after deduction
for underwriting discounts, commissions and fees). Upon such automatic
conversion, any accumulated and unpaid dividends shall be paid in accordance
with the provisions of Section 5(d).
(ii) Upon the occurrence of the event specified in paragraph (1)
above, the outstanding shares of Series Preferred shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series Preferred are either delivered to the Corporation or its transfer agent
as provided below, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Upon the occurrence
of such automatic conversion of the Series Preferred, the holders of Series
Preferred shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the Series Preferred.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series Preferred surrendered were convertible on the date on
which such automatic conversion occurred, and the Corporation shall promptly pay
in cash or, at the option of the Corporation, Common Stock (at the Common
Stock's fair market value determined by the Board as of the date of such
conversion), or, at the option of the Corporation, both, all declared and unpaid
dividends on the shares of Series Preferred being converted, to and including
the date of such conversion.
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n. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board) on the date of conversion.
o. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The 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 Preferred, 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 Preferred. 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 Preferred, the
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 purpose.
p. NOTICES. Any notice required by the provisions of this Section 5
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after verification of receipt. All notices shall be addressed to each
holder of record at the address of such holder appearing on the books of the
Corporation.
q. PAYMENT OF TAXES. The Corporation will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
r. NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series Preferred
against dilution or other impairment.
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6. NO REISSUANCE OF SERIES PREFERRED. No share or shares of Series
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall acquire the
status of undesignated shares of Preferred Stock.
7. NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive
rights except as granted by the Corporation pursuant to written agreements.
Shareholders shall not have the right to cumulate their votes for the election
of Directors.
ARTICLE 6.
In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, amend, alter,
change, add to or repeal bylaws of this corporation, without any action on the
part of the stockholders. The bylaws made by the directors may be amended,
altered, changed, added to or repealed by the stockholders.
ARTICLE 7.
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that this article shall not eliminate or
limit the liability of a director (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (c) for the unlawful payment of dividends or unlawful stock repurchases
under Section 174 of the Delaware General Corporation Law; or (d) for any
transaction from which the director derived an improper personal benefit. This
article shall not eliminate or limit the liability of a director for any act or
omission occurring prior to the effective date of this article.
If the Delaware General Corporation Law is hereafter amended to
authorize any further limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as amended.
Any repeal or modification of the foregoing provisions of this article
by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
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ARTICLE 8.
The initial board of directors shall be comprised of:
Name Address
---- -------
Graydon E. Beatty 1350 Energy Lane, Suite 110
St. Paul, Minnesota 55108
Ronald H. Kase 235 Montgomery Street, Suite 1025
San Francisco, California 94104
James E. Daverman 520 Lake Cook Road, Suite 450
Deerfield, Illinois 60015
Peter H. McNerney 60 South Sixth Street, Suite 3510
Minneapolis, Minnesota 55402
James W. Bullock 1350 Energy Lane, Suite 110
St. Paul, Minnesota 55108
ARTICLE 9.
The name and mailing address of the incorporator is:
Kenneth L. Cutler
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402:
Dated: January 27, 1995 /s/ Kenneth L.Cutler
---------------------------
Kenneth L. Cutler
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ENDOCARDIAL SOLUTIONS, INC.
-------------------
CERTIFICATE OF DESIGNATIONS
FOR
SERIES C PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 151(g))
--------------------
The undersigned, being respectively the President and Chief
Executive Officer the Secretary of Endocardial Solutions, Inc. (the
"Corporation"), a corporation organized and existing under the Delaware General
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on April 26, 1996, in accordance with the Delaware General Corporation
Law, Section 151, duly adopted the following resolution establishing a series of
1,953,700 shares of the Corporation's preferred stock, to be designated as its
Series C Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") by the Certificate of
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series C Preferred Stock of the Corporation and hereby states the
number of shares, and fixes the powers, designations, preferences and relative,
participating, optional and other rights, and the qualifications, limitations
and restrictions thereof, of such series of shares as follows:
SERIES C PREFERRED STOCK
Section 1. DESIGNATION; NUMBER OF SHARES. The shares of
such series shall be designated as "Series C Preferred Stock" (the "Series C
Preferred"), and the number of shares constituting the Series C Preferred shall
be 1,953,700. Such number of shares may be decreased by resolution of the Board
of Directors adopted and filed pursuant to the Delaware General Corporation Law,
Section 151(g), or any successor provision; provided, that no such decrease
shall reduce the number of authorized shares of Series C Preferred to a number
less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, warrants,
convertible or exchangeable securities or other rights to acquire shares of
Series C Preferred.
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Section 2. STATED CAPITAL. The amount to be represented in the
stated capital of the Corporation for each share of Series C Preferred shall be
$.01.
Section 3. RANK. The Series C Preferred shall rank (a) prior to
all of the Corporation's Common Stock, par value $.01 per share (the "Common
Stock"), now outstanding or hereafter issued, and (b) junior to all of the
Corporation's (i) Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred"), now outstanding or hereafter issued, and (ii) Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred"), now
outstanding or hereafter issued, in the case of each of (a) and (b), both as to
payment of dividends and as to distributions of assets upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of
Series C Preferred shall be treated as, and rank on a parity with, the holders
of shares of Common Stock for the purpose of dividends and distributions and
shall be entitled to share ratably with holders of shares of the Common Stock
and receive, when, as and if declared by the Board of Directors out of funds
legally available for such purpose, such dividends and distributions as are
declared by the Board of Directors on the Common Stock on an as-if-converted
basis (as defined below) as of the date of declaration.
Any reference to "distribution" contained in this Section 4 shall
not be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the
Series C Preferred shall be voted with the shares of the Common Stock of the
Corporation and not as a separate class, at any annual or special meeting of
shareholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis (an "as-if-
converted basis"): each holder of shares of Series C Preferred shall be
entitled to such number of votes as shall be equal to the whole number of shares
of Common Stock into which such holder's aggregate number of shares of Series
Preferred are convertible (pursuant to Section 7 hereof) immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent.
(b) For so long as at least 500,000 shares of Series C Preferred
remain outstanding, in addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds of the
outstanding Series C Preferred voting together as a single class on an as-if-
converted basis shall be
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necessary for effecting or validating any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation or the Bylaws of the
Corporation or this Certificate of Designations (including any filing of a
certificate of designation pursuant to Section 151 of the Delaware Corporation
Law), that affects adversely the voting powers, preferences, or other special
rights or privileges, qualifications, limitations, or restrictions of the Series
C Preferred;
(c) For so long as at least 500,000 shares of Series C Preferred
remain outstanding, in addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds of the
outstanding Series C Preferred voting together with the Series A Preferred and
Series B Preferred as a single class on an as-if-converted basis shall be
necessary for effecting or validating the following actions:
(i) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Common Stock or
Preferred Stock;
(ii) Any voluntary dissolution or liquidation of the
Corporation.
Section 6. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after any distribution or payment
in respect of liquidation required to be made to holders of stock of the
Corporation, including the Series A Preferred and the Series B Preferred,
ranking senior to the Series C Preferred Stock in respect of rights upon
liquidation but before any distribution or payment shall be made to the holders
of any Common Stock or other stock, if any, of the Corporation ranking junior to
the Series C Preferred in respect of rights upon liquidation (collectively,
"Junior Stock"), the holders of Series C Preferred shall be entitled, to be paid
out of the assets of the Corporation an amount per share of Series Preferred
equal to $5.12 per share plus all declared and unpaid dividends on such shares
for each share of Series C Preferred held by them.
(b) After the payment of the full liquidation preference of the
Series C Preferred as set forth in Section 5(a) above, the assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred, in each case on an as-if-converted basis,
until such time as the holders of Series A Preferred have received a total
liquidation amount of three dollars ($3.00) per share (as adjusted for stock
splits, recapitalizations and the like) and the holders of Series B Preferred
have received a total liquidation amount of five dollars and ten cents ($5.10)
per share (as adjusted for stock splits, recapitalizations and the like). The
remaining assets of the Corporation legally available for distribution, if any,
shall be
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<PAGE>
distributed ratably to the holders of the Common Stock and the Series C
Preferred on an as-if-converted basis.
(c) The following events shall be considered a liquidation under
Section 5(a):
(i) any consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other
corporate reorganization, in which the shareholders of the Corporation
immediately prior to such consolidation, merger or reorganization, own
less than 50% of the surviving or successor entity immediately after
such consolidation, merger or reorganization or any transaction or
series of related transactions in which in excess of fifty percent
(50%) of the Corporation's voting power is transferred; or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation.
(d) If, upon any liquidation (or any transaction deemed to be a
liquidation), distribution, or winding up, the assets of the Corporation shall
be insufficient to make payment in full to all holders of Series C Preferred,
then such assets shall be distributed among the holders of Series C Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
Section 7. CONVERSION RIGHTS. The holders of the Series C
Preferred shall have the following rights with respect to the conversion of the
Series C Preferred into shares of Common Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 7, any shares of Series C Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. A holder of Series C Preferred shall be entitled upon
conversion to receive one share of Common Stock for each share of Series C
Preferred Stock being converted.
(b) MECHANICS OF CONVERSION. Each holder of Series C Preferred
who desires to convert the same into shares of Common Stock pursuant to this
Section 7 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
C Preferred, and shall give written notice to the Corporation at such office
that such holder elects to convert the same. Such notice shall state the number
of shares of Series C Preferred being converted. Thereupon, the Corporation
shall promptly issue and deliver at such
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<PAGE>
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and shall promptly pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board of
Directors as of the date of such conversion), any declared and unpaid dividends
on the shares of Series C Preferred being converted. Such conversion shall be
deemed to have been made at the close of business on the date of such surrender
of the certificates representing the shares of Series C Preferred to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(c) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after issuance of any shares
of Series C Preferred effect a subdivision of the outstanding Common Stock, the
number of shares of Common Stock into which the Series C Preferred Stock is
convertible shall be proportionately increased. Conversely, if the Corporation
shall at any time or from time to time after issuance of any shares of Series C
Preferred effect a combination of the outstanding shares of Common Stock into a
smaller number of shares, the number of shares of Common Stock into which the
Series C Preferred is convertible shall be proportionately decreased. Any
adjustment under this Section 7(c) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(d) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS.
If the Corporation at any time or from time to time after issuance of any shares
of Series C Preferred makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the number of
shares of Common Stock into which the Series C Preferred is then convertible
shall be increased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by such number
of additional shares of Common Stock as a holder of shares of Common Stock in
respect of such dividend or distribution.
(e) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after issuance of any shares of
Series C Preferred makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, in
each such event provision shall be made so that the holders of the Series C
Preferred shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Corporation which they
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<PAGE>
would have received had their Series C Preferred been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 7 with
respect to the rights of the holders of the Series C Preferred or with respect
to such other securities by their terms.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If at any time or from time to time after issuance of any shares of Series C
Preferred, the Common Stock issuable upon the conversion of the Series C
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 7 or in Section 3(c)), in any such event each holder of Series C
Preferred shall have the right thereafter to convert such stock into the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(g) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 7 or in Section 6(c)), as a part of such
capital reorganization, provision shall be made so that the holders of the
Series C Preferred shall thereafter be entitled to receive upon conversion of
the Series C Preferred the number of shares of stock or other securities or
property of the Corporation to which a holder of the number of shares of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 7 with respect to the rights
of the holders of Series C Preferred after the capital reorganization to the end
that the provisions of this Section 7 (including adjustment of the number of
shares of Common Stock to be received upon conversion of the Series C Preferred
then in effect) shall be applicable after that event and be as nearly equivalent
as practicable.
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<PAGE>
(h) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the number of shares of Common Stock or other securities
issuable upon conversion of the Series C Preferred, if the Series C Preferred is
then convertible pursuant to this Section 7, the Corporation, at its expense,
shall compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series C Preferred at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
(i) NOTICES OF RECORD DATE. Upon (i) any taking by the
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 or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation with or into any
other corporation, or any transfer of all or substantially all the assets of the
Corporation to any other person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series C Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(j) AUTOMATIC CONVERSION.
(i) Each Share of Series C Preferred shall automatically be
converted into shares of Common Stock on a one for one basis at any
time upon the affirmative vote of the holders of at least two-thirds
of the outstanding Series C Preferred. Each share of Series C
Preferred shall automatically be converted into shares of Common
Stock, based on the number of shares of Common Stock into which shares
of Series C are then convertible pursuant to the provisions of this
Section 7, immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation in which (i) the per
share
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<PAGE>
price is at least $7.00 (as adjusted for stock splits,
recapitalizations and the like), and (ii) the gross cash proceeds to
the Corporation are at least $10,000,000 (after deduction for
underwriting discounts, commissions and fees). Upon such automatic
conversion, any accumulated and unpaid dividends shall be paid in
accordance with the provisions of Section 7(b).
(ii) Upon the occurrence of the event specified in paragraph (i)
above, the outstanding shares of Series C Preferred shall be converted
automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series C
Preferred are either delivered to the Corporation or its transfer
agent as provided below, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
with such certificates. Upon the occurrence of such automatic
conversion of the Series C Preferred, the holders of Series C
Preferred shall surrender the certificates representing such shares at
the office of the Corporation or any transfer agent for the Series C
Preferred. Thereupon, there shall be issued and delivered to such
holder promptly at such office and in its name as shown on such
surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of
Series C Preferred surrendered were convertible on the date on which
such automatic conversion occurred, and the Corporation shall promptly
pay in cash or, at the option of the Corporation, Common Stock (at the
Common Stock's fair market value determined by the Board as of the
date of such conversion), or, at the option of the Corporation, both,
all declared and unpaid dividends on the shares of Series C Preferred
being converted, to and including the date of such conversion.
(k) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series C Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series C Preferred by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board of Directors of the Company) on the date of conversion.
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(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
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 C Preferred, 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 C Preferred. 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 C Preferred,
the 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 purpose.
(m) NOTICES. Any notice required by the provisions of this
Section 7 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after verification of receipt. All notices shall be addressed to
each holder of record at the address of such holder appearing on the books of
the Corporation.
(n) PAYMENT OF TAXES. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series C Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series C Preferred
so converted were registered.
(o) NO DILUTION OR IMPAIRMENT. The Corporation shall not amend
its Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series C Preferred
against dilution or other impairment.
Section 8. NO REISSUANCE OF SERIES C PREFERRED. No share or
shares of Series C Preferred acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall acquire the status of undesignated shares of Preferred Stock.
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Section 9. NO PREEMPTIVE RIGHTS. Shareholders of the Corporation
shall have no preemptive rights except as granted by the Corporation pursuant to
written agreements. Shareholders shall not have the right to cumulate their
votes for the election of Directors.
IN WITNESS WHEREOF, Endocardial Solutions, Inc. has caused this
certificate to be signed by James W. Bullock, in his capacity as President and
Chief Executive Officer, and attested by James W. Bullock, in his capacity as
Secretary, this 26th day of April, 1996.
ENDOCARDIAL SOLUTIONS, INC.
By /s/ James W. Bullock
-----------------------------------
James W. Bullock
President and Chief Executive Officer
Attest:
By
------------------------
Secretary
29
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
-------------------
CERTIFICATE OF DESIGNATIONS
FOR
SERIES D PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 151(g))
--------------------
The undersigned, being respectively the President and Chief Executive
Officer the Secretary of Endocardial Solutions, Inc. (the "Corporation"), a
corporation organized and existing under the Delaware General Corporation Law,
in accordance with the provisions of the Delaware General Corporation Law,
Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on [September 4, 1996], in accordance with the Delaware General
Corporation Law, Section 151, duly adopted the following resolution establishing
a series of 15,000 shares of the Corporation's preferred stock, to be designated
as its Series D Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") by the Certificate of
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series D Preferred Stock of the Corporation and hereby states the
number of shares, and fixes the powers, designations, preferences and relative,
participating, optional and other rights, and the qualifications, limitations
and restrictions thereof, of such series of shares as follows:
SERIES D PREFERRED STOCK
Section 1. DESIGNATION; NUMBER OF SHARES. The shares of such
series shall be designated as "Series D Preferred Stock" (the "Series D
Preferred"), and the number of shares constituting the Series D Preferred shall
be 15,000. Such number of shares may be decreased by resolution of the Board of
Directors adopted and filed pursuant to the Delaware General Corporation Law,
Section 151(g), or any successor provision; provided, that no such decrease
shall reduce the number of authorized shares of Series D Preferred to a number
less than the number of shares
30
<PAGE>
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of Series D Preferred.
Section 2. STATED CAPITAL. The amount to be represented in the
stated capital of the Corporation for each share of Series D Preferred shall be
$.01.
Section 3. RANK. The Series D Preferred shall rank (a) prior to all
of the Corporation's Common Stock, par value $.01 per share (the "Common
Stock"), now outstanding or hereafter issued, and (b) junior to all of the
Corporation's (i) Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred"), now outstanding or hereafter issued, (ii) Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred"), now
outstanding or hereafter issued, and (iii) Series C Preferred Stock, par value
$.01 per share (the "Series C Preferred"), in the case of each of (a) and (b),
both as to payment of dividends and as to distributions of assets upon the
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
Section 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of
Series D Preferred shall be treated as, and rank on a parity with, the holders
of shares of Common Stock for the purpose of dividends and distributions and
shall be entitled to share ratably with holders of shares of the Common Stock
and receive, when, as and if declared by the Board of Directors out of funds
legally available for such purpose, such dividends and distributions as are
declared by the Board of Directors on the Common Stock on an as-if-converted
basis (as defined below) as of the date of declaration.
Any reference to "distribution" contained in this Section 4 shall not
be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the Series
D Preferred shall be voted with the shares of the Common Stock of the
Corporation and not as a separate class, at any annual or special meeting of
shareholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis (an "as-if-
converted basis"): each holder of shares of Series D Preferred shall be
entitled to such number of votes as shall be equal to the whole number of shares
of Common Stock into which such holder's aggregate number of shares of Series
Preferred are convertible (pursuant to Section 7 hereof) immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent.
31
<PAGE>
(b) For so long as at least 15,000 shares of Series D Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least two-thirds of the
outstanding Series D Preferred voting together as a single class on an as-if-
converted basis shall be necessary for effecting or validating any amendment,
alteration, or repeal of any provision of the Certificate of Incorporation or
the Bylaws of the Corporation or this Certificate of Designations (including any
filing of a certificate of designation pursuant to Section 151 of the Delaware
Corporation Law), that affects adversely the voting powers, preferences, or
other special rights or privileges, qualifications, limitations, or restrictions
of the Series D Preferred;
(c) For so long as at least 15,000 shares of Series D Preferred remain
outstanding, in addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least two-thirds of the
outstanding Series D Preferred voting together with the Series A Preferred,
Series B Preferred and Series C Preferred as a single class on an as-if-
converted basis shall be necessary for effecting or validating the following
actions:
(i) Any increase or decrease (other than by redemption or conversion)
in the authorized number of shares of Common Stock or Preferred Stock;
(ii) Any voluntary dissolution or liquidation of the Corporation.
Section 6. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after any distribution or payment
in respect of liquidation required to be made to holders of stock of the
Corporation, including the Series A Preferred, the Series B Preferred and the
the Series C Preferred, ranking senior to the Series D Preferred Stock in
respect of rights upon liquidation but before any distribution or payment shall
be made to the holders of any Common Stock or other stock, if any, of the
Corporation ranking junior to the Series D Preferred in respect of rights upon
liquidation (collectively, "Junior Stock"), the holders of Series D Preferred
shall be entitled, to be paid out of the assets of the Corporation an amount per
share of Series Preferred equal to $5.12 per share plus all declared and unpaid
dividends on such shares for each share of Series D Preferred held by them.
(b) After the payment of the full liquidation preference of the
Series D Preferred as set forth in Section 5(a) above, the assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred, in each case on an as-if-converted basis,
until such time as the holders of Series A Preferred
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<PAGE>
have received a total liquidation amount of three dollars ($3.00) per share (as
adjusted for stock splits, recapitalizations and the like) and the holders of
Series B Preferred have received a total liquidation amount of five dollars and
ten cents ($5.10) per share (as adjusted for stock splits, recapitalizations and
the like). The remaining assets of the Corporation legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock and the Series C Preferred on an as-if-converted basis.
(c) The following events shall be considered a liquidation under
Section 5(a):
(i) any consolidation or merger of the Corporation with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the shareholders of the Corporation immediately
prior to such consolidation, merger or reorganization, own less than 50% of
the surviving or successor entity immediately after such consolidation,
merger or reorganization or any transaction or series of related
transactions in which in excess of fifty percent (50%) of the Corporation's
voting power is transferred; or
(ii) a sale, lease or other disposition of all or substantially all of
the assets of the Corporation.
(d) If, upon any liquidation (or any transaction deemed to be a
liquidation), distribution, or winding up, the assets of the Corporation shall
be insufficient to make payment in full to all holders of Series D Preferred,
then such assets shall be distributed among the holders of Series D Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
Section 7. CONVERSION RIGHTS. The holders of the Series D Preferred
shall have the following rights with respect to the conversion of the Series D
Preferred into shares of Common Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 7, any shares of Series D Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. A holder of Series D Preferred shall be entitled upon
conversion to receive one share of Common Stock for each share of Series D
Preferred Stock being converted.
(b) MECHANICS OF CONVERSION. Each holder of Series D Preferred who
desires to convert the same into shares of Common Stock pursuant to this
33
<PAGE>
Section 7 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
D Preferred, and shall give written notice to the Corporation at such office
that such holder elects to convert the same. Such notice shall state the number
of shares of Series D Preferred being converted. Thereupon, the Corporation
shall promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, to the extent sufficient funds are
not then legally available therefor, in Common Stock (at the Common Stock's fair
market value determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of Series D
Preferred being converted. Such conversion shall be deemed to have been made at
the close of business on the date of such surrender of the certificates
representing the shares of Series D Preferred to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
(c) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after issuance of any shares of Series D
Preferred effect a subdivision of the outstanding Common Stock, the number of
shares of Common Stock into which the Series D Preferred Stock is convertible
shall be proportionately increased. Conversely, if the Corporation shall at any
time or from time to time after issuance of any shares of Series D Preferred
effect a combination of the outstanding shares of Common Stock into a smaller
number of shares, the number of shares of Common Stock into which the Series D
Preferred is convertible shall be proportionately decreased. Any adjustment
under this Section 7(c) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(d) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after issuance of any shares of
Series D Preferred makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the number of
shares of Common Stock into which the Series D Preferred is then convertible
shall be increased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by such number
of additional shares of Common Stock as a holder of shares of Common Stock in
respect of such dividend or distribution.
(e) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after issuance of any shares of
Series D Preferred makes, or fixes a record date for the determination of
holders of Common
34
<PAGE>
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, in each such
event provision shall be made so that the holders of the Series D Preferred
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the
Corporation which they would have received had their Series D Preferred been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 7 with respect to the rights of the holders of the Series D
Preferred or with respect to such other securities by their terms.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after issuance of any shares of Series D
Preferred, the Common Stock issuable upon the conversion of the Series D
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 7 or in Section 3(c)), in any such event each holder of Series D
Preferred shall have the right thereafter to convert such stock into the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(g) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 7 or in Section 6(c)), as a part of such
capital reorganization, provision shall be made so that the holders of the
Series D Preferred shall thereafter be entitled to receive upon conversion of
the Series D Preferred the number of shares of stock or other securities or
property of the Corporation to which a holder of the number of shares of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 7 with respect to the rights
of the holders of Series D Preferred after the capital reorganization to the end
that the provisions of this Section 7 (including
35
<PAGE>
adjustment of the number of shares of Common Stock to be received upon
conversion of the Series D Preferred then in effect) shall be applicable after
that event and be as nearly equivalent as practicable.
(h) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the number of shares of Common Stock or other securities
issuable upon conversion of the Series D Preferred, if the Series D Preferred is
then convertible pursuant to this Section 7, the Corporation, at its expense,
shall compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series D Preferred at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
(i) NOTICES OF RECORD DATE. Upon (i) any taking by the 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 or
other distribution, or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into any other
corporation, or any transfer of all or substantially all the assets of the
Corporation to any other person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series D Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(j) AUTOMATIC CONVERSION.
(i) Each Share of Series D Preferred shall automatically be converted
into shares of Common Stock on a one for one basis at any time upon the
affirmative vote of the holders of at least two-thirds of the outstanding
Series D Preferred. Each share of Series D Preferred shall automatically
be converted into shares of Common Stock, based on the number of shares of
Common Stock into which shares of Series D are then convertible pursuant to
the
36
<PAGE>
provisions of this Section 7, immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of Common Stock for the account of the Corporation in which the
gross cash proceeds to the Corporation are at least $10,000,000 (after
deduction for underwriting discounts, commissions and fees). Upon such
automatic conversion, any accumulated and unpaid dividends shall be paid in
accordance with the provisions of Section 7(b).
(ii) Upon the occurrence of the event specified in paragraph (i)
above, the outstanding shares of Series D Preferred shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series D Preferred are either
delivered to the Corporation or its transfer agent as provided below, or
the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon the occurrence
of such automatic conversion of the Series D Preferred, the holders of
Series D Preferred shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for the
Series D Preferred. Thereupon, there shall be issued and delivered to such
holder promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number
of shares of Common Stock into which the shares of Series D Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and the Corporation shall promptly pay in cash or, at the option
of the Corporation, Common Stock (at the Common Stock's fair market value
determined by the Board as of the date of such conversion), or, at the
option of the Corporation, both, all declared and unpaid dividends on the
shares of Series D Preferred being converted, to and including the date of
such conversion.
(k) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series D Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series D Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any
37
<PAGE>
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's fair market value (as determined by the Board of Directors of
the Company) on the date of conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The 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 D Preferred, 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 D Preferred. 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 D Preferred, the
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 purpose.
(m) NOTICES. Any notice required by the provisions of this Section 7
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after verification of receipt. All notices shall be addressed to each
holder of record at the address of such holder appearing on the books of the
Corporation.
(n) PAYMENT OF TAXES. The Corporation will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series D Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series D Preferred
so converted were registered.
(o) NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series D Preferred
against dilution or other impairment.
38
<PAGE>
Section 8. NO REISSUANCE OF SERIES D PREFERRED. No share or shares of
Series D Preferred acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
acquire the status of undesignated shares of Preferred Stock.
Section 9. NO PREEMPTIVE RIGHTS. Shareholders of the Corporation
shall have no preemptive rights except as granted by the Corporation pursuant to
written agreements. Shareholders shall not have the right to cumulate their
votes for the election of Directors.
IN WITNESS WHEREOF, Endocardial Solutions, Inc. has caused this
certificate to be signed by James W. Bullock, in his capacity as President and
Chief Executive Officer, and attested by James W. Bullock, in his capacity as
Secretary, this __th day of January, 1997.
ENDOCARDIAL SOLUTIONS, INC.
By
------------------------------------
James W. Bullock
President and Chief Executive Officer
Attest:
By
------------------------
Secretary
39
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ENDOCARDIAL SOLUTIONS, INC.
Endocardial Solutions, Inc., a corporation incorporated and existing
under the laws of the State of Delaware, hereby certifies as follows
1. The name of this corporation is Endocardial Solutions, Inc.
2. This corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware on January 27, 1995
3. This corporation's Certificate of Incorporation as heretofore amended
is hereby amended and restated in its entirety to read as set forth on
the attached Exhibit A.
4. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors and the stockholders of this
corporation in accordance with Section 245 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said Endocardial Solutions, Inc. has caused this
Amended and Restated Certificate of Incorporation to be signed by James W.
Bullock, its President and Chief Executive Officer, and attested by Dennis J.
McFadden, its Vice President and Chief Financial Officer, this ___ day of
February, 1997.
ENDOCARDIAL SOLUTIONS, INC.
By
---------------------------
James W. Bullock
President and Chief Executive
Officer
ATTEST:
By
-------------------------
Dennis J. McFadden
Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ENDOCARDIAL SOLUTIONS, INC.
ARTICLE 1.
The name of this corporation is Endocardial Solutions, Inc.
ARTICLE 2.
The purpose of this corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE 3.
The corporation shall have perpetual duration.
ARTICLE 4.
The registered office of this corporation in Delaware is Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801, and the name of its
registered agent is The Corporation Trust Company.
ARTICLE 5.
5.1 AUTHORIZED SHARES.
The total number of shares of stock which this corporation is authorized to
issue is 50,000,000 shares, par value $.01 per share, of which 40,000,000
shares are designated Common Stock and 10,000,000 shares are undesignated
preferred stock.
5.2 UNDESIGNATED PREFERRED STOCK.
Authority is hereby expressly vested in the board of directors, subject to
the provisions of this Article 5 and to the limitations prescribed by law, to
authorize the issue from time to time of one or more series of preferred stock
and with respect to
2
<PAGE>
each such series to fix by resolution or resolutions adopted by the affirmative
vote of a majority of the whole board of directors providing for the issue of
such series the voting powers, full or limited, if any, of the shares of such
series and the designations, preferences and relative, participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof.
5.3 NO PREEMPTIVE RIGHTS.
Shareholders shall have no preemptive rights except as granted by the
Corporation pursuant to written agreements. Shareholders shall not have the
right to cumulate their votes for the election of Directors.
ARTICLE 6.
In furtherance, and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized to make, amend, alter, change,
add to or repeal bylaws of this corporation, without any action on the part of
the stockholders, except to the extent otherwise provided in the bylaws. The
bylaws made by the directors may be amended, altered, changed, added to or
repealed by the stockholders.
ARTICLE 7.
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that this article shall not eliminate or
limit the liability of a director (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (c) for the unlawful payment of dividends or unlawful stock repurchases
under Section 174 of the Delaware General Corporation Law; or (d) for any
transaction from which the director derived an improper personal benefit. This
article shall not eliminate or limit the liability of a director for any act or
omission occurring prior to the effective date of this article.
If the Delaware General Corporation Law is hereafter amended to authorize
any further limitation of the liability of a director, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as amended.
Any repeal or modification of the foregoing provisions of this article by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
3
<PAGE>
AMENDED BYLAWS
OF
ENDOCARDIAL SOLUTIONS, INC.
ARTICLE I.
Offices, Corporate Seal
Section 1.01. OFFICES. The Corporation shall have a registered
office, a principal office and such other offices as the Board of Directors (the
"Board") may determine. The Board is granted full power and authority to
change any of said offices at any time.
Section 1.02. CORPORATE SEAL. The Corporation shall have no
corporate seal.
ARTICLE II.
Meetings of Stockholders
Section 2.01. PLACE AND TIME OF MEETINGS. Meetings of the
stockholders may be held at such place and at such time as may be designated by
the Board of Directors. In the absence of a designation of place, this meeting
shall be held at the principal office. In the absence of a designation of time,
the meeting shall be held at 10:00 a.m.
Section 2.02. ANNUAL MEETINGS.
(a) The annual meetings of stockholders shall be held on such date
and at such time as may be fixed by the Board. At such meetings, directors
shall be elected and any other proper business may be transacted.
(b) To be properly brought before a regular meeting of stockholders,
business must be (1) specified in the notice of the meeting, (2) directed
to be brought before the meeting by the Board of Directors or (3) proposed
at the meeting by a stockholder who (i) was a stockholder of record at the
time of giving of notice provided for in these bylaws, (ii) is entitled to
vote at the meeting and (iii) gives prior notice of the matter, which must
otherwise be a proper matter for stockholder action, in the manner herein
provided. For business to be properly brought before a regular meeting by
a stockholder, the stockholder must give written notice to the Secretary of
the corporation so as to be received at the principal executive offices of
the corporation not later than the close of business on the fifteenth day
following the day on which the notice of the regular meeting was mailed to
stockholders. Such notice shall
<PAGE>
set forth (1) the name and record address of the stockholder and of the
beneficial owner, if any, on whose behalf the proposal will be made, (2)
the class and number of shares of the Corporation owned by the stockholder
and beneficially owned by the beneficial owner, if any, on whose behalf the
proposal will be made, (3) a brief description of the business desired to
be brought before the regular meeting and the reasons for conducting such
business, and (4) any material interest in such business of the stockholder
and the beneficial owner, if any, on whose behalf the proposal is made.
The chair of the meeting may refuse to acknowledge any proposed business
not made in compliance with the foregoing procedure.
Section 2.03. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes shall be called by the Secretary at the written
request of a majority of the total number of directors, by the Chairman of the
Board, by the President or by the stockholders owning 10% or more of the voting
power entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a business
combination, including any action to change or otherwise affect the composition
of the Board of Directors for that purpose, must be called by 25% or more of the
voting power of all shares entitled to vote. A stockholder or stockholders
holding the requisite percentage of the voting power of all shares entitled to
vote may demand a special meeting of the stockholders by written notice of
demand given to the Chief Executive Officer or Chief Financial Officer of the
Corporation and containing the purposes of the meeting. Within 30 days after
receipt of demand by one of those officers, the Board of Directors shall cause a
special meeting of stockholders to be called and held on notice no later than 90
days after receipt of the demand, at the expense of the Corporation. Special
meetings shall be held on the date and at the time and place fixed by the Chief
Executive Officer or the Board of Directors, except that a special meeting
called by or at demand of a stockholder or shareholders shall be held in the
county where the principal executive office is located. The business transacted
at a special meeting shall be limited to the purposes as stated in the notice of
the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of shares
comprising a majority in interest of the shares outstanding and entitled to vote
shall constitute a quorum for the transaction of business at any annual or
special meeting. If a quorum is not present at a meeting, those present shall
adjourn to such day as they shall agree upon by majority vote. Notice of any
adjourned meeting need not be given if the time and place thereof are announced
at the meeting at which the adjournment is taken. At adjourned meetings at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. If a quorum is present, the
stockholders may continue to transact business until adjournment notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
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Section 2.05. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board or in the absence of the Chairman of the Board, the
President or in the absence of the President, the chairman chosen by a majority
in voting interest of the stockholders present in person or by proxy and
entitled to vote shall act as chairman; and the Secretary of the Corporation or
in the absence of the Secretary, an Assistant Secretary or in the absence of an
Assistant Secretary, any person whom the chairman of the meeting shall appoint
shall act as Secretary of the meeting.
Section 2.06. ORDER OF BUSINESS. The order of business at all
meetings of the stockholders shall be determined by the Chairman of the meeting,
but such order of business may be changed by the vote of a majority in voting
interest of those present or represented at such meeting and entitled to vote
thereat.
Section 2.07. VOTING. Unless the Certificate of Incorporation of the
Corporation provides otherwise, each stockholder of the Corporation entitled to
vote at a meeting of stockholders or entitled to express consent in writing to
the corporate action without a meeting shall have one vote, in person or by
proxy, for each share of stock having voting rights held by such stockholder and
registered in such stockholder's name on the books of the Corporation. Upon the
request of any stockholder, the vote upon any question before a meeting shall be
written by written ballot, and all elections of directors shall be by written
ballot. All questions at a meeting shall be decided by a vote of a majority in
interest of shares entitled to vote represented at the meeting at the time of
the vote except where otherwise required by statute, the Certificate of
Incorporation or these Bylaws. Any action to be taken by written consent
without a meeting may be taken by the holders of the outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting in which all shares entitled to vote thereon
were present and voted. For the election of directors, the persons receiving
the largest number of votes (up to and including the number of directors to be
elected) shall be directors. If directors are to be elected by consent in
writing of the stockholders without a meeting, those persons receiving the
consent in writing of the largest number of votes in the aggregate and
constituting not less than a majority of the total outstanding voting power
entitled to consent in writing thereon (up to and including the number of
directors to be elected) shall be directors. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. If shares
stand of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or if two or more persons shall have the same fiduciary
relationship respecting the same shares, unless the Secretary of the Corporation
shall have been given written notice to the contrary and shall have been
furnished with a copy of the instrument or order appointing them or creating a
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
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(i) if only one shall vote, such act shall bind
all.
(ii) if more than one shall vote, the act of the
majority voting shall bind all.
(iii) if more than one shall vote, but the votes
shall be evenly split on any particular
matter, then, except as otherwise required by
statute, each fraction may vote the shares in
question proportionately.
Section 2.08. INSPECTORS OF ELECTION. At each meeting of the
stockholders, the chairman of such meeting may appoint two inspectors of
election to act. Each inspector of election so appointed shall first subscribe
an oath or affirmation briefly to execute the duties of an inspector of election
at such meeting with strict impartiality and according to the best of such
inspector of election's ability. Such inspectors of election, if any, shall
take charge of the ballots at such meeting and after the balloting thereat on
any question shall count the ballots cast thereon and shall make a report in
writing to the Secretary of such meeting of the results thereof. An inspector
of election need not be a stockholder of the Corporation, and any officer or
employee of the Corporation may be an inspector of election on any question
other than a vote for or against the election of such inspector of election to
any position with the Corporation or on any other question in which such
inspector of election may be directly interested.
Section 2.09. NOTICES OF MEETINGS AND CONSENTS. Every
stockholder shall furnish the Secretary of the Corporation with an address at
which notices of meetings and notices and consent material with respect to
proposed corporate action without a meeting and all other corporate
communications may be served on or mailed to such stockholder. Except as
otherwise provided by the Certificate of Incorporation or by statute, a written
notice of each annual and special meeting of stockholders shall be given not
less than 10 nor more than 60 days before the date of such meeting or the date
on which the corporate action without a meeting is proposed to be taken to each
stockholder of record of the Corporation entitled to vote at such meeting by
delivering such notice of meeting to such stockholder personally or depositing
the same in the United States mail, postage prepaid, directed to such
stockholder at the post office address shown upon the records of the
Corporation. Service of notice is complete upon mailing. Personal delivery to
any officer of a corporation or association or to any member of a partnership is
delivery to such corporation, association or partnership. Every notice of a
meeting of stockholders shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called.
Section 2.10. PROXIES. Each stockholder entitled to vote at a
meeting of stockholders or consent to corporate action without a meeting may
authorize
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another person or persons to act for such stockholder by proxy by an instrument
executed in writing. If any such instrument designates two or more persons to
act as proxies, a majority of such persons present at the meeting, or, if only
one shall be present, then that one, shall have and may exercise all of the
powers conferred by such written instrument upon all of the persons so
designated unless the instrument shall otherwise provide. No such proxy shall
be valid after three years from the date of its execution unless the proxy
provides for a longer period. A proxy may be irrevocable if it states that it
is irrevocable and, if, and only as long as, it is coupled with an interest
sufficient to support an irrevocable power. Subject to the above, any proxy may
be revoked if an instrument revoking it or proxy bearing a later date is filed
with the Secretary.
Section 2.11. WAIVER OF NOTICE. Notice of any annual or
special meeting may be waived either before, at or after such meeting in writing
signed by the person or persons entitled to the notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting at the
beginning of the meeting to the transacting of any business because the meeting
is not lawfully called or convened.
Section 2.12. WRITTEN ACTION. Any action that may be taken at
a meeting of the stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the actions so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be required to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 2.13. STOCKHOLDER LIST. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 2.14. NOMINATION OF DIRECTORS. Only persons nominated
in accordance with the following procedures shall be eligible for election by
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stockholders as directors. Nominations of persons for election as directors may
be made at a meeting of stockholders called for the purpose of electing
directors (a) by or at the direction of the Board of Directors or (b) by any
stockholder who (1) was a stockholder of record at the time of giving of notice
provided for in these Bylaws, (2) is entitled to vote at the meeting and (3)
gives prior notice of the nomination in the manner herein provided. For a
nomination to be properly made by a stockholder, the stockholder must give
written notice to the Secretary of the Corporation so as to be received at the
principal executive offices of the Corporation not later than the close of
business on the fifteenth day following the day on which the notice of the
stockholder meeting was mailed to stockholders. Such notice shall set forth (a)
as to the stockholder giving the notice: (1) the name and record address of the
stockholder and of the beneficial owner, if any, on whose behalf the nomination
will be made, and (2) the class and number of shares of the Corporation owned by
the stockholder and beneficially owned by the beneficial owner, if any, on whose
behalf the nomination will be made; and (b) as to each person the shareholder
proposes to nominate: (1) the name, age, business address and residence address
of the person, (2) the principal occupation or employment of the person and (3)
the class and number of shares of the Corporation's capital stock beneficially
owned by the person. The chair of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
ARTICLE III.
Board of Directors
Section 3.01. GENERAL POWERS. The business of the Corporation
shall be managed by the Board of Directors.
Section 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. The
number of directors shall be established by a resolution adopted by a majority
of the total number of directors. Directors need not be stockholders. The
directors shall be divided into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class to expire at the
1998 annual meeting of stockholders, the term of office of the second class to
expire at the 1999 annual meeting of stockholders and the term of office of the
third class to expire at the 2000 annual meeting of stockholders. At each
annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected to hold office for a term of three consecutive years. Each director
of the corporation shall serve until such director's successor shall have been
elected and shall qualify, or until the earlier death, resignation, removal or
disqualification of such director. In case of an increase or decrease in the
number of directors, the increase or decrease shall distributed among the
several classes as nearly equal as possible, as shall be determined by the
affirmative cote of a majority
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of the entire Board of Directors or by the holders of at least two-thirds of the
stock of the Corporation entitled to vote, considered as one class.
Section 3.03. ANNUAL MEETING. As soon as practicable after
each election of directors, the Board of Directors shall meet at the registered
office of the Corporation, or at such other place previously designated by the
Board of Directors, for the purpose of electing the officers of the Corporation
and for the transaction of such other business as may come before the meeting.
Section 3.04. REGULAR MEETINGS. Regular meetings of the Board
of Directors shall be held from time to time at such time and place as may be
fixed by resolution adopted by a majority of the total number of directors.
Section 3.05. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the President, or by
any two of the directors and shall be held from time to time at such time and
place as may be designated in the notice of such meeting.
Section 3.06. NOTICE OF MEETINGS. If the date, time, and
place of the meeting of the Board of Directors have been announced at a previous
meeting of the Board of Directors, no additional notice of such meeting is
required, except that notice shall be given to all directors who were not
present at the previous meeting. Notice of each special meeting of the Board of
Directors shall be given. Notice of meetings of the Board of Directors shall be
given by the secretary who shall give at least twenty-four hours' notice thereof
to each director by mail, telephone, telegram, or in person. Notice shall be
effective upon receipt.
Section 3.07. WAIVER OF NOTICE. Notice of any meeting of the
Board of Directors may be waived either before, at, or after such meeting in
writing signed by each director. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purposes of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 3.08. QUORUM. A majority of the total number of
directors shall constitute a quorum for the transaction of business. The vote
of a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless these Bylaws require a greater
number.
Section 3.09. VACANCIES. Any vacancy among the directors or
increase in the authorized number of directors shall be filled for the unexpired
term by a majority of the directors then in office though less than a quorum or
by the sole remaining director. When one or more directors shall resign from
the Board, effective at a future date, a majority of the directors then in
office may fill such
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vacancy or vacancies to take effect when such resignation or resignations shall
become effective.
Section 3.10. REMOVAL. Any director may be removed from
office at any special meeting of the stockholders, but only for cause. If the
entire Board of Directors or any one or more directors be so removed, new
directors shall be elected at the same meeting.
Section 3.11. COMMITTEES OF DIRECTORS. The Board of Directors
may, by resolution adopted by a majority of the total number of directors,
designate one or more committees, each to consist of two or more of the
directors of the Corporation, which, to the extent provided in the resolution,
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Such committee
or committees shall have such name or names as may be determined by the
resolution adopted by the directors. The committees shall keep regular minutes
of their proceedings and report the same to the Board of Directors when
required.
Section 3.12. WRITTEN ACTION. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all directors or committee members
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 3.13. COMPENSATION. Directors who are not salaried
officers of the Corporation may receive a fixed sum per meeting attended or a
fixed annual sum and such other forms of reasonable compensation as may be
determined by resolution of the Board of Directors. All directors shall receive
their expenses, if any, of attendance at meetings of the Board of Directors or
any committee thereof. Any director may serve the Corporation in any other
capacity and receive proper compensation therefor.
Section 3.14. CONFERENCE COMMUNICATIONS. Directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by means of a conference telephone conversation or other
comparable communication technique whereby all persons participating in the
meeting can hear and communicate to each other. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.14 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
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ARTICLE IV.
Officers
Section 4.01. NUMBER. The officers of the Corporation shall
consist of a President, at least one Vice President, a Secretary, a Treasurer,
and any officers and agents as the Board of Directors by a majority vote of the
total number of directors may designate. Any person may hold two or more
offices.
Section 4.02. ELECTION, TERM OF OFFICE, AND QUALIFICATIONS. At
each annual meeting of the Board of Directors all officers, from within or
without their number, shall be elected. Such officers shall hold office until
the next annual meeting of the directors or until their successors are elected
and qualified, or until such office is eliminated by a vote of the majority of
all directors or until removed. Officers who may be directors shall hold office
until the election and qualification of their successors, notwithstanding an
earlier termination of their directorship.
Section 4.03. REMOVAL AND VACANCIES. Any officer may be
removed from office by a majority vote of the total number of directors with or
without cause. Such removal shall be without prejudice to the contract rights of
the person so removed. A vacancy among the officers by death, resignation,
removal, or otherwise shall be filled for the unexpired term by the Board of
Directors.
Section 4.04. CHAIRMAN OF THE BOARD. The Chairman of the
Board, if one is elected, shall preside at all meetings of the stockholders and
directors and shall have such other duties as may be prescribed, from time to
time, by the Board of Directors.
Section 4.05. PRESIDENT. The President shall have general
active management of the business of the Corporation. The President shall
preside at all meetings of the stockholders and directors, shall be the chief
executive officer of the Corporation and shall see that all orders and
resolutions of the directors are carried into effect. The President shall be EX
OFFICIO a member of all standing committees. The President may execute and
deliver in the name of the Corporation any deeds, mortgages, bonds, contracts or
other instruments pertaining to the business of the Corporation and in general
shall perform all duties usually incident to the office of the president. The
President shall have such other duties as may, from time to time, be prescribed
by the Board of Directors.
Section 4.06. VICE PRESIDENT. Each Vice President shall have
such powers and shall perform such duties as may be prescribed by the Board of
Directors or by the President. In the event of absence or disability of the
President, Vice Presidents shall succeed to the President's power and duties in
the order designated by the Board of Directors.
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Section 4.07. SECRETARY. The Secretary shall be secretary of
and shall attend all meetings of the stockholders and Board of Directors and
shall record all proceedings of such meetings in the minute book of the
Corporation. The Secretary shall give proper notice of meetings of stockholders
and the Board of Directors. The Secretary shall perform such other duties as
may from time to time be prescribed by the Board of Directors or by the
President.
Section 4.08. TREASURER. The Treasurer shall keep accurate
accounts of all moneys of the Corporation received or disbursed. The Treasurer
shall deposit all moneys, drafts and checks in the name of and to the credit of
the Corporation in such banks and depositaries as a majority of the whole Board
of Directors shall from time to time designate. The Treasurer shall have power
to endorse for deposit all notes, checks and drafts received by the Corporation.
The Treasurer shall disburse the funds of the Corporation as ordered by the
directors, making proper vouchers therefor. The Treasurer shall render to the
President and the Board of Directors whenever required an account of all the
Treasurer's transactions as Treasurer and of the financial condition of the
Corporation and shall perform such other duties as may from time to time be
prescribed by the Board of Directors or by the President.
Section 4.09. DUTIES OF OTHER OFFICERS. The duties of such
other officers and agents as the Board of Directors may designate shall be set
forth in the resolution creating such office or by subsequent resolution.
Section 4.10. COMPENSATION. The officers of the Corporation
shall receive such compensation for their services as may be determined from
time to time by resolution of the Board of Directors or by one or more
committees to the extent so authorized from time to time by the Board of
Directors.
ARTICLE V.
Shares and Their Transfer
Section 5.01. CERTIFICATES FOR STOCK. Every holder of stock
in the Corporation shall be entitled to a certificate, to be in such form as
shall be prescribed by the Board of Directors, certifying the number of shares
in the Corporation owned by such stockholder. The certificates for such shares
shall be numbered in the order in which they shall be issued and shall be signed
in the name of the Corporation by the Chairman of the Board, the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary. Every certificate surrendered to the Corporation for
exchange or transfer shall be cancelled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such certificate
shall have been so cancelled, except in cases provided for in Section 5.05.
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Section 5.02. ISSUANCE OF STOCK. The Board of Directors is
authorized to cause to be issued stock of the Corporation up to the full amount
authorized by the Certificate of Incorporation in such amounts and for such
consideration as may be determined by the Board of Directors. No shares shall
be allotted except in consideration of cash, labor, personal property, or real
property, or leases thereof, or of an amount transferred from surplus to stated
capital upon a share dividend. At the time of such allotment of stock, the
Board of Directors shall state its determination of the fair value to the
Corporation in monetary terms of any consideration other than cash for which
shares are allotted. Stock so issued shall be fully paid and nonassessable.
The amount of consideration to be received in cash or otherwise shall not be
less than the par value of the shares so allotted. Treasury shares may be
disposed of by the Corporation for such consideration, expressed in dollars, as
may be fixed by the Board of Directors.
Section 5.03. PARTLY PAID STOCK. The Corporation may issue
the whole or any part of its stock as partly paid and subject to call for the
remainder of the consideration to be paid therefor. Upon the face or back of
each certificate issued to represent any such partly paid stock, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid stock, the
Corporation shall declare a dividend upon partly paid stock of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon. The Board of Directors may, from time to time, demand payment, in
respect of each share of stock not fully paid, of such sum of money as the
necessities of the business may, in the judgment of the Board of Directors,
require, not exceeding in the whole the balance remaining unpaid on such stock,
and such sum so demanded shall be paid to the Corporation at such times and by
such installments as the directors shall direct. The directors shall give
written notice of the time and place of such payments, which notice shall be
mailed at least 30 days before the time for such payment, to each holder of or
subscriber for stock which is not fully paid at such holder or subscriber's last
known postoffice address.
Section 5.04. TRANSFER OF STOCK. Transfer of stock on the
books of the Corporation may be authorized only by the stockholder named in the
certificate, the stockholder's legal representative or the stockholder's duly
authorized attorney-in-fact and upon surrender of the certificate or the
certificates for such stock. The Corporation may treat as the absolute owner of
stock of the Corporation the person or persons in whose name stock is registered
on the books of the Corporation.
Section 5.05. LOSS OF CERTIFICATES. Any stockholder claiming
a certificate for stock to be lost, stolen or destroyed shall make an affidavit
of that fact in such form as the Board of Directors may require and shall, if
the Board of Directors so requires, give the Corporation a bond of indemnity in
form, in an
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amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the Corporation against any claims which may be made against it on
account of the alleged loss, theft or destruction of the certificate or issuance
of such new certificate. A new certificate may then be issued in the same tenor
and for the same number of shares as the one claimed to have been lost, stolen
or destroyed.
Section 5.06. FACSIMILE SIGNATURES. Whenever any certificate
is countersigned by a transfer agent or by a registrar other than the
Corporation or its employee, then the signatures of the officers or agents of
the Corporation may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on any
such certificate shall cease to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation as though
the person who signed such certificate or whose facsimile signature or
signatures had been placed thereon were such officer, transfer agent or
registrar at the date of issue.
ARTICLE VI.
Dividends, Surplus, Etc.
Section 6.01. DIVIDENDS. The Board of Directors may declare
dividends from the Corporation's surplus, or if there be none, out of its net
profits for the current fiscal year, and/or the preceding fiscal year in such
amounts as in their opinion the condition of the affairs of the Corporation
shall render it advisable unless otherwise restricted by law.
Section 6.02. USE OF SURPLUS, RESERVES. The Board of
Directors may use any of its property or funds, unless such would cause an
impairment of capital, in purchasing any of the stock, bonds, debentures, notes,
scrip or other securities or evidences of indebtedness of the Corporation. The
Board of Directors may from time to time set aside from its surplus or net
profits such sums as it deems proper as a reserve fund for any purpose.
ARTICLE VII.
Books and Records, Audit, Fiscal Year
Section 7.01. BOOKS AND RECORDS. The Board of Directors of
the Corporation shall cause to be kept: (a) a share ledger which shall be a
charge of an officer designated by the Board of Directors; (b) records of all
proceedings of stockholders and directors; and (c) such other records and books
of account as shall be necessary and appropriate to the conduct of the corporate
business.
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Section 7.02. AUDIT. The Board of Directors shall cause the
records and books of account of the Corporation to be audited at least once in
each fiscal year and at such other times as it may deem necessary or
appropriate.
Section 7.03. ANNUAL REPORT. The Board of Directors shall
cause to be filed with the Delaware Secretary of State in each year the annual
report required by law.
Section 7.04. FISCAL YEAR. The fiscal year of the Corporation
shall end on December 31 of each year, or on such other date as may be
established by the Board of Directors.
Section 7.05. EXAMINATION BY STOCKHOLDERS. Any stockholder of
record of the Corporation, upon written demand under oath stating the purpose
thereof, shall have the right to inspect in person or by agent or attorney,
during usual business hours, for any proper purpose, the Corporation's stock
ledger, a list of its stockholders and its other books and records, and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a stockholder. Holders of voting trust
certificates representing stock of the Corporation shall be regarded as
stockholders for the purpose of this subsection. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in Delaware or at its principal office.
ARTICLE VIII.
Indemnification
Section 8.01. INDEMNIFICATION. The Corporation shall
indemnify such persons for such liabilities in such manner under such
circumstances and to such extent as permitted by Section 145 of the Delaware
General Corporation Law, as now enacted or hereafter amended. The Board of
Directors may authorize the purchase and maintenance of insurance and/or the
execution of individual agreements for the purpose of such indemnification, and
the Corporation shall advance all reasonable costs and expenses (including
attorneys' fees) incurred in defending any action, suit or proceeding to all
persons entitled to indemnification under this section 8.01, all in the manner,
under the circumstances and to the extent permitted by Section 145 of the
Delaware General Corporation Law, as now enacted or hereafter amended.
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ARTICLE IX.
Miscellaneous
Section 9.01. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action.
(b) If no record date is fixed:
(l) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting
is held.
(2) The record date for determining stockholders entitled
to express consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is
expressed.
(3) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto.
(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 9.02. PERIODS OF TIME. During any period of time
prescribed by these Bylaws, the date from which the designated period of time
begins to run shall not be included, and the last day of the period so computed
shall be included.
Section 9.03. VOTING SECURITIES HELD BY THE CORPORATION.
Unless otherwise ordered by the Board of Directors, the President shall have
full power and authority on behalf of the Corporation (a) to attend and to vote
at any meeting of security holders of other corporations in which the
Corporation may hold securities; (b) to execute any proxy for such meeting on
behalf of the Corporation; or (c) to
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<PAGE>
execute a written action in lieu of a meeting of such other corporation on
behalf of the Corporation. At such meeting, by such proxy or by such writing in
lieu of meeting, the President shall possess and may exercise any and all rights
and powers incident to the ownership of such securities that the Corporation
might have possessed and exercised if it had been present. The Board of
Directors may, from time to time, confer like powers upon any other person or
persons.
ARTICLE X.
Amendments
Section 10.01. These Bylaws may be amended, altered or repealed
by a vote of the majority of the total number of directors or of the
stockholders at any meeting upon proper notice. Notwithstanding the foregoing,
the Board of Directors shall not in any case adopt, amend or repeal a bylaw
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies in the board of directors, or fixing the
number of directors or their classifications, qualifications or terms of office,
but the Board of Directors may adopt or amend a bylaw to increase the number of
directors.
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<PAGE>
<TABLE>
<CAPTION>
<S><C>
PLEASE SEE RESTRICTIVE LEGEND ON REVERSE SIDE HEREOF
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
[EAGLE LOGO]
NUMBER SHARES
ENDOCARDIAL SOLUTIONS, INC.
THIS CERTIFIES THAT_______________________________________________________________________________________IS THE OWNER AND
REGISTERED HOLDER OF_____________________________________________________________________________________________SHARES OF
fully paid and nonassessable shares of Common Stock,
$.01 par value per share, of Endocardial Solutions, Inc.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON
SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY
AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE CORPORATION
THIS ________________________________________ DAY OF ______________________________, 19 ________.
________________________________________________ _____________________________________________
SECRETARY PRESIDENT
</TABLE>
<PAGE>
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the corporation and the qualifications, limitations or restrictions
of such preferences and/or rights will be furnished by said corporation to any
stockholder upon request and without charge.
FOR VALUE RECEIVED__________________HEREBY SELL, ASSIGN AND TRANSFER UNTO
________________________________________________________________________________
__________________________________________________________________________SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
_________________________________________________________________ATTORNEY TO
TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________________, 19 _______ ______________________________
IN PRESENCE OF _________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 4.2
WARRANT FOR
5,000 COMMON SHARES, NO PAR VALUE
OF
ENDOCARDIAL THERAPEUTICS, INC.
For value received, Tikkun Resource Development, 6900 Wisconsin Avenue,
Suite 606, Chevy Chase, Maryland, 20815 is entitled to purchase from EndoCardial
Therapeutics, Inc., a Minnesota corporation (the "Company") at the price of $.10
per share (subject to adjustments as noted below), Five thousand (5,000) fully
paid and non-assessable common shares of the Company, $.01 par value (the
"Common Shares") or such greater or lesser number of such shares as may be
determined by application of the antidilution provisions of this Warrant.
This Warrant may be exercised at any time or from time to time, up to and
including November 18, 2003.
No fractional Common Shares shall be issued upon any exercise of this
Warrant, but in lieu thereof there shall be paid an amount in cash equal to the
same fraction of the Warrant purchase price on the day of exercise.
This Warrant is subject to the following provisions, terms and conditions:
1. The rights represented by this Warrant may be exercised by the holder
hereof, in whole or in part, by written notice of exercise delivered to the
Company at least twenty (20) days prior to the intended date of exercise and by
the surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by cash, certified check or bank
draft of the purchase price for the number of Common Shares with respect to
which this Warrant is being exercised. Certificates for the Common Shares so
purchased shall be delivered to the holder within fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, if the
Warrant has not been exercised in full, the Warrant shall be returned to the
holder, with an endorsement thereon indicating the numbers of Common Shares with
respect to which the Warrant has been exercised.
2. The Company covenants and agrees that all Common Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and non-assessable Common
Shares. The Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized, and reserved for the purpose of issue or transfer
upon exercise of the rights evidenced by this Warrant, a sufficient number of
Common Shares to provide for the exercise of the rights represented by this
Warrant.
3. The foregoing provisions are, however, subject to the following:
<PAGE>
(a) The Warrant purchase price shall be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the Warrant
purchase price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant purchase price resulting from such adjustment, the
number of Common Shares obtained by multiplying the Warrant purchase price
in effect immediately prior to such adjustment by the number of Common
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant purchase price resulting from
such adjustment.
(b) In case the Company shall at any time subdivide the outstanding
Common Shares into a greater number of Common Shares, the Warrant purchase
price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding Common
Shares shall be combined into a smaller number of Common Shares, the
Warrant purchase price in effect immediately prior to such combination
shall be proportionately increased.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its -assets
to another corporation shall be effected in such a way that the holders of
the Company's Common Shares shall be entitled to receive stock, securities
or assets with respect to or in exchange for such Common Shares, then, as a
condition of such reorganization, reclassification, consolidation, merger
or sale, the holder of this Warrant shall have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the Common Shares of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as would
have been issued or delivered to the holder of this Warrant if it had
exercised this Warrant prior to such reorganization, reclassification,
consolidation, merger or sale.
(d) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of
Sections 3(a)-(c), but which should result in an adjustment in the Warrant
purchase price and/or the number of Common Shares subject to the Warrant in
order to fairly protect the purchase rights of the holder of this Warrant,
an appropriate adjustment in such purchase rights shall be made by the
Company.
(e) Upon any adjustment of the Warrant purchase price, the Company
shall give written notice thereof, by first class mail, postage prepaid,
-2-
<PAGE>
addressed to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company, which notice shall state the
Warrant purchase price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon
the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
4. This Warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company.
5. The holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Company, before transferring this Warrant or transferring
any of the Company's Common Shares issued upon the exercise hereof, of such
holder's intention to do so, describing briefly the manner of any proposed
transfer of this Warrant or such holder's intention as to the disposition to be
made of Common Shares issued upon the exercise hereof. Promptly upon receiving
such written notice, the Company shall present copies thereof to counsel for the
Company. If, in the opinion of such counsel, the proposed transfer of this
Warrant or disposition of Common Shares may be effected without registration or
qualification (under any federal or state law) of this Warrant or the Common
Shares issuable or issued upon the exercise hereof, the Company, as promptly as
practicable, shall notify such holder of such opinion, whereupon such holder
shall be entitled to transfer this Warrant, or to exercise this Warrant in
accordance with its terms and dispose of the Common Shares received upon such
exercise or to dispose of Common Shares received upon the previous exercise of
this Warrant, all in accordance with the terms of the notice delivered by such
holder to the Company. A legend in substantially the form set forth at the end
of this Warrant respecting the aforesaid restrictions on transfer and
disposition shall be endorsed on the certificates for Common Shares issued upon
exercise of this Warrant.
6. Subject to the provisions of Section 5, this Warrant and all rights
hereunder are transferable, in whole or in part, at the principal office of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed to any person or entity who
represents in writing that such person or entity is acquiring the Warrant for
investment and without any view to the sale or other distribution thereof. Each
holder of this Warrant, by taking or holding the same, consents and agrees that
the bearer of this Warrant, when endorsed, may be treated by the Company and all
other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
-3-
<PAGE>
7. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
delivered by its duly authorized officer as of the 18th day of November, 1993.
ENDOCARDIAL THERAPEUTICS, INC.
By /s/ Graydon Beatty
-4-
<PAGE>
RESTRICTION ON TRANSFER
The security evidenced hereby has not been registered under the Securities
Act of 1933 (the "Act") or any state securities laws and may not be sold,
transferred, assigned, offered, pledged or otherwise distributed for value
unless there is an effective registration statement under the Act or laws
covering such security or the Company receives an opinion of counsel for the
holder of this security (concurred in by counsel for the Company) stating that
such sale, transfer, assignment, pledge or distribution is exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
and all applicable state securities laws.
-5-
<PAGE>
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
TO: EndoCardial Therapeutics, Inc.
The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to exercise such Warrant for, and to purchase thereunder, _____ Common
Shares of EndoCardial Therapeutics, Inc. to which such Warrant relates and
herewith makes payment of $__________ there-for in cash or by check and requests
that the certificates for such shares be issued in the name of, and be delivered
to, _______________ whose address is set forth below the signature of the
undersigned.
Dated: _________________ _______________________________
(Signature)
_______________________________
_______________________________
_______________________________
(Address)
-6-
<PAGE>
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the right represented by the foregoing Warrant to purchase _____ Common
Shares of EndoCardial Therapeutics, Inc. to which the foregoing Warrant relates,
and appoints _______________ attorney to transfer said right on the books of
with full power of substitution in the premises.
Dated: _________________ _______________________________
(Signature)
_______________________________
_______________________________
_______________________________
(Address)
-7-
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY HAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
ENDOCARDIAL SOLUTIONS, INC.
Dated as of November 15, 1994 (the "Effective Date")
WHEREAS, Endocardial Solutions, Inc., a Delaware corporation (the
"Company") has entered into a Master Lease Agreement dated as of November 15,
1994, Equipment schedule No. VL-1, the Loan Agreement, and related Schedules
(the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrant
holder"), and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series B Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. A. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 93,213 fully paid and non-
assessable shares of the Company's Series B Preferred Stock ("Preferred Stock")
at a purchase price of $1.70 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
B. REDUCTION OF WARRANTS.
If Warrantholder, as Lessor, fails to extend the six month take down
period set forth in the Leases, then the aggregate number of warrants granted
hereunder shall be reduced by the dollar amount remaining and not utilized by
the Company, as Lessee under the Leases multiplied by 9%, the product of which
shall be divided by $1.70. Notwithstanding the foregoing, the parties hereby
agree that the warrants granted hereunder shall not be less than 65,249 which
represents 70% of the total number of warrants granted hereunder.
The granting of the six month extension by Warrantholder, as Lessor shall
deem this section l(B) null and void.
<PAGE>
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
Commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price
to Public" specified in the final prospectus with respect to the
offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
<PAGE>
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith
by its Board of Directors, unless the Company shall become subject to
merger, acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the fair market value of Common
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of much amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or state law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the company will, at
its expense and as expeditiously as possible, use its beat efforts to cause such
shares to be duly registered, listed or approved for listing on ouch domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of much fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in affect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
<PAGE>
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the company with or into
another corporation when the Company in not the surviving corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person (hereinafter referred to an a "Merger Event"), then, as a part of
such Merger Event, lawful provision shall be made so that the Warrantholder
shall thereafter be entitled to receive, upon exercise of the Warrant, the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company' a
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If, the Warrantholder's
total cost of equipment leaned pursuant to the Leases exceeds $1.2 million,
Warrantholder shall have the right to purchase from the Company, at the Exercise
Price (adjusted as set forth herein), an additional number of shares, which
number shall be determined by (i) multiplying the amount by which the
Warrantholder's total equipment cost exceeds $1.2 million by 9%, and (ii)
dividing the product thereof by the Exercise Price per share referenced above.
<PAGE>
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable
to the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information an necessary
for Warrantholder to determine if a dilutive event has occurred.
(g) NOTICE OF ADJUSTMENTS. If., (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the company shall offer for subscription prorata to the
holders of any class of its preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the company; then, in connection with each such
event, the Company shall send to the Warrantholder (A) at least twenty (20)
days' prior written notice of the date on which the books of the company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days,
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up) . In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
<PAGE>
(b) DUE AUTHORITY. The execution and delivery by the Company of
this Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency in required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the company consists of (A) 17,000,000
shares of Common Stock, of which 2,032,250 shares are issued and outstanding,
and (B) 15,000,000 shares of preferred stock, of which 7,554,096 shares are
issued and outstanding and are convertible into 7,554,096 shares of Common Stock
at $1.70 per share.
(ii) The company has reserved (A) 1,500,000 shares of Common Stock for
issuance under its Stock Option Plan, under which 12,250 options are outstanding
at an average price of $0.11 per share. There are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the Company's capital
stock or other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth in
this Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
<PAGE>
(h) COMPLIANCE WITH RULE 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange commission, the company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (I) that the
Preferred stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRENTHOLDERS RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred stock
or Preferred stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to Its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
<PAGE>
(d) FINANCIAL RISK. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, and has the ability to bear the economic
risks of its investment.
(e) RISK OF NO REGISTRATION The Warrantholder understands that if
the Company does not register with the Securities and Exchange Commission
pursuant to section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
affect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale of
its rights of the Warrantholder to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act may be
made only in accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof , this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit 11 (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall
be construed and shall be given affect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys, fees and expenses and all costs
of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by
and construed for all purposes under and in accordance with the laws of the
State of Illinois.
(d) COUNTERPARTS. This warrant 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.
(e) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708)
518-5465 and (ii) to the Company at 1350 Energy Lane, Suite 110, St. Paul, MN
55108-5254, (and/or if by facsimile, (612) 644-7897 or at such other address as
any such party may subsequently designate by written notice to the other party.
<PAGE>
(f) REMEDIES. In the event of any default hereunder, the non-
defaulting party may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, including but not limited to an action for
damages as a result of any ouch default, and/or an action for specific
performance for any default where Warrantholder will not have an adequate remedy
at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder or
any other person entitled to the benefit of this Agreement requiring specific
performance of any or all provisions hereof or enjoining the Company from
continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant Agreement shall survive the execution and delivery of this Warrant
Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) AMENDMENTS. Any provision of thin Warrant Agreement may be
amended by a written instrument signed by the company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with certified resolutions
with respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
COMPANY: ENDOCARDIAL SOLUTIONS, INC.
By:
----------------------------
Title:
-------------------------
Warrentholder: COMDISCO, INC..
By:
----------------------------
Title:
--------------------------
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:_____________________________
(1) The undersigned Warrentholder hereby elects to purchase ________________
shares of the Preferred Stock of ______________________ pursuant to the terms of
the Warrent Agreement date the_________ day of __________________, 19__ (the
"Warrant Agreement") between __________________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section 10 of
the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
__________________________________________
(Name)
__________________________________________
(Address)
Warrentholder: COMDISCO, INC.
By: _________________________________________
Title: _______________________________________
Date: _______________________________________
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned __________________________________________, hereby
acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase
__________ shares of the Preferred Stock of ___________________, pursuant to the
terms of the Warrant Agreement, and further acknowledges that __________ share
remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:
-----------------------------------
Title:
---------------------------------
Date:
----------------------------------
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to
____________________________________________________________________________
(Please Print)
Whose address s_____________________________________________________________
____________________________________________________________________________
Dated______________________________________________
Holder's Signature_________________________________
Holder's Address___________________________________
___________________________________________________
Signature
Guaranteed:___________________________________________________________________
Note: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
ENDOCARDIAL SOLUTIONS. INC.
Dated as of August 20, 1996 (the "Effective Date")
WHEREAS, Endocardial Solutions, Inc., a Delaware corporation (the
"Company") has entered into a Master Lease Agreement dated as of November 15,
1994, Equipment Schedule No. VL-2, VL-3 and VL-4 and related Schedules with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and; the
Company has entered into a Master Lease Agreement dated as of November 15,
1994, Equipment Schedule No. ME-2, and related Schedules with Comdisco
Medical Equipment Group, Inc. (collectively the ("Leases"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. A. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 15,000 fully paid and
non-assessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") at a purchase price of $5.12 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as
provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
ten (10) years or (ii) five (5) years from the effective date of the
Company's initial public offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder,
<PAGE>
in whole or in part, at any time, or from time to time, prior to the
expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the
purchase price in accordance with the terms set forth below, and in no event
later than twenty-one (21) days thereafter, the Company shall issue to the
Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the Notice of Exercise indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean
with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial
"Price to Public" specified in the final prospectus with respect to
the offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, in which case the fair
market value of Common Stock shall be deemed to be the value received
by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
2
<PAGE>
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such
amended Warrant Agreement shall be identical to those contained herein,
including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved
a sufficient number of shares of its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any Shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will,
at its expense and as expeditiously as possible, use its best efforts to
cause such Shares to be duly registered, listed or approved for listing on
such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional
Shares the Company Shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise
of the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company Shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or
into another corporation when the Company is not the surviving corporation,
or the sale of all or substantially all of the Company's properties and
assets to any other person (hereinafter referred to as a "Merger Event"),
then, as a part of such Merger Event, lawful provision shall be made so that
the Warrantholder shall thereafter be entitled to receive, upon exercise of
the Warrant, the number of shares of preferred stock or other securities of
the successor corporation resulting from such Merger Event, equivalent in
value to that which would have been issuable if Warrantholder had exercised
this Warrant immediately prior to the Merger Event. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after
the Merger Event to the end that the provisions of this Warrant Agreement
(including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible.
3
<PAGE>
(b) RECLASSIFICATION OF Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities
as would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b) of the
Company's stock, then the Exercise Price shall be adjusted, from and after
the record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
all shares of the Company's stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately
after such dividend or distribution. The Warrantholder shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment,
the number of shares of Preferred Stock (calculated to the nearest whole
share) obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Preferred Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If, the Warrantholder's total
cost of equipment leased pursuant to the Leases exceeds $1.0 million,
Warrantholder shall have the right to purchase from the Company, at the
Exercise Price (adjusted as set forth herein), an additional number of
shares, which number shall be determined by (i) multiplying the amount by
which the Warrantholder's total equipment cost exceeds $1.0 million by 7%,
and (ii) dividing the product thereof by the Exercise Price per share
referenced above.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true
and complete copy of which is attached hereto as Exhibit A (the "Charter").
The Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which
notice shall include (a) the price at which such stock or security is to be
sold, (b) the number of shares to be issued, and (c) such other information
as necessary for Warrantholder to determine if a dilutive event has occurred.
(g) NOTICE OF ADIUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to
the holders of any class of its Preferred or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; or (iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in connection
with each such event, the Company shall send to the Warrantholder: (A) at
least twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders
of Preferred Stock shall be entitled thereto) or for determining rights to
vote in respect of such Merger Event, dissolution, liquidation or winding up;
and (B) in the case of any such Merger Event, dissolution, liquidation or
4
<PAGE>
winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up) . In the case of a public offering, the company
shall give Warrantholder at least twenty (20) days written notice prior to
the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and
(v) the number of shares subject to purchase hereunder after giving effect to
such adjustment, and shall be given by first class mail, Postage prepaid,
addressed to the Warrantholder, at the address as shown on the books of the
Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained
in any insufficient notice received by Warrantholder. The notice period
shall begin on the date Warrantholder actually receives a written notice
containing all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved
and, when issued in accordance with the provisions of this Warrant Agreement,
will be validly issued, fully paid and non-assessable, and will be free of
any taxes, liens, charges or encumbrances of any nature whatsoever; provided,
however, that the Preferred Stock issuable pursuant to this Warrant Agreement
may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire
the shares of Preferred Stock, have been duly authorized by all necessary
corporate action on the part of the Company, and the Leases and this Warrant
Agreement are not inconsistent with the Company's Charter or Bylaws, do not
contravene any law or governmental rule, regulation or order applicable to
it, do not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notice
pursuant to Regulation D under the 1933 Act.
5
<PAGE>
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws.
In addition:
(i) The authorized capital of the company consists of (A) 17,000,000
shares of Common Stock, of which 2,092,688 shares are issued and outstanding,
and (B) 15,000,000 shares of preferred stock, of which 9,411,205 shares are
issued and outstanding and are convertible into 9,411,205 shares of Common
Stock.
(ii) The Company has reserved (A) 1,800,000 shares of Common Stock for
issuance under its Stock Option Plan, under which 58,313 options are
outstanding. Except for the Warrant to purchase Series B Preferred Stock
held by the Warrantholder, there are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except for registration
rights granted in connection with the Company issuances of its Series A, B
and C Preferred Stock and as set forth in this Warrant Agreement, the Company
is not, pursuant to the terms of any other agreement currently in existence,
under any obligation to register under the 1933 Act any of its presently
outstanding securities or any of its securities which may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock
upon exercise of this Warrant will constitute a transaction exempt from (i)
the registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4 (2) thereof, and (ii) the qualification requirements of the
applicable state securities laws.
(h) COMPLIANCE WITH RULE 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the
Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within
ten days after receipt of such request, a written statement confirming the
Company's compliance with the filing requirements of the Securities and
Exchange Commission as set forth in such Rule, as such Rule may be amended
from time to time.
6
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10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
sale or distribution of any part thereof, and the Warrantholder has no
present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.
(b) PRIVATE ISSUE The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that
the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and
until (i) it shall have notified the Company of the proposed disposition, and
(ii) if requested by the Company, it shall have furnished the Company with an
opinion of counsel (which counsel may either be inside or outside counsel to
the Warrantholder) Satisfactory to the Company and its counsel to the effect
that (A) appropriate action necessary for compliance with the 1933 Act has
been taken, or (B) an exemption from the registration requirements of the
1933 Act is available. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of any of its rights to acquire Preferred
Stock or Preferred Stock issuable on the exercise of such rights do not apply
to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold
by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule
144 under the 1933 Act, or (3) a letter shall have been issued to the
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case maybe, if such security
is transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions of transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as herein above provided,
the Warrantholder or holder of a share of Preferred Stock then outstanding as
to which such restrictions have terminated shall be entitled to receive from
the Company, without expense to such holder, one or more new certificates for
the Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of its investment, and has the ability to bear the economic risks
of its investment.
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<PAGE>
(e) RISK OF NO REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the rights to purchase Preferred Stock
pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable upon
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period. The Warrantholder also understands that any sale
of its rights of the Warrantholder to purchase Preferred Stock or Preferred
Stock which might be made by it in reliance upon Rule 144 under the 1933 Act
may be made only in accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and
interests in all of the Warrants exceed three (3) transfers. The transfer
shall be recorded on the books of the Company upon receipt by the Company of
a notice of transfer in the form attached hereto as Exhibit II (the "Transfer
Notice"), at its principal offices and the payment to the Company of all
transfer taxes and other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) COUNTERPARTS. This Warrant 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.
(e) NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal
delivery or mail as hereinafter set forth or seven (7) days after deposit in
the United States mail, by registered or certified mail, addressed (i) to the
Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention:
James Labe, Venture Leasing Director, cc: Legal Department, (and/or, if by
facsimile, (708) 518-5465 and (ii) to the Company at 1350 Energy Lane, Suite
110, St. Paul, MN 55108-5254, (and/or if by facsimile, (612) 644-7897 or at
such other address as any such party may subsequently designate by written
notice to the other party.
8
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(f) REMEDIES. In the event of any default hereunder, the nondefaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages
as a result of any such default, and/or an action for specific performance
for any default where Warrantholder will not have an adequate remedy at law
and where damages will not be readily ascertainable. The Company expressly
agrees that it shall not oppose an application by the Warrantholder or any
other person entitled to the benefit of this Agreement requiring specific
performance of any or all provisions hereof or enjoining the company from
continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to
this Warrant Agreement shall survive the execution and delivery of this
Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision,
which comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) ADDITIONAL DOCUMENTS The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the
purchase price for the Leases referenced in the preamble of this Warrant
Agreement exceeds $1,000,000, the Company will also provide Warrantholder
with an opinion from the Company's counsel with respect to those same
representations, warranties and covenants. The Company shall also supply
such other documents as the Warrantholder may from time to time reasonably
request.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY: ENDOCARDIAL SOLUTIONS, INC.
By:
---------------------------------
Leota Paulsen
Title:
------------------------------
Controller
Warrantholder: COMDISCO, INC.
By:
--------------------------------
James Labe
Title:
------------------------------
President
Venture Lease Division
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EXHIBIT I
NOTICE OF EXERCISE
To:
-------------------------------------------------
(1) The undersigned Warrantholder hereby elects to purchase _______________
shares of the Preferred Stock pursuant to the terms of the Warrant
Agreement dated the ___ day of 19__ (the "Warrant Agreement") between
__________ and the Warrantholder, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of _____________
the undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name
as is specified below.
- ---------------------------------------
(Name)
- ---------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
------------------------------------
Title:
---------------------------------
Date:
---------------------------------
11
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned _______________________________________________, hereby
acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to
purchase _________ shares of the Preferred Stock of, _____________, pursuant
to the terms of the Warrant Agreement, and further acknowledges that ________,
shares remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:
--------------------------------------
Title:
-----------------------------------
Date:
------------------------------------
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EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ------------------------------------------------------------------------------
(Please Print)
whose address is
--------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated
------------------------------------------
Holder's Signature
-----------------------------
Holder's Address
-------------------------------
Signature Guaranteed:
---------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
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<PAGE>
AGREEMENT OF LEASE
ENERGY PARK PLACE BUILDING
THIS AGREEMENT OF LEASE ("Lease") is made and entered into as of SEPTEMBER
15, 1993 by and between the PORT AUTHORITY OF THE CITY OF SAINT PAUL, a public
body corporate and politic, created pursuant to Chapter 469 of Minnesota
Statutes ("Lessor") , and ENDOCARDIAL THERAPEUTICS, INC., A MINNESOTA
CORPORATION, ("Tenant").
BACKGROUND
Lessor owns a mixed use building located at 1350 Energy Lane, St. Paul,
Minnesota, commonly known as the Energy Park Place Building. Lessor desires to
lease to Tenant a portion of the Energy Park Place East Building hereinafter
described, and Tenant desires to lease the same from Lessor.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. SUBMISSION OF LEASE. The submission of the Lease for examination does
not constitute a reservation of or option for the Leased Premises, and this
Lease shall become effective as a Lease only upon execution and delivery thereof
by Lessor and Tenant, and Guarantor, if any.
2. THE LEASED PREMISES. Lessor leases to Tenant, and Tenant rents of and
from Lessor, Unit NO. 110E of the Energy Park Place East Building ("Building") ,
consisting of approximately 12,517 rentable square feet (as defined herein) as
described and shown on Exhibit A, attached hereto and made a part hereof. Said
portion of the Building is referred to herein as the "Leased Premises".
3. TERM. The term of this Lease shall be for a period of THREE (3) years
and zero (0) months commencing OCTOBER 1, 1993, or the date of Tenant occupancy,
whichever occurs earlier, and
terminating SEPTEMBER 30, 1996, unless terminated earlier as provided herein.
4. BASE RENT AND SECURITY DEPOSIT. Commencing OCTOBER 1, 1993,
Tenant shall pay to Lessor, payable at the address designated in this Lease for
service of notice upon Lessor, or at such other place as Lessor may designate in
writing to Tenant, as Base Rent, exclusive of any other charge to be paid by
Tenant, the following, payable in equal consecutive monthly installments, in
advance, on the first day of each month through and including SEPTEMBER 30,
1994, the sum of EIGHT THOUSAND EIGHTY-THREE AND 90/100 ($8,083.90) DOLLARS
GROSS RENT plus escalations for the entire term over 1993 base year real estate
taxes, common area maintenance and heating, ventilation, air-conditioning, water
supply of Five and 25/100 ($5.25) Dollars. Tenant is also responsible for the
entire term for separately-metered electrical, garbage and janitorial.
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<PAGE>
Commencing October 1, 1994 and continuing through and including September 30,
1995 the monthly sum of Nine Thousand One Hundred Twenty-Six and 98/100 Dollars
($9,126.98) gross plus escalations over 1993 base year.
Commencing October 1, 1995 and continuing through and including September
30, 1996 the monthly sum of Ten Thousand One Hundred Seventy and 06/100 Dollars
($10,170.06) gross plus escalations over 1993 base year.
Lessor and Tenant mutually agree that in the event Tenant takes occupancy
of Premises on a day other than the first day of the Term, as defined in Article
3, Tenant shall pay a pro rated amount of rent for said partial month. The
above monthly rental rates are based on a gross rental rate of $8.75 per square
foot rentable per annum plus escalations, and a presumed 12,517 square foot
rentable area. Upon completion of the improvements, Lessor shall have the space
measured and the rental payment will, if necessary, be adjusted up or down to
reflect the actual rentable square footage occupied by Tenant.
Upon the execution of this Lease, Tenant shall deposit with Lessor a cash
security deposit in the amount of Two Thousand Five Hundred Twenty-Seven and
58/100 Dollars ($2,527.58) and by January 1, 1994 the additional amount of Four
Thousand Nine Hundred Six and 48/100 Dollars ($4,906.48). The amount of One
Thousand Two Hundred and no/100 Dollars ($1,200.00) is on deposit as of August
31, 1993 with the Lessor and shall remain on deposit in addition to the amounts
above. Provided Tenant is not in default beyond the time to cure, at the end of
month twenty-four, this deposit will be applied to Tenant's next month's rent.
5. LESSOR'S WORK. Lessor shall construct, or cause to be constructed,
all improvements described as Lessor's Work on Exhibit B, attached hereto and
made a part hereof ("Lessor' s Work") . Lessor, or its contractor or
contractors, shall commence and complete Lessor's Work as soon as may be done
practically taking into account required approvals and delays beyond the control
of Lessor. Lessor, or its contractor or contractors, shall not be required to
perform any construction or make any installations which are not set forth on
Exhibit B.
All contracts entered into for any such improvements and for Tenant's Work
set forth below shall require the contractor to furnish to Lessor a performance
and payment bond in accordance with Minnesota Statutes Section 574.26.
6. TENANT'S WORK. Tenant, at its cost and expense, and with no right of
reimbursement from Lessor, shall do all work and make all installations
("Tenant's Work") necessary for Tenant's use and occupancy of the Leased
Premises.
2
<PAGE>
All space planning, pricing plans or construction drawings are at Tenant's
expense. The entire lunchroom and entire warehouse are not air-conditioned.
Tenant's intent is to air-condition a portion of the warehouse and convert some
warehouse area to office. Tenant is aware that they must abide by Energy Park
HVAC regulations. Tenant must separate the HVAC from any of the neighboring
Suites. Tenant will be required to separately meter and electrically subdivide
the Suite at Tenant's cost. Lessor reserves the right to electrically subdivide
Suite with thirty (30) days prior notice to Tenant and charge Tenant for said
work.
7. OPERATING EXPENSES. The Annual Rent shall consist of a Base Rent as
defined in Paragraph 3 and Operating Expenses. Tenant shall pay Tenant's share
of Operating Expenses plus a specified Base Rent.
The term "Operating Expenses" hereby is defined to mean all expenses
incurred or paid in connection with the Building and expenses which for federal
income tax purposes may be deducted as an expense, including, but not limited
to, the following: all real estate taxes and all installments of assessments,
and any taxes in lieu thereof, which may be levied upon or assessed against the
Building and its Common Areas due and payable during each lease year, whether or
not Lessor is required to pay the same; rental taxes; all insurance which Lessor
deems necessary or advisable to obtain and maintain in connection with the
Building and its Common Areas, and all property and interest of Lessor in the
Building and its Common Areas; permit and inspection fees; electricity, except
for electrical service which is separately metered to the Leased Premises and
shall be paid by Tenant; heating; air conditioning; water; sewage usage or
rental, utilities, supplies and materials; labor; maintenance and repairs;
landscaping; janitorial and security services for Common Areas only;
professional fees reasonably related to the operation of the Building's Common
Areas; reasonable fees for management of the Building's Common Areas in an
amount which is within the parameters which is generally accepted in the
Metropolitan St. Paul-Minneapolis area for quality management of a comparable
facility. Excluded from operating Expenses for purposes of this paragraph are
capital improvements, depreciation, and leasing commissions.
Each year (subject to change by Lessor upon notice to Tenant) , Lessor
shall make a determination of the Operating Expenses incurred on behalf of
all its tenants for the year ending December 31. The total Operating Expenses
for such year shall be divided by the total Rentable Square Feet of Lessor's
total premises to arrive at a total operating expense per Rentable Square
Foot. Tenant shall pay to Lessor an amount equal to the per Rentable Square
Foot operating expense figure multiplied by the Rentable Square
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<PAGE>
Feet of the herein Leased Premises, plus the cost of providing any special
operating expenses to Tenant which are not provided to all other tenants.
Lessor shall provide to Tenant a statement of Tenant's proportionate share
of Operating Expenses after the end of each calendar year and Tenant shall pay
the entire amount shown to be due and owing by Tenant within thirty (30) days
after receipt of such statement. Correspondingly, Lessor shall refund to Tenant
or credit to Tenant's obligations next due under this Lease the amount of any
overpayment within thirty (30) days after delivery of said statement to Tenant
by Lessor. However, Lessor reserves the right to estimate Tenant's
proportionate share of the Operating Expenses for any current calendar year, and
Tenant shall pay monthly to Lessor one-twelfth (1/12) of the amount so
estimated.
Lessor may employ, engage, or contract with or purchase merchandise or
other property from, a person or entity with whom or in which Lessor has a
direct or indirect financial interest, provided, Lessor deals with such person
or entity in good faith and at rates customary in the industry.
8. USE OF LEASED PREMISES. Tenant, and its approved sublessee, shall
use the Leased Premises for general office purposes, light manufacturing and
shipping of medical devices, only.
In the event the particular use of the Leased Premises increased the
premium rate for insurance carried on the Building, Tenant shall pay Lessor,
upon demand, the amount of such premium increase. It is agreed that use of the
Leased Premises for general office purposes does not so increase said premium
rate.
Tenant shall not use, occupy, suffer or permit any use of the Leased
Premises which would (a) violate any law, ordinance, or regulation; (b)
constitute a nuisance; (c) result in excessive noise or emission of unpleasant
odor; (d) violate, suspend or void any policy or policies of insurance insuring
Lessor or the Leased Premises.
Tenant shall not permit the use, generation, release, manufacture,
refining, production, processing, storage, or disposal of any Hazardous
Substance on, under, or about the Leased Premises, or the transportation to or
from the Leased Premises of any Hazardous Substance, except as specifically set
forth in this Lease.
For purposes of this Lease, "Hazardous Substance" means any substance
designated pursuant to the Clean Water Act, Title 33 U.S.C. Section 1321, any
element, compound, mixture, solution or substance designated pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, Title
4
<PAGE>
42 U.S.C. Section 9602, any hazardous waste having the characteristics
identified under or listed pursuant to the Solid Waste Disposal Act, Title 42,
U.S.C. Section 1317(a), any hazardous air pollutant listed under Section 112 of
the Clean Air Act, Title 42 U.S.C. Section 7412, any imminently hazardous
chemical substance or mixture with respect to which the Administrator of the
Environmental Protection Agency has taken action pursuant to Section 7 of the
Toxic Substances Control Act, Title 15 U.S.C. Section 2606 and any "Hazardous
Waste", "Hazardous Substance," "Pollutant or Contaminant" as defined in the
Minnesota Environmental Response and Liability Act, Minnesota Statutes, Section
115B.02. The term also includes, but is not limited to polychlorinated
biphenyls, asbestos, urea formaldehyde or related substances.
Tenant shall, at Tenant's own expense, comply with all laws regulating the
use, generation, storage, transportation, or disposal of Hazardous Substances
("Laws").
Tenant shall, at Tenant's own expense, make all Submissions to, provide all
information required by, and comply with all requirements of all governmental
authorities (the "Government") under the Laws.
Should any Government or any third party demand that a cleanup plan be
prepared and that a clean-up be undertaken because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during the term
of this Lease, at or from the Leased Premises, or which arises at any time from
Tenant's use or occupancy of the Leased Premises, then Tenant shall, at Tenant's
own expense, prepare and submit the required plans and all related bonds and
other financial assurances; and Tenant shall carry out all such cleanup plans.
Tenant shall promptly provide all information regarding the use,
generation, storage, transportation, or disposal of Hazardous Substances that is
requested by the Lessor. If Tenant fails to fulfill any duty imposed under this
Paragraph 8 within a reasonable time, the Lessor may do so and, in such case,
Tenant shall cooperate with the Lessor in order to prepare all documents the
Lessor deems necessary or appropriate to determine the applicability of the Laws
to the Leased Premises and Tenant's use thereof, and for compliance therewith,
and Tenant shall execute all documents promptly upon the Lessor's request. No
such action by the Lessor and no attempt made by the Lessor to mitigate damages
under any law shall constitute a waiver of any of Tenant's obligations under
this Paragraph 8.
Tenant shall indemnify, defend, and hold harmless the Lessor, the manager
of the Building, and their respective officers, directors, beneficiaries,
shareholders, partners, agents, and employees from all fines, suits, procedures,
claims, and actions of every kind, and all costs associated therewith (including
5
<PAGE>
attorneys, and consultants' fees) arising out of or in any way connected with
any deposit, spill, discharge, or other release of Hazardous Substances that
occurs during the term of this Lease, at or from the Leased Premises, or which
arises at any time from Tenant's use or occupancy of the Leased Premises, or
from Tenant's failure to provide all information, make all submissions, and take
all steps required by the Government under the Laws and all other environmental
laws.
Lessor warrants that there are no "Hazardous Substances" on the premises at
the onset of this Lease. The Lessor is responsible f or removing any existing
Hazardous Substances which are discovered to have been at the rental location
prior to the onset of this Lease. This Lessor's responsibility is in effect
regardless of the reason they need to be removed. The Tenant is responsible
only for Hazardous Substances that the Tenant brings onto the premises.
Tenant's obligations and liabilities under this Paragraph 8 shall survive
the expiration of this Lease.
9. USE OF COMMON AREAS. Tenant shall have the non-exclusive use, in
common with others entitled to use the same, of the Common Areas of the
Building. "Common areas" shall include, without limitation, access facilities,
walkways, stairways, elevators, hallways, lobbies, public restrooms, parking
lots, and sidewalks.
10. RULES AND REGULATIONS. Tenant's exclusive use of the Leased Premises
and non-exclusive use of the Common Areas shall be subject to the terms and
conditions of this Lease; all reasonable rules and regulations prescribed by
Lessor from time to time with respect to the operation of the Building and its
Common Areas. Attached as Exhibit 'IC" are the Rules and Regulations.
11. ACCEPTANCE OF THE LEASED PREMISES. The occupancy by Tenant of the
Leased Premises,, or any part thereof, shall constitute an acknowledgment by
Tenant, and shall be conclusive evidence, that the Leased Premises are in the
condition called for by this Lease and that Lessor, or its contractor or
contractors, has performed all of Lessor's Work, except for such items which are
not completed and do not conform to the requirements of Lessor's Work, and as to
which Tenant shall have given written notice to Lessor within sixty (60) days
after the commencement date and except for latent defects. As to items about
which Tenant has notified Lessor, to the extent such items are Lessor's
responsibility, Lessor, or its contractor or contractors, shall proceed
expeditiously and diligently to complete any such items which are not completed
and/or correct any items which do not conform to Lessor's Work. As a condition
thereof, Tenant shall allow Lessor, its employees or contractors, to enter the
Leased Premises to perform any remedial work required to be performed, and shall
cooperate with Lessor, its employees or contractors, so that such remedial work
can be accomplished as quickly as is reasonable
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under the circumstances, and with the least amount of interruption to the
business of Tenant. Such items, if any, remaining to be completed or corrected
shall not entitle Tenant to refuse to take possession of the Leased Premises,
and the term shall commence on the commencement date, provided, the items
remaining to be completed or corrected are not substantial.
12. REQUIREMENT PAYMENTS ARE "RENT"; INTEREST ON LATE PAYMENTS; BAD
CHECK CHARGE. In addition to Annual Rent, all other payments required to be
paid by Tenant under the provisions of this Lease shall be deemed to be and
shall become additional rent, whether or not the same be designated as such.
All provisions dealing with abatement of rent shall be construed to permit
the abatement of annual Base Rent and additional rent, except to the extent
specifically provided to the contrary.
All payments required to be paid by Tenant under the provisions ofthis
Lease shall bear interest at a rate of eighteen percent (18%) per annum if
Tenant is a corporation, or such lower rate required or higher rate allowed
by said statute, as amended, if Tenant is other than a corporation,
commencing five (5) days after the due date of each payment and continuing
until the date actually paid by Tenant.
13. UTILITIES AND SERVICES. Except on Sundays and holidays, and
provided Tenant is not in default under any of the terms and conditions of
this Lease, Lessor shall furnish such heat and air conditioning in and about
the Leased Premises as shall be necessary for the comfortable use and
occupancy of the Leased Premises by Tenant's employees during customary
business hours for the use set forth in Paragraph 8. "Customary business
hours" hereby are defined to mean 7:00 a.m. to 7:00 p.m., Monday through
Friday, and 9:00 a.m. to 1:00 p.m. on Saturdays. Lessor shall furnish such
electricity, water, sewage usage or rental, and elevator service as shall be
necessary for the comfortable use and occupancy of the Leased Premises for
the use set forth in Paragraph 8. The expenses incident to the furnishing of
such utilities and services shall be operating expenses for the purposes of
Paragraph 7, unless separately metered to and paid by Tenant.
Failure to furnish such utilities and services by reason of emergency,
breakdowns, the necessity for repairs or improvements, fire, other casualty,
accident, riot, strike, act of God, or by any cause beyond Lessor's control,
shall not: (a) be construed as an eviction of Tenant; (b) result in abatement
of rent or other charges; (c) in any way render Lessor liable for damages to
person or property incurred by Tenant or any other person or entity by reason
of such failure; or (d) release Tenant from the prompt fulfillment of any of
its agreements under this Lease.
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If Lessor provides additional electrical power to enable Tenant to operate
any heat generating machines and equipment, computers, or any other types of
machines and equipment requiring additional electrical power, or if Lessor
provides any other utility which is in excess of that contemplated for the use
set forth in Paragraph 3 at the inception of this Lease, Tenant shall pay the
cost thereof on a monthly basis to Lessor. Furthermore, Lessor shall not be
required to provide any additional heat or air conditioning as a result of use
of process equipment by Tenant. Any additional costs for heat or air
conditioning necessary because of the use of process equipment by Tenant shall
be borne by Tenant.
14. RELEASE OF LESSOR; INDEMNIFICATION OF LESSOR. Personal property of
Tenant of any kind that may be on or at the Leased Premises shall be at the
sole risk of Tenant, or those claiming through or under Tenant. Lessor shall
not be liable to Tenant, or to any other person or entity: for any personal
injury or property damage occurring in, on, or about the Leased Premises; for
any negligence on the part of Tenant, its agents, contractors, licensees,, or
invitees; or for any nuisance resulting from the use of the Leased Premises
by Tenant, its agents, contractors, licensees, or invitees, except where
those acts are intentional. Tenant shall indemnify and save harmless Lessor
against all liabilities, damages, claims, fines, penalties, costs and other
expenses, including reasonable attorneys' fees (collectively "Indemnified
Liabilities") , which may be imposed upon, incurred by, or asserted against
Lessor by reason of the following:
(a) Any use of the Leased Premises or any part thereof by Tenant, its
agents, contractors, licensees, or invitees.
(b) Any personal injury, death, or property damage occurring in, on,
or about the Leased Premises.
(c) Any breach or default on the part of Tenant in the performance of
any covenant or agreement on the part of the Tenant to be performed pursuant
to the terms of this Lease, including, without limitation, any claims arising
out of or any way related to the Americans with Disability Act of 1992, 104
Stat. 327 (July 26, 1992).
In the case that any action or proceeding is brought against the Lessor or
any of its agents or assigns by reason of any claim identified in this Section
13, the Tenant shall, upon notice from Lessor, resist or defend such action or
proceeding by counsel reasonably satisfactory to Lessor. Said indemnification
shall not include claims resulting from the gross negligence of Lessor, its
agents or employees.
15. WAIVER OF SUBROGATION. Lessor waives its right of subrogation for
damage to the Building of which the Leased Premises are a part, the contents
therein, loss of use thereof, and/or loss
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of income. Tenant waives its right of subrogation for damage to property in
the Leased Premises, loss of use thereof, loss of income and/or accounts
receivable. Prior to the commencement date, and as often as may be
necessitated thereafter due to change in insurance, Tenant shall provide to
Lessor acknowledgment by Tenant's insurer or insurers of the foregoing waiver
of its right of subrogation; provided, however, the failure by Tenant to
provide such acknowledgment shall not negate Tenant's waiver of its right of
subrogation.
16. CARE OF BUILDING AND COMMON AREAS. Lessor, at Lessor's cost and
expense, shall make all necessary repairs to the foundation, structural
components of exterior walls, structural interior walls, structural beams,
structural columns and structural members. The foregoing to the contrary
notwithstanding, but subject to the waiver of subrogation, any damage to any of
the items which are Lessor's responsibility pursuant to the provisions of this
paragraph caused by any act or negligence of Tenant, its employees, agents,
invitees, licensees, or contractors, shall be repaired or replaced promptly by
Tenant, at its sole cost and expense.
17. CARE OF LEASED PREMISES BY TENANT. Tenant shall maintain the Leased
Premises in a clean, sanitary and safe condition; and shall maintain the Leased
Premises in as good condition and repair as they were in at the commencement of
the term of this Lease, reasonable wear and tear excepted. If after ten (10)
days' notice and opportunity to cure, Tenant fails to keep and preserve the
Leased Premises in the state of condition required by the provisions of this
Lease, Lessor, at its option, may put or cause the same to be put in the
condition and state of repair agreed upon, and in such case, Tenant, on demand,
shall pay the costs thereof plus an amount equal to fifteen percent (15%) of
such expenditures for overhead and supervision.
18. ALTERATIONS AND IMPROVEMENTS BY TENANT. Subsequent to Tenant's Work,
Tenant shall not make any changes, additions, and improvements to the Leased
Premises without the prior written consent of Lessor, except for alternations of
Two Thousand and no/100 Dollars ($2,000.00) or less, in which Tenant warrants
alterations done are by a licensed, bonded and insured vendor, is of good
quality and complies with all government regulations, and complies with the
regulations set forth by the Energy Center. Tenant agrees to keep building free
of liens with each alteration, and abide by alteration of this Lease. All
alterations performed at the direction of Tenant shall be subject to the
requirement of a performance and payment bond as set forth in Paragraph 5 above.
19. MECHANICS LIENS. Tenant shall pay timely for labor and material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or
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claimed to have been performed on the Leased Premises, at the direction or with
the consent of Tenant. Tenant shall not permit any mechanics or similar liens
to remain upon the Leased Premises incident to the foregoing. However, Tenant
may contest the validity of such lien or claims, provided, Tenant shall give to
Lessor, if required by Lessor, reasonable security to insure payment and to
prevent any sale, foreclosure or forfeiture of the Leased Premises by reason of
such non-payment. Upon a final determination of the validity of any such lien
or claim, Tenant shall immediately pay any judgment or decree rendered against
Tenant or Lessor, including but not limited to, all proper costs and charges,
and shall cause such lien to be released of record without costs to Lessor.
20. LESSOR'S ACCESS. Lessor, its agent, employees and/or contractors,
shall have the right to enter the Leased Premises at all reasonable times for
the purpose of inspection, cleaning, repairing or improving the Leased Premises
or other premises in the Building, including, but not limited to, the right, but
not the obligation, to install, maintain, use, repair, and replace the pipes,
ducts, conduits, and wires leading through the Leased Premises, provided, that
such entry shall be accomplished in a manner that will cause as little
interference with and inconvenience to the Tenant's use as is reasonable under
the circumstances. Any interference with or inconvenience to the Tenant arising
out of the exercise by Lessor of the rights set forth in this paragraph shall
not constitute a breach by Lessor of any of its agreements in this Lease, and
shall not result in any diminution of rent or liability on the part of Lessor by
reason of inconvenience, annoyance or injury to Tenant's business except if said
Lessor interference is beyond one business day, then Lessor will abate Tenant's
rent accordingly. Lessor, or its agents, shall have the right to exhibit the
Leased Premises to noncompetitive prospective tenants or to noncompetitive
prospective purchasers at any time.
21. TENANT'S INSURANCE. Tenant shall obtain and keep in force, at
Tenant's expense, for the term of this Lease, and any extension or renewal
thereof, the following insurance:
A. Such fire and casualty insurance as Tenant shall deem necessary
or desirable covering Tenant's stock in trade, fixtures,
furniture, files, documents, computers, equipment, signs, and all
other installations, improvements and betterments made by or f or
Tenant, on or about the Leased Premises.
B. Commercial general liability insurance, with a combined single
limit of One Million And No/100 Dollars ($1,000,000.00). Said
policy shall name Tenant as the named insured and Lessor as an
additional insured; shall cover the Leased Premises; and shall
cover contractual agreements.
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C. Any other standard insurance policy as may be required reasonably
by Lessor from time to time.
Said insurance required pursuant to the provisions of this paragraph shall
be issued by an insurance company legally authorized to do business in the State
of Minnesota; shall be in a form satisfactory to Lessor; and shall provide for
at least thirty (30) days notice, by certified mail, return receipt requested,
to Lessor before cancellation, termination, non-renewal or change of such
insurance. Evidence of said insurance shall be provided to Lessor upon request
upon occupancy of the premises.
22. LESSOR'S INSURANCE. On or before occupancy by Tenant of the Leased
Premises, Lessor shall obtain, and thereafter shall keep in force for the term
of this Lease, and any renewal or extension thereof, comprehensive general
liability insurance, fire and extended coverage insurance, boiler and pressure
vessel insurance, rents insurance, and such other insurance as Lessor deems
necessary or advisable to obtain and maintain, on the Building and the common
areas and all property and interest of Lessor in the Building, with coverage in
amounts as deemed prudent by Lessor.
23. DAMAGE BY FIRE OR OTHER CASUALTY. Tenant, immediately upon Tenant's
discovery thereof, shall give notice to Lessor of any damage caused to the
Leased Premises by fire or other casualty. If Tenant does not so notify Lessor,
Tenant shall be liable for all consequential damages resulting from its failure
to so notify Lessor, in addition to every other right and remedy which Lessor
may have pursuant to this Lease, at law or in equity.
If the Leased Premises are damaged or destroyed by fire or other casualty,
and such damage or destruction is certified within a reasonable period of time
thereafter, in writing, by a licensed contractor to be repairable within sixty
(60) days after the date of such occurrence, this Lease shall remain in full
force and effect, and Lessor, subject to the provisions hereinafter set forth,
shall proceed with due diligence to repair such damage or destruction, at its
expense, and in that event, there shall be a proportionate abatement of rent and
all other charges for so much of the Leased Premises as may be untenantable
until repair or restoration.
If the Leased Premises are damaged or destroyed by fire or other casualty,
and such damage or destruction cannot be so certified to be repairable within
sixty (60) days after the date of such occurrence, but can be so certified to be
repairable within one hundred twenty (120) days after the date of such
occurrence, and Lessor shall give Tenant notice within fifteen (15) days after
the date of such occurrence of its intention to repair within said one hundred
twenty (120) days, then this Lease shall remain in full force and effect, and
Lessor, subject to the provisions hereinafter set forth, shall proceed with due
diligence
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to repair such damage, at its expense, and in that event, there shall be a
proportionate abatement of rent and all other charges for so much of the Leased
Premises as may be untenantable until repair or restoration. if Lessor does not
give said fifteen (15) days' notice to Tenant of Lessor's intention to repair,
this Lease may be cancelled at the option of Lessor or Tenant if notice is given
by either party to the other within sixty (60) days after the expiration of
Lessor's fifteen (15) days' notice period.
If the Leased Premises are damaged or destroyed by f ire or other casualty,
and such damage or destruction cannot be so certified to be repairable within
one hundred twenty (120) days after the date of such occurrence, this Lease may
be cancelled at the option of Lessor or Tenant if notice is given by either
party to the other within thirty (30) days after it has been determined that the
Leased Premises cannot be so certified to be repairable within said one hundred
twenty (120) days.
In the event Lessor is obligated, or exercises its election, to repair the
Leased Premises, its obligation to so repair shall be contingent upon receipt of
sufficient insurance proceeds to complete such repairs and shall be limited to
repair or replacement of tenant improvements. If for any reason whatsoever,
Lessor does not receive sufficient insurance proceeds to complete such repairs,
notwithstanding any prior elections by Lessor, Lessor shall have no obligation
to make such repairs or reconstruction. If Lessor is obligated, or exercises
its election, to repair the Leased Premises, Tenant shall proceed with due
diligence, at Tenant's sole cost and expense, to repair or replace Tenant's Work
and other improvements installed by Tenant at its own expense. Lessor shall not
be responsible or liable to Tenant for any consequential damages whatsoever
caused by any damage or destruction to the Leased Premises, nor for any delay in
repairing or replacement, nor for inability to repair or replace, nor for any
other cause whatsoever beyond Lessor's control.
24. ASSIGNMENT OR SUBLEASE. Tenant may not, voluntarily or by operation
of law, assign or transfer this Lease, or sublease the whole or any part of the
Leased Premises, without the prior written consent of Lessor. Lessor approves
Tenant's sublease to Children's Museum only, for short-term storage and/or
assembly space.
25. NOVATION IN THE EVENT OF A SALE BY LESSOR. In the event of the sale
of the Leased Premises, Lessor shall be and hereby is relieved of all of the
covenants and obligations created hereby and such sale shall result
automatically in the purchaser assuming and agreeing to carry out all the
covenants and obligations of Lessor herein; provided, however, that Lessor shall
not be released from any claim resulting from a default of Lessor occurring
prior to the date of such sale.
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26. ESTOPPEL CERTIFICATE. Within ten (10) days after request therefore by
Lessor, or in the event that upon any sale, transfer, or financing, an Estoppel
Certificate shall be requested from Tenant, Tenant agrees hereby to deliver in
recordable form an Estoppel Certificate to the Lessor, any proposed purchaser,
transferee or lender, certifying to such correct facts relating to this Lease as
may be requested reasonably by Lessor.
27. REMEDIES OF LESSOR. In the event that during the term of this Lease
any of the following occur:
A. Tenant shall have failed to pay any installment of rent or any other
charge provided herein, or any portion thereof, when the same shall be due and
payable, and the same shall remain unpaid for a period of five (5) days after
the same is due, and the Lessor gives Tenant written notice, and Tenant does not
cure such default within ten (10) days after receipt of such notice;
B. Tenant shall have failed to comply with any other provision of this
Lease, and shall not have cured such failure within thirty (30) days after
Lessor, by written notice, has informed Tenant of such noncompliance; provided,
however, in the case of a default which cannot be cured with due diligence
within a period of thirty (30) days, Tenant shall have such additional time to
cure such default as may be reasonably necessary, provided Tenant proceeds
promptly and with due diligence to cure such default after receipt of said
notice; or
C. Tenant shall make an assignment for the benefit of creditors or be
adjudicated a bankrupt; then Lessor upon written notice to Tenant may elect
either (i) to cancel and terminate this Lease, and this Lease shall not be
treated as an asset of Tenant's estate, or (ii) to terminate Tenant's right to
possession only without cancelling and terminating Tenant's continued liability
under this Lease. Notwithstanding the fact that initially Lessor elects under
(ii) to terminate Tenant's right to possession only, Lessor shall have the
continuing right to cancel and terminate this Lease by serving five (5) days'
written notice on Tenant of such further election, and shall have the right to
pursue any remedy at law or in equity that may be available to Lessor.
In the event of election under (ii) to terminate Tenant's right to
possession only, Lessor may, at Lessor's option, enter into the Leased Premises
and take and hold possession thereof, without such entry and possession
terminating this Lease, or releasing Tenant, in whole or in part, from Tenant's
obligation to pay the rent hereunder for the full stated term. Upon such
reentry, Lessor may remove all persons and property from the Leased Premises,
and such property may be removed and stored in a public warehouse or elsewhere
at the cost of and for the account of Tenant, without becoming liable for any
loss or damage which may be
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occasioned thereby. Such re-entry shall be conducted in the following manner:
without resort to judicial process or notice of any kind in the situation where
Tenant has abandoned or voluntarily surrendered possession of the Leased
Premises; and, otherwise by resort to judicial process. Upon and after entry
into possession without termination of the Lease, Lessor may, but is not
obligated to, relet the Leased Premises, or any part thereof, to any person,
firm, or corporation, other than Tenant, for such rent, for such time and upon
such terms as Lessor, in Lessor's sole discretion shall determine, but Lessor
shall not be required to accept any tenant offered by Tenant or to observe any
instruction given by Tenant about such reletting. Lessor may make alterations
and repairs, and redecorate the Leased Premises to the extent deemed by Lessor
necessary or desirable.
Upon such re-entry, Tenant shall be liable to Lessor as follows:
A. for the unpaid installments of rent and other unpaid sums which were
due prior to such re-entry, which sums shall be payable forthwith;
B. for the installments of rent and other sums falling due pursuant to
the provisions of this Lease for the periods after re-entry during which the
Leased Premises remain vacant, which sums shall be payable as they become due
hereunder;
C. for all expenses, including leasing commissions, reasonable attorneys'
fees, costs of alterations, repairs and redecorating, which shall be payable by
Tenant as they are incurred;
D. while the Leased Premises are subject to any new lease or leases made
pursuant to this paragraph, for the amount by which the monthly installments
payable under such new lease or leases is less than the monthly installment for
all charges payable pursuant to this Lease, which deficiencies shall be payable
monthly; and
E. for interest upon all of the foregoing as provided in this Lease.
No such re-entry or taking possession of the Leased Premises by Lessor
shall be construed as an election on its part to terminate this Lease unless a
written notice of such intention be given by Tenant.
If Tenant shall default in the performance of any covenant required to be
performed by it under this Lease, taking into consideration the grace periods
provided in this paragraph, Lessor may perform the same for the account and at
the expense of Tenant. If Lessor at any time is compelled to pay, or elects to
pay, any sum of money by reason of the failure of Tenant to comply with any
provision
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of this Lease, or if Lessor is compelled to incur any expense, including
reasonable attorneys' fees, in instituting, prosecuting or defending any action
or proceeding instituted by reason of any default of Tenant hereunder, the sum
or sums so paid by Lessor shall be due from Tenant to Lessor on the next date
following the payment of such sums upon which a regular monthly rental payment
is due, together with interest, at the rate as specified in this Lease.
No right or remedy herein conferred upon or reserved to Lessor is intended
to be exclusive of any other right or remedy herein or by law provided, but each
shall be cumulative and in addition to every other right or remedy given herein
or now or hereafter existing at law or in equity or by statute.
28. ACCORD AND SATISFACTION. NO payment by Tenant or receipt by Lessor of
a lesser amount than the payments required to be paid by Tenant shall be deemed
to be other than on account of the earliest rent and other charges required to
be paid, nor shall any endorsement or statement on any check or similar payment
be deemed an accord and satisfaction, and Lessor shall accept such check or
payment without prejudice to Lessor's right to recover the balance of such rent
or other required payment, or pursue any other remedy provided in this Lease.
Accord and satisfaction, if any, shall be accomplished by a separate document
executed by Lessor and Tenant.
29. DEFAULT BY LESSOR. Lessor shall not be deemed to be in default under
this Lease until Tenant has given Lessor written notice specifying the nature of
the default which Lessor is obligated to cure, and Lessor does not cure such
default within ten (10) days after receipt of such notice; provided, however, in
the case of a default which cannot be cured, with due diligence, within a period
of ten (10) days, Lessor shall have such additional time to cure such default as
may be reasonably necessary, provided Lessor proceeds promptly and with due
diligence to cure such default after receipt of said notice.
Lessor shall not be deemed to be in default in the performance of any of
the provisions of this Lease if such nonperformance is due to any strike,
lock-out or other labor trouble, material shortages, governmental
restrictions, fire, acts of God, the elements, war, riot, rebellion or any
other cause beyond the reasonable control of Lessor. In the event Lessor
fails to perform any of its obligations under this Lease and Lessor fails to
cure such default within the ten (10) day period provided for above, Tenant's
sole remedy shall be to terminate this Lease, by written notice to Lessor,
and vacate the Leased Premises. Tenant shall have no right to claim or
collect any damages from Lessor or to pursue any equitable remedies, other
than termination of this Lease.
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30. SIGNS; WINDOW COVERINGS. No signs, promotional material or
identification of any type shall be placed in, or on externally visible from an
entry, window, outer door or exterior surface without the written consent of
Lessor and the City of Saint Paul. The Lessor reserves the right to remove all
unauthorized signs at the expense of Tenant.
31. CONDITION OF LEASED PREMISES AND LESSOR'S PROPERTY AT TERMINATION. At
termination of this Lease, Tenant shall vacate and deliver the Leased Premises,
all partitions, improvements, alterations and other property of Lessor to Lessor
in as good order and condition as the same were in on the commencement date or
were thereafter placed in by Lessor or Tenant, reasonable wear and tear
excepted. On or before the last day of the term of this Lease or the sooner
termination thereof, Tenant, at its expense, shall remove all of its equipment
from the Leased Premises, and any property not removed shall be deemed
abandoned. To the extent Tenant's property is removed pursuant to this
paragraph, Tenant, at its cost and expense, shall repair any damage done to the
Leased Premises by such removal. If Tenant chooses not to remove its property,
Lessor may require Tenant, at Tenant's cost and expense, to remove its property
and restore the Leased Premises to good condition and repair. All alterations,
additions and fixtures, other than Tenant's movable trade fixtures and
equipment, which have been made or installed by either Lessor or Tenant upon the
Leased Premises shall remain as Lessor's property and shall be surrendered with
the Leased Premises as a part thereof. Tenant shall surrender promptly all keys
for the Leased Premises or locks therein to Lessor at the place then fixed for
payment of rent. If Tenant fails to deliver the Leased Premises and Lessor's
property to Lessor in the condition required by the provisions of this paragraph
after ten (10) days' written notice and opportunity to cure, Lessor, at its
option, may make such repairs, and any expenditures made in connection with such
work shall be due and payable from Tenant upon demand, plus an amount equal to
ten percent (10%) of such expenditures for overhead and supervision. If the
Leased Premises are not surrendered at the end of the term or sooner termination
thereof, Tenant shall indemnify Lessor against loss or liability resulting from
delay by Tenant in so surrendering the Leased Premises, including, but not
limited to, any claim made by any succeeding tenant based upon such delay.
32. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by a third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association whatsoever between Lessor and Tenant, it being expressly
understood and agreed that neither the method of computation of rent, nor any
other provisions contained in this Lease, nor any act or acts of the parties
hereto, shall be deemed to create any relationship between Lessor and Tenant
other than the relationship of Lessor and Tenant.
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33. NOTICES. All notices and communications of similar legal import from
either Lessor or Tenant to the other shall be in writing and shall be considered
to have been duly given or served if sent by first class certified or registered
mail, return receipt requested, postage prepaid, to the Chief Executive Officer
(except notices of default shall include the Guarantors) at its address set
forth below, or to such other address as such party may hereafter designate BY
written notice to the other party or parties.
A. If to Lessor, to: Port Authority of the
City of Saint Paul
1900 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102
and to: CB Commercial Real Estate
Management Services
Minnesota Center
7760 France Avenue South
Suite 770
Minneapolis, MN 55435-5282
B. If to Tenant, to: Endocardial Therapeutics, Inc.
ATTN: Chief Executive officer
1350 Energy Lane, Suite 110E
St. Paul, MN 55108
C. If to Guarantors, to: Graydon E. Beatty
1170 Cushing Circle, #319
St. Paul, MN 55108
Jeffrey R. Budd
2261 Gordon Avenue
St. Paul, MN 55108
34. DEFINITION OF LESSOR, TENANT AND GUARANTOR; JOINT AND SEVERAL
LIABILITY. The words "Lessor",, "Tenant" and "Guarantor" used herein shall
include the plural thereto and the necessary changes required to make the
provisions hereof apply to corporations, partnerships, associations, or men or
women shall be construed as if made. If two or more parties are referred to
collectively under one designation, the liability of each shall be joint and
several.
35. CORPORATE TENANT OR GUARANTOR. If Tenant or its Guarantor, if any, is
a corporation, the persons executing this Lease on behalf of Tenant and such
Guarantor hereby covenant, represent and warrant: that Tenant and such
Guarantor, as the case may be, is duly incorporated, is in good standing, and is
duly qualified to do business in Minnesota; suitable evidence thereof shall be
supplied to Lessor upon execution of this Lease by the parties hereto; that each
person executing this Lease on behalf of Tenant and such Guarantor, as the case
may be, is an officer of
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Tenant and such Guarantor, as the case may be, and that he, she or they, as such
officer, are duly authorized to execute and deliver this Lease; and an
appropriate certified copy of corporate resolution or authorization shall be
supplied to Lessor upon execution OF this Lease by the Tenant and such
Guarantor, as the case may be.
36. WAIVER. The receipt of rent by Lessor with knowledge of any breach of
this Lease by Tenant or of any default on the part of Tenant in the observance
or performance of any of the obligations or covenants of this Lease shall not be
deemed to be a waiver of any provisions of the Lease. Payment of rent by Tenant
with knowledge of any breach of this Lease by Lessor or of any default on the
part of Lessor in the observance or performance of any of the obligations or
covenants of this Lease shall not be deemed to be a waiver of any provision of
this Lease. No failure on the part of Lessor or Tenant, as the case may be, to
enforce any obligation or covenant herein contained, nor any waiver of any right
hereunder by Lessor or Tenant, as the case may be, unless in writing, shall
discharge or invalidate such obligation or covenant or affect the right of
Lessor or Tenant, as the case may be, to enforce the same in the event of any
subsequent breach or default.
37. INVALIDITY. If any part of this Lease or any part of any provision
hereof shall be adjudicated to be void or invalid, then the remaining provisions
hereof not specifically so adjudicated to be invalid shall be executed without
reference to the part or portion so adjudicated insofar as such remaining
provisions are capable of execution.
38. GOVERNING LAW. This Lease shall be subject to and governed by the
laws of the State of Minnesota, and all questions concerning the meaning and
intention of the terms of this Lease and concerning the validity hereof and
questions relating to performance hereunder shall be adjudicated and resolved in
accordance with the laws of that state, notwithstanding the fact that one or
more of the parties now is or may hereafter become a resident of a different
state.
39. HEADINGS. The headings of the paragraphs and subparagraphs of this
Lease are for convenience of reference only and do not form a part hereof and
shall not be interpreted or construed to modify, limit or amplify such
paragraphs and subparagraphs.
40. CONDEMNATION. If all or substantially all of the Property is taken in
condemnation proceedings instituted under the power of eminent domain or is
conveyed in lieu thereof under threat of condemnation, this Lease shall
terminate as of the date the condemning authority acquires title to the
Property. Nothing in this paragraph shall disqualify Tenant from relocation
rights and other provisions thereof.
18
<PAGE>
41. PARTIES IN INTEREST. This Lease shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors and assigns of
Lessor; and shall inure to the benefit of, subject to the provisions of
Paragraph 24, and be binding upon the successors and assigns of Tenant.
42. SHORT FORM LEASE. Neither party shall record this Lease without the
written consent of the other party; however, upon the request of either Lessor
or Tenant, the other party shall join in the execution of a memorandum or so-
called "short form" of this Lease for the purpose of recordation. Said
memorandum or short form of this Lease shall describe the parties, the Leased
Premises, the term of this Lease, any special provisions, and shall incorporate
this Lease by reference. Any fees required to be paid in order to record such
memorandum or short form of this Lease shall be paid by the party desiring to
record such memorandum or short form of this Lease.
43. ENTIRE AGREEMENT; EXHIBITS. This Lease, including the Exhibits,
contains the entire agreement of the parties. It may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
44. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
45. PARKING. Notwithstanding language to the contrary contained in this
Lease, Tenant shall be entitled to use the vehicle parking spaces adjacent to
said Building as reasonably allocated by Lessor from time to time, based upon an
equitable allotment of vehicle parking spaces in comparison to square footage
leased. Tenant's vehicle parking shall not be reserved and shall be subject to
reasonable rules and regulations promulgated from time to time by Lessor.
Lessor will use reasonable efforts to accommodate Tenant's excess parking needs,
but does not covenant to have sufficient parking to meet such needs. If Lessor
deems that the parking needs of Tenant exceed the parking spaces available,
Tenant agrees to make alternative off-site parking arrangements, at Tenant's
sole cost and expense. Tenant shall notify its employees and invitees of such
alternative off-site parking arrangements, at Tenant's sole cost and expense and
agrees to use its reasonable efforts to cause observance of the provisions
herein. The vehicle parking obligation set forth above and the rules
regulations promulgated from time to time shall apply to Tenant, its sublessees
and assigns, as well as its invitees. Tenant's breach of the above covenant
shall be considered a material breach under said Lease, if Lessor gives Tenant
written notice of such a breach and Tenant does not cure such breach within ten
(10) days after receipt of such notice.
19
<PAGE>
46. HOLDING OVER. If after expiration of the Lease Term, Tenant remains
in possession of the Leased Premises with Lessor's permission (express or
implied), Tenant shall become a tenant from month to month only, upon all the
provisions of this Lease (except as to term and Base Rent), but the Base Rent
payable by Tenant shall be increased to one hundred fifty percent (150%) of the
Base Rent payable by Tenant at the expiration of the Lease Term. Such monthly
Base Rent shall be payable in advance on or before the first day of each month.
If either party desires to terminate such month to month tenancy, it shall give
the other party not less than thirty (30) days advance written notice of the
date of termination.
47. QUIET ENJOYMENT. Upon Tenant performing its obligations and covenants
under this Lease, Lessor hereby represents and warrants that Tenant shall have
quiet enjoyment of the Leased Premises and all of the rights and privileges
hereunder free from any disturbance or interference but subject to rules,
ordinances, directives of governing authorities, the powers of eminent domain
and to the terms and provisions of this Lease.
48. RELOCATION OF TENANT. Lessor shall have the right to relocate Tenant
from said Leased premises to another part of the Building in accordance with the
following terms and conditions:
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as said Leased Premises, and if this
relocation occurs after said Commencement Date said new premises shall
be placed in that condition by Lessor at its sole cost and expense. If
new Premises to be relocated to does not have an open office area for
employees, two offices for the officers of the company, and a heated
light assembly and storage area, Tenant can terminate lease with ninety
(90) day prior written notice only within sixty (60) days after said
notice of relocation from Landlord.
b. Lessor shall give Tenant ninety (90) days written notice of Lessor's
intention to relocate Tenant to new premises.
C. Lessor shall use its best efforts to relocate Tenant to said new
premises on a weekend and Lessor shall use its best efforts to
complete said move before the following Monday. If said relocation
has not been completed as set forth above, Base Rent shall abate in
full from the time said relocation commences to the time said
relocation is completed. Upon completion of said relocation, the new
premises shall become the "Leased Premises" under said Lease.
d. Lessor shall pay all reasonable costs incurred by Tenant as a result
of this relocation, including reasonable costs for changing business
cards and letterhead.
20
<PAGE>
e. If the new premises is smaller than said Leased Premises, Base Rent
shall be reduced proportionately.
f. Lessor and Tenant mutually agree to execute an amendment to said Lease
setting forth the reduction of Base Rent, if the relocation premises
is smaller than the current Premises. In no event, unless otherwise
agreed BY Lessor and Tenant, will the Rent on the relocation premises
be higher than previously agreed terms in this Lease.
g. Lessor cannot relocate Tenant in months 25 through 36 without
providing an extended minimum term of three (3) years at such new
location.
49. CONFIDENTIALITY. The terms of this Lease are confidential and Tenant
agrees not to share these terms with the other tenants in Energy Park Place, or
prospective tenants of the Lessor or cooperative Brokers.
50. RIGHT OF CANCELLATION. On September 30, 1994 and provided Tenant is
not in default under, beyond the time to cure, this Lease, Lessor hereby agrees
to grant Tenant the one time right to cancel this Lease subject to the following
conditions:
a. Tenant hereby agrees to give Lessor four (4) months prior written
notice of its desire to cancel this Lease on September 30, 1994.
Tenant also agrees to submit the payment required under paragraph (b)
below in order for said notice to be effective.
b. In the event Tenant cancels this Lease on the terms stated above prior
to the expiration of the Lease Term, Tenant hereby agrees to pay
Lessor Thirty-Two Thousand Five Hundred Ninety-One and 96/100 Dollars
($32,591.96). Tenant hereby agrees to submit said payment with the
notice required under sub-paragraph (a) above and understands that
said notice shall not become effective unless and until said payment
is made.
On September 30, 1995 and provided Tenant is not in default, beyond the
time to cure, under this Lease, Lessor hereby agrees to grant Tenant the one
time right to cancel this Lease subject to the following conditions:
a. Tenant hereby agrees to give Lessor four (4) months prior written
notice of its desire to cancel this Lease on September 30, 1995.
21
<PAGE>
Tenant also agrees to submit the payment required under paragraph (b)
below in order for said notice to be effective.
b. In the event Tenant cancels this Lease on the terms stated above prior
to the expiration of the Lease Term, Tenant hereby agrees to pay
Lessor Twenty-Three Thousand Five Hundred Fifty-Five and 63/100
Dollars ($23,555.63). Tenant hereby agrees to submit said payment with
the notice required under sub-paragraph (a) above and understands that
said notice shall not become effective unless and until said payment
is made.
Provided Tenant is not in default, except beyond the time to cure, Tenant
will receive a reduction in the cancellation penalty in the amount of one half
of the cost of a pre-approved addition by Tenant of a heating and air-
conditioning system for the warehouse area, not to exceed Ten Thousand and
no/100 Dollars ($10,000.00) with prior fully paid invoices and lien releases.
SURVIVAL The respective rights and obligations of Landlord and Tenant with
respect to the Lease and the Premises shall be preserved and shall survive the
termination of this Lease as to all matters arising or accruing prior to the
date of termination.
EXECUTION OF INSTRUMENTS Within fifteen (15) days of receipt from Landlord,
Tenant shall execute and deliver to Landlord those instruments Landlord may
request to evidence the termination of this Lease.
52. EXPANSION SPACE. Provided Tenant is not in default, beyond the time
to cure, Tenant will have the first right of refusal at market rates, "as- is,"
on the adjacent Suite #12 and #13 of 2,805 rentable square feet, subject to the
existing tenant's rights to renew. Market rate is defined as the rate which was
offered to the current or prospective tenant. Tenant will have a five (5) day
first right response time from Lessor's notice of another interested party.
TERMS A lease of space under this Article shall contain the following:
(a) Occupancy Costs shall be determined in the manner set out in
Landlord's then-current standard form of lease for the Building;
(b) Commencement Date for the lease of Space shall be determined by
Landlord;
(c) Term shall end on the expiration or earlier
22
<PAGE>
termination of this Lease,, and the right is not subject to the
same option to extend (if any) of this Lease, and such term of
First Right of Space shall be for a minimum of three (3) years,
or coterminous, whichever is longer in term;
(d) the other terms and conditions shall be as set out in this Lease.
DOCUMENTATION Within five (5) days of receipt from Landlord, Tenant shall
execute and deliver to Landlord those instruments Landlord may request to
evidence any lease of space under this Article.
NON-SEVERABILITY The rights of Tenant under this Article shall not be
severed from this Lease or separately sold, assigned, or otherwise transferred,
and shall expire on the expiration, or earlier, termination of this Lease.
53. EXTENSION OF TERM.
GRANT Lessor hereby grants to Tenant the one-time option to extend the Term
upon the terms and conditions set out in this Article, if
(a) Tenant is not in default under this Lease, beyond the time to
cure, at the time such option is exercised and at the time such
extension is to commence, and
(b) Tenant delivers to Landlord, not later than twelve (12) months
prior to the end of the original Term, written notice exercising
its option to extend the Term.
TERM During the extended Term:
(a) Annual Rent shall be equal to Market Rent as of the commencement
of that extended Term, but in no event greater than the amount of
$4.95 net per rentable square foot or $10.20 gross plus
escalations, using base year 1993, plus electrical, janitorial
and garbage, based on 12,517 rentable square feet. Year two not
to exceed $5.10 per rentable square foot net. Year three not to
exceed $5.25 per rentable square foot net.
(b) Occupancy costs shall be as determined in the manner set out in
Landlord's then-current standard form of Lease for the Building.
23
<PAGE>
(c) the Term shall be three (3) years, commencing upon expiration of
the original Term; and
(d) the other terms and conditions shall be at set out in this Lease,
except that there shall be no further right of renewal.
DOCUMENTATION Landlord and Tenant shall execute and deliver appropriate
documentation to evidence extension of the Term and terms and conditions of this
Lease during the extended Term.
NON-SEVERABILITY The rights of Tenant under this Article will not be
severed from this Lease or separately sold, assigned, or otherwise
transferred, and shall expire on the expiration or earlier termination of
this Lease.
54. MARKET RENT
DEFINITION "Market Rent" means the amount of cash (exclusive of Occupancy
Costs) which a landlord would receive annually by then renting the space in
question assuming the landlord to be a prudent person willing to lease but being
under no compulsion to do so, assuming the tenant to be a prudent person willing
to lease but being under no compulsion to do SO, assuming a lease term equal to
the term in question, and assuming a lease containing the same terms and
provisions as those contained in this Lease.
DETERMINATION OF MARKET RENT Whenever Annual Rent under this Lease is based
on the Market Rent, Landlord shall initially determine the Market Rent and shall
thereupon give Tenant notice of the amount of Annual Rent and the basis on which
Landlord made its determination of that amount. Upon receipt of that notice,
Tenant shall pay the Annual Rent stated in that notice in the manner set out in
Article 4.00.
DISAGREEMENT ON MARKET RENT
(a) If Tenant does not agree with the Landlord's determination of
Market Rent, Tenant shall nevertheless pay to Landlord the amount
set out in the notice Landlord gives under this Article and
Tenant shall give notice to Landlord of that disagreement within
ten (10) days of receipt of that notice from Landlord.
(b) If Tenant gives Landlord notice of disagreement, Landlord shall
immediately refer the matter to an individual with at least five
years of experience as a leasing agent or MAI appraiser in the
St. Paul area (the "Expert") selected by Landlord, subject to
approval by Tenant, such approval not to be unreasonably
withheld, who shall be deemed to be
24
<PAGE>
acting as an expert and not as an arbitrator. The Expert shall
make a determination of Market Rent as expeditiously as possible.
(c) If the Market Rent as determined by the Expert is greater than
the Tenant has paid in accordance with the notice given under
this Article, Tenant shall immediately pay to Landlord the
difference and shall after that make the payments of Annual Rent
as determined by the Expert. If the Market Rate as determined by
the Expert is less than Tenant has paid in accordance with the
notice given under this Article, Landlord shall immediately pay
to Tenant the difference and Tenant shall after that make the
payments of Annual Rent as determined by the Expert.
(d) If the Market Rent as determined by the Expert is less than 95%
of the amount set out in the notice under this Article, Landlord
shall bear the costs
and reasonable expenses of the Expert. If the Market Rent as
determined by the Expert is 95% or more of the amount set out in
the notice under this Article, Tenant shall bear the costs and
reasonable expenses of the Expert.
55. BROKERAGE Tenant covenants, warrants and represents to Landlord that
there was no broker instrumental in consummating this Lease and that no
conversation or prior negotiations were had by Tenant with any broker other than
CB Commercial Real Estate Services Group, Inc. concerning the renting of the
Demised Premises. Tenant agrees to protect, indemnify, save and keep harmless
Landlord against and from all liabilities, claims, losses, costs, damages and
expenses, including attorney's fees, arising out of, resulting from or in
connection with a breach of the foregoing covenant, warranty and representation.
25
<PAGE>
The parties hereto have duly executed this Agreement of Lease effective as of
the date and year first above written.
PORT AUTHORITY OF THE
TENANT: CITY OF SAINT PAUL
By: By:
------------------------------- ---------------------------------
Jeffrey R. Budd Its President
Its Vice President
By:
------------------------------
Graydon E. Beatty
Its President
Drafted by:
Port Authority of the
City of Saint Paul
1900 Landmark Towers
345 St. Peter St.
St. Paul, MN 55102
(612) 224-5686
Signature page to that certain Agreement of Lease between the Port Authority of
the City of Saint Paul and ENDOCARDIAL THERAPEUTICS, INC., A MINNESOTA
CORPORATION, dated SEPTEMBER 15, 1993.
26
<PAGE>
STATE OF MINNESOTA ss.
COUNTY OF RAMSEY
On this ___day of October ________________, 1993, before me, a Notary
Public within and for said County, personally appeared Kenneth R. Johnson, to me
personally known, who being by me duly sworn, did say that he is the President
of the PORT AUTHORITY OF THE CITY OF SAINT PAUL, the public corporation named in
the foregoing instrument and that said instrument was signed on behalf of said
corporation by authority of its Board of Commissioners, and said Kenneth R.
Johnson acknowledged said instrument to be the free act and deed of said
corporation.
_______________________
Notary Public
STATE OF MINNESOTA
COUNTY OF RAMSEY
On this 6th day of OCTOBER, 1993 before me, a Notary Public within and for said
County, personally appeared JEFFREY R. BUDD and GRAYDON E. BEATTY, to me
personally known, who being each by me duly sworn, did say that they are,
respectively the VICE PRESIDENT and the PRESIDENT of ENDOCARDIAL THERAPEUTICS,
INC. one of the corporations named in the foregoing instrument, and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said JEFFREY R. BUDD and GRAYDON E. BEATTY acknowledged said
instrument to be the free act and deed of said corporation
______________________________
Notary Public
27
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT "B"
LESSOR'S WORK
None
<PAGE>
EXHIBIT C
ENERGY PARK PLACE
TENANT MANUAL
CB COMMERCIAL MANAGEMENT SERVICES
- ENERGY PARK -
1295 BANDANA BOULEVARD NORTH, SUITE 150
ST. PAUL, MINNESOTA 55108
(612) 646-2296
<PAGE>
TABLE OF CONTENTS
General Building Informationz. . . . . . . . . . . . . . 1.1
Rental Remittance . . . . . . . . . . . . . . . . . . . 1.2
Emergency Numbers and Procedures . . . . . . . . . . . . 1.3
Building Access and Security . . . . . . . . . . . . . . 2.1
Security After Hours . . . . . . . . . . . . . . . . . . 2.2
Reporting Thefts . . . . . . . . . . . . . . . . . . . . 2.3
U.S. Mail Service . . . . . . . . . . . . . . . . . . . 3.1
Deliveries : . . . . . . . . . . . . . . . . . . . 3.2
Restaurants and Shopping . . . . . . . . . . . . . . . . 3.3
Maintenance . . . . . . . . . . . . . . . . . . . . . . 4.1
Construction of Service Work . . . . . . . . . . . . . . 4.2
Key Policy . . . . . . . . . . . . . . . . . . . . . . . 5.1
Signs . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Additional Tenant Identification Plaques . . . . . . . . 6.2
Directory Listing . . . . . . . . . . . . . . . . . . . 6.3
Moving Policy . . . . . . . . . . . . . . . . . . . . . 7.1
Emergency Procedures . . . . . . . . . . . . . . . . . . 8.1
Fire Safety Plan . . . . . . . . . . . . . . . . . . . . 8.2
Types of Fires, Extinguishers, Hoses . . . . . . . . . . 8.3
Emergency Telephone Numbers . . . . . . . . . . . . . . 8.4
Rules and Regulations . . . . . . . . . . . . . . . . . 9.1
Janitorial Specifications . . . . . . . . . . . . . . . 10.1
<PAGE>
1.1 GENERAL BUILDING INFORMATION
Energy Park Place
1350-1380 Energy Lane
St. Paul, MN 55108
Managed by:
CB Commercial Management Services
1295 Bandana Blvd. N., #150
St. Paul, MN 55108
(612) 646-2296
Real Estate Manager: Kathy Marinac
Telephone: (612) 924-4686 (voicemail)
(612) 646-2296
Property Secretary: Holly Koreltz
1.2 RENTAL REMITTANCE
Rent bills are sent to all tenants prior to the first of each month. All
checks should be made payable to:
CB Commercial Management Services
and mailed to:
CB Commercial
7760 France Avenue South, Suite 770
Bloomington, Minnesota 55435
1.3 EMERGENCY NUMBERS AND PROCEDURES
In the event of fire, bomb threat, medical assistance or other emergencies,
use the appropriate number below:
A. FIRE - Notify the St. Paul FIRE DEPARTMENT (911), give them your
address and suite number, and pull the nearest fire alarm in the
building. Notify CB Commercial Management Services - 646-2296. They
will inform you as to what evacuation procedure to follow.
B. BOMB THREAT - Notify the St. Paul POLICE DEPARTMENT (911) and give
them your address and suite number. Notify CB Commercial Management
Services - 646-2296.
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<PAGE>
C. MEDICAL ASSISTANCE - Call PARAMEDICS (91 1) and give them your address
and suite number. Notify CB Commercial Management Services - 646-
2296.
2.1 BUILDING ACCESS AND SECURITY
A. Each tenant is responsible for the accessibility and security of their
space.
B. All outside doors should be locked after hours. Please be sure that
they are secure when leaving the building after hours.
2.2 SECURITY AFTER HOURS
Energy Park Place provides a patrol security service for the entire
property on a scheduled basis once per night.
2.3 REPORTING THEFTS
Any property which is determined to have been stolen should be reported
immediately to the St. Paul Police Department and CB Commercial Management
Services and your insurance company if applicable.
3.1 U.S. MAIL SERVICE
MAIL PICK-UP
In front of 1350 Building:
2:00 p.m. & 4:45 p.m. - Monday through Friday 1:00 p.m. - Saturday
In front of 1380 Building near Energy Park Plaza, Bus Stop:
2:30 p.m. & 4:45 p.m. - Monday through Friday 1:00 p.m. - Saturday
EXPRESS NEXT DAY AIR: In front of 1350 Building 4:30 p.m. - Monday through
Friday
St. Paul Post Office
1583 Hamline
St. Paul, MN 55108
(612) 646-9645
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<PAGE>
3.2 DELIVERIES
Routine deliveries may be made between 8:00 a.m. and 6:00 p.m. weekdays.
Please instruct your delivery personnel in advance as to the appropriate
department or individual to accept deliveries prior to arrival.
3.3 RESTAURANTS AND SHOPPING
For your convenience, restaurants and shopping are located at Bandana
Square, Rosedale Mall and Har Mar Mall. University Avenue and Grand Avenue
also contain a combination of sit down, lunch counter and fast food
restaurants and specialty shopping.
4.1 MAINTENANCE
Custodial service will be performed Monday - Friday in all property public
areas. Standard services are provided. However, if additional or special
services are required, contact CB Commercial Management Services. Only an
authorized representative of the tenant will be allowed to request
additional building services of any nature.
4.2 CONSTRUCTION OR SERVICE WORK
All construction and service work (carpet cleaning, extra window cleaning,
etc.) must be scheduled and approved by CB Commercial Management Services.
All proposed alterations, remodeling or repair work must be approved in
writing by CB Management. The contractors performing the work will be
selected from the approved contractor list. Contractors performing such
work must provide evidence of insurance in addition to the necessary
building permits.
5.1 KEY POLICY
Two (2) suite entrance keys will be issued to the tenant upon completion of
their space. If additional keys are required, keys may be obtained from CB
Commercial Management Services. Only a designated representative of the
tenant will be authorized to request additional keys.
6.1 SIGNS
There are to be no signs of any type on the interior or exterior of the
building without prior written approval of CB Commercial Management
Services.
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<PAGE>
6.2 ADDITIONAL TENANT IDENTIFICATION PLAQUES
All plaques must be ordered through and installed by CB Commercial
Management Services.
6.3 DIRECTORY LISTING
The Property directory is located in the atrium area of each building.
7.1 MOVING POLICY
The following rules pertain to moving furniture, equipment and supplies in
and out of Energy Park Place.
ANY MOVERS THAT DO NOT ADHERE TO THE FOLLOWING RULES WILL NOT BE ALLOWED TO
ENTER THE PREMISES OR WILL BE REQUIRED TO DISCONTINUE THE MOVE.
A. Clean masonite sections will be used as runners on all finished floor
areas where heavy furniture or equipment is being moved with wheel or
sled type dollies. The masonite must be at least one-fourth inch
thick, 4x8 wide sheets in the corridors and 32" wide sheets of
masonite must be taped together to inhibit sliding.
B. All wall, door facings, and other areas along the route to be followed
will be inspected by the movers and the Property Manager before and
after the move. The mover must provide and install protective
coverings on all walls, door facings, and other areas along the route
to be followed during the move.
C. Any damage to the building or fixtures caused by the move will be
repaired and/or paid for by the moving company and/or the Tenant.
The moving company is hereby required to provide CB Commercial with a current
Certificate of Insurance indicating The St. Paul Port Authority and CB
Commercial Management Real Estate Group, Inc., as additionally insured.
8.1 EMERGENCY PROCEDURES
Please refer to Section 1.3.
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<PAGE>
8.2 FIRE SAFETY PLAN
Each office will appoint one or several persons responsible for checking
their particular area in cases of fire of bomb threat. They will then
report their findings to the Fire Department and CB Commercial. All new
employees need to be made aware of emergency procedures.
Good housekeeping is the key to prevention of most fires which occur in
office buildings. Waste baskets and loosely stacked papers provide fuel
for fires, so keep your work areas as neat possible. Provide plenty of
safety ashtrays which automatically extinguish a cigarette if it burns too
close to the edge. Ashtrays should never be emptied into a waste basket,
however, if neatness demands it, be absolutely sure that ashes are
completely cold before emptying. Observe "NO SMOKING" signs wherever
posted. Many office fires are caused by overloading electrical circuits.
Do not create an "octopus" by inserting a series of 2-way or 3-way plugs
into the same outlet. Call CB Commercial Management Services for advice on
circuit capacity. Also, inspect electrical cords frequently and promptly
replace any frayed wires. Never hang an electrical cord over a nail or
sharp edge.
Precautions to be observe:
1) Do not open a door without first checking to see if it is hot. If it
is hot, undoubtedly there will be fire on the other side. Choose
another route of egress.
2) Close all doors after you have walked through them.
3) Do not return for personal belongings.
4) When smoke is present, stay low. The cleanest air is closest to the
floor.
8.3 TYPES OF FIRES, EXTINGUISHERS, HOSES
Multipurpose ABC fire extinguishers are located along the corridors of
Energy Park Place in accordance with the St. Paul Fire Department
regulations. You are urged to inspect these locations personally. Read
and memorize instructions on the label.
Fires and the fire extinguishers to fight those fires are divided into
three categories or classes; A, B, and C.
CLASS A - Fires involving ordinary combustibles such as paper, wood,
cloth, rubber, and many plastics which are normally extinguished by
cooling.
CLASS B - Fires involving flammable liquids such as gasoline, oil,
alcohol, some paints, grease or solvents which are best extinguished
by smothering.
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<PAGE>
CLASS C - Fires involving electrical equipment, fuse boxes, appliances
and wiring in which the use of a non-conductive extinguishing agent
prevents injury.
It is important to use the correct type of extinguisher on a fire.
The wrong type of fire extinguisher may fail not only to extinguish
the fire, but also may cause great personal hazard from electrical
shock, poisonous fumes, spreading fire or explosion. All
extinguishers in the corridors are ABC extinguishers, meaning that
they can be utilized to extinguish Class A, B, and C fires.
THE THREE "P's" ABOUT USING FIRE EXTINGUISHERS
A leading Fire Safety Officer tells us to remember the three "P's" when
using a fire extinguisher:
A. PULL the pin.
B. POINT the nozzle (at the base of the fire).
C. PRESS the handle (sweep from side to side at the base of the fire).
Take an emergency walk NOW to establish the locations of the Emergency
exits and fire fighting apparatus and mark them on your Floor Plan. Read
the instructions carefully marked on each extinguisher to assure proper
usage. YOU WILL NOT HAVE TO READ INSTRUCTIONS DURING AN EMERGENCY.
8.4 EMERGENCY TELEPHONE NUMBERS (AFTER HOURS)
Please list the name and home phone numbers of three (3) persons from you
firm whom we can contact in case of emergency. We will call in the
sequence listed until we contact someone. These numbers are for EMERGENCY
USE ONLY and will be held CONFIDENTIAL.
COMPANY/TENANT NAME:__________________________________
SUITE NUMBER:____________________________________________
#1 - NAME:_________________________________________________
HOME PHONE:_____________________________________________
#2 - NAME:________________________________________________
HOME PHONE:_____________________________________________
#3 - NAME:________________________________________________
HOME PHONE: ____________________________________________
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<PAGE>
9.1 RULES AND REGULATIONS
A. The entrances, halls, corridors and loading areas of the building
shall not be obstructed or used as a waiting or lounging place by
Tenants, and their agents, servants, employees, invitees, licensees
and visitors. All entrance doors leading from any demised premises to
the hallways are to be kept closed at all times. The outside areas
immediately adjoining the leased premises shall be kept clear at all
times by Tenant, and Tenant shall not place or permit any
obstructions, garbage, refuse, merchandise or display in such areas.
B. Keys for doors in the leased premises will be furnished at the
commencement of the Lease by the Property Manager. All duplicate keys
shall be purchased only from CB Commercial. Tenants shall not alter
any lock, or install new or additional locks or bolts on any door
without the prior written approval of CB Commercial. In the event
such alteration or installation is approved by CB Commercial, Tenants
malting such alteration or installation shall supply CB Commercial
with a key for any such lock or bolt. Each Tenant, upon the
expiration or termination of tenancy, shall deliver to CB Commercial
all keys in Tenant's possession for all locks, bolts, cabinets, safes
or vaults, or the means of opening any lockable device.
C. In order that the building may be kept in a state of cleanliness, each
Tenant shall, during the term of each respective Lease, keep their
space in neat and clean order. No Tenant shall cause any unnecessary
labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness of the demised premises.
Tenants will see that (1) the doors are securely locked, and (2) all
water faucets and other utilities are shut off (so as to prevent waste
or damage) each day before leaving the demised premises. In the event
Tenant must dispose of crates, boxes, etc., which will not fit into
office waste baskets, it will be the responsibility of Tenant to
dispose of same. In no event shall Tenant set such items in the
public hallways or other areas of the property, excepting Tenant's own
leased premises, for disposal.
D. All deliveries are to be made through dock/rear entrances for those
tenants who have these areas. Otherwise, tenants who have front
entrances only can have deliveries made through the closest door and
causes the least disturbance to other tenants. All damage done to
building by the delivery or removal of such items, or by reason of
their presence in the building, shall be paid to CB Commercial upon
demand, by Tenant, by, through or under whom such damage was done.
The tenants are to assume all risks as to the damage to articles moved
and injury to persons or public engaged or
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not engaged in such movements, including equipments, property and
personnel of CB Commercial or owner if damaged or injured as a result
of acts in connection with carrying out this service for a Tenant from
the time of entering the property to completion of work. Owner shall
not be liable for acts of any persons engaged in, or any damage or
loss to any of said property or persons resulting from any act in
connection with such service performed by tenant. There shall not be
use in any space, or in the public halls of the building, either by
Tenant or by jobbers of others, in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires.
CB Commercial retains the right to prescribe the weight and position
of safes or other heavy equipment.
E. The restrooms, toilets, urinals, wash bowls and water apparatus shall
not be used for any purpose other than for those for which they were
constructed or installed, and no sweeping, rubbish chemicals or other
unsuitable substances shall be thrown or placed therein. The expense
of any breakage, stoppage or damage resulting from violation(s) of
this rule shall be borne by the Tenant by whom, or by whose agents,
servants, employees, invitees, licensees, or visitors, such breakage,
stoppage or damage shall have been caused.
F. No sign, light, name placard, poster advertisement or notice visible
from the exterior of any demised premises, shall be placed, inscribed,
painted or affixed by any Tenant on any part of the building without
the prior written approval of Landlord. All signs or letterings on
doors or otherwise, approved by Landlord, shall be inscribed, painted
or affixed at the sole cost and expense of the Tenant, or by a person
approved by Landlord. A directory containing the names of all Tenants
of the building shall be provided by Landlord at an appropriate place.
G. No signaling, telegraphic or telephonic instruments or devices, or
other wires, instruments or devices, shall be installed in connection
with any demised premises without the prior written approval of
Landlord. Such installations, and the boring or cutting for wires,
shall be made at the sole cost and expense of Tenant and under control
and direction of Landlord.
Landlord retains, in all cases, the right to require (1) the
installation and use of such electrical protecting devices that
prevents the transmission of excessive current of electricity into or
through the building, (2) the changing of wires and of their
installation and arrangement underground or otherwise as Landlord may
direct, and (3) compliance on the part of all using or seeking access
to such wires with such rules as Landlord may establish relating
thereto. All such wires used by Tenants must be clearly tagged at the
distribution boards and junction box and elsewhere in the building
with (1) the number of the demised premises to which said wires are
used, (2) the purpose for which said wires are used, and (3) the name
of the company operating same.
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H. Tenant, their agents, servants, employees, invitees, licensees, or
visitors shall not:
1) enter into or upon the roof of the building or any storage,
electrical or telephone closet, or heating, ventilation, air
conditioning, housing areas;
2) use any additional method of heating or air conditioning;
3) sweep or throw any dirt or other substances into the
corridors or from the building;
4) bring in or keep in or about the demised premises any
vehicles, bicycles, motorcycles or animals of any kind; NO
PETS ALLOWED.
5) install any radio or television antennas or any other device
or item on the roof, exterior walls, windows or window sills
of the building;
6) deposit any trash, refuse, cigarettes, or other substance of
any kind within or out of the building, except in the refuse
containers provided thereof.
7) use any demised premises:
a) for any immoral or unlawful purpose;
b) for lodging or sleeping
c) for cooking or the distribution of food, except for the
use by any Tenant Underwriter's Laboratory equipment
for brewing coffee, tea, and similar beverages,
provided that such use is in compliance with law.
8) be permitted to operate any device that may produce an
offensive odor, cause noise, vibrations or air waves to be
heard or felt outside the leased premises or which may omit
electrical waves that will impair radio, television or any
other forms of communication system.
I. In no event shall any person bring into the building inflammables such
as gasoline, kerosene, naphtha and benzine, or explosives or firearms
or any other article of intrinsically dangerous nature. If by reason
of the failure of Tenant to comply with the provisions of this
paragraph, any insurance premium payable by Landlord for all or any
part of the building shall at any time be increased above normal
insurance premiums for insurance not covering the items aforesaid.
Landlord shall have the option to either terminate the Lease or to
require Tenant to make immediate payment for the whole of the
increased insurance premium.
J. Tenant shall comply with all applicable federal, state and municipal
laws, ordinances and regulations and building rules, and shall not
directly or
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indirectly make use of the premises which may be prohibited thereby or
which -
shall be dangerous to person or property or shall increase the cost of
insurance or require additional insurance coverage.
K. If Tenant desires signal, communication, alarm or other utility or
service connection installed or changed, the same shall be made at the
expense of Tenant, with approval and under direction of Landlord.
L. No canvassing, soliciting, distribution of handbills or other written
material shall be permitted in the building.
M. No auction, selling-out, bankruptcy or fire sales shall be conducted
on or about the leased premises without the prior written consent of
Landlord.
N. Tenant shall give Landlord prompt notice of all accidents to or
defects in air conditioning equipment, plumbing, electrical facilities
or any part of appurtenances of the leased premises.
O. If the leased premises demised to any Tenant becomes infested with
vermin, such tenant, at its sole cost and expense shall cause its
leased premises to be exterminated from time to time to the
satisfaction of Landlord.
P. Tenant shall not use the name of Energy Park Place, or use pictures or
illustrations of Energy Park Place in advertising, notices,
correspondence, or other publicity, without prior written consent of
Landlord.
Q. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the
building's heating and air conditioning system, and shall not adjust
any controls.
R. Tenant assumes full responsibility for protecting its space from
theft, robbery, and pilferage, which includes keeping doors locked and
other means of entry to the space closed and secure. Landlord shall
be in no way responsible to the Tenants, their agents, employees, or
invitees for any loss of property from the leased premises or public
areas or for any damages for any property thereon from any cause
whatsoever.
S. Tenant shall not install and operate machinery or any mechanical
devices of a nature not directly related to Tenant's ordinary use of
the premises without the written permission of the Landlord.
T. No person or contractor not employed by Landlord shall be used to
perform window washing, cleaning, decorating, repair or other work in
the premises without the express written consent of Landlord. No
hook, nails or screws shall be driven into or inserted in any part of
the building except by building maintenance personnel.
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U. Landlord or its agents or employees shall have the right to enter the
leased premises to examine the same or to make such repairs,
alterations, or additions as Landlord shall deem necessary for the
safety, preservations, or improvement of the premises and building.
V. Tenant shall not permit picketing or other union activity involving
its employees in the building except in those locations and subject to
time and other limitations as to which Landlord may give prior written
consent.
W. Prior written approval, which shall be at Landlord's sole discretion,
must be obtained for installation of any solar screen material, window
shades, blinds, drapes, or other similar equipment and any window
treatment of any kind whatsoever other than the building standard
window treatment. Landlord will control internal lighting that may be
visible from the exterior of the building and shall have the right to
change any unapproved lighting, without notice to Tenant, at Tenant's
expense.
X. The common areas of the building are not for the use of the general
public, and Landlord shall in all cases retain the right to control or
prevent access thereto by all persons whose presence, in the judgement
of the Landlord, shall be prejudicial to the safety, character,
reputation or interests of the building and its Tenants.
Y. Tenant shall not store any vehicles in or around the property without
the written approval of CB Commercial.
Z. Landlord reserves the right to rescind, make reasonable amendments,
modifications and additions to the rules and regulations heretofore
set forth, and to make additional reasonable rules and regulations as
in Landlord's sole judgement, may from time to time be needed for the
safety, care, cleanliness and preservation of good order of the
building. Landlord shall not be responsible for any violation of the
foregoing rules and regulations by other Tenants of the building and
shall have no obligation to enforce the same against other Tenants.
10.1 JANITORIAL SERVICE SPECIFICATIONS
These specifications are listed as a guide for the tenant when securing
janitorial services for their space. The tenant is responsible for the
nightly, weekly, monthly, quarterly, semi-annually and annual janitorial
services within their space.
A. TENANT OCCUPIED SUITES
1. NIGHTLY SERVICES
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a) Secure all lights as soon as possible each night.
b) Vacuum all carpets.
c) Dust mop all resilient and composition floors with treated dust
mops. Damp mop to remove spills and water stains as
required.
d) Dust all desks and office furniture with treated dust cloths.
e) Papers and folders on desks are not to be moved.
f) Sanitize all telephone receivers.
g) Empty all ashtrays and ash urns. Clean and sanitize as required.
h) Empty all waste baskets and other trash containers.
i) Remove all trash from floors to the designated trash areas.
j) Remove fingerprints, dirt smudges, graffiti, etc., from all
doors, frames, windows, light switches, walls.
k) Return chairs and waste baskets to proper positions.
1) Clean, sanitize and polish drinking fountains.
m) Polish all interior public corridor planters.
n) Dust and remove debris from all metal door thresholds.
o) Wipe clean smudged bright work.
p) Spot clean all carpets, resilient and composition floors as
required.
q) Service all walk-off mats as required.
r) Close all blinds at exterior windows.
s) Check for burned out lights and replace them.
2. WEEKLY SERVICES
a) Dust all low reach areas including, but limited to, chair rungs,
structural and furniture ledges, baseboards, window
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sills, door louvers, wood paneling molding, etc.
b) Dust inside of all door jambs.
c) Clean and polish all metal door thresholds.
d) Wipe clean and polish all bright work.
e) Sweep all service stairwells.
f) Dust all vinyl baseboards.
g) Edge all carpeted areas.
h) Move all plastic carpet protectors and thoroughly vacuum under
and around all desks and office furniture.
i) Clean and spray buff all building standard resilient and/or
composite flooring.
j) Sweep floor terraces.
3. MONTHLY SERVICES
a) Dust all high reach areas including, but not limited to, tops of
door frames, structural and furniture ledges, air conditioning
diffusers and return grills, tops of partitions, picture frames,
etc.
b) Vacuum upholstered furniture.
c) Wash waste basket.
d) Dust, in place, all pictures and wallhangings.
e) Dust or vacuum all air grills.
4. QUARTERLY SERVICES
a) Shower-scrub or otherwise recondition all resilient or
composition flooring to provide a level of appearance equivalent
to a completely refinished floor.
b) Wipe down all vertical blinds at exterior windows as recommended
by manufacturer.
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<PAGE>
5. SEMI-ANNUAL SERVICES
a) Steam extraction shampoo all carpeted floors in public areas
only. Submit proposed cleaning schedule.
6. ANNUAL SERVICES
a) Dust ceiling surfaces, other than acoustical ceiling material.
B. RESTROOM SERVICE SPECIFICATIONS (COMMON AREAS)
1. NIGHTLY SERVICE
a) Restock all restrooms with supplies from the janitorial
contractor's stock including paper towels, toilet tissue, seat
covers, and hand soap, as required.
b) Restock all sanitary napkin and tampon dispensers from
contractor's stock, as required. Supplies for and proceeds from
this service are the sole responsibility of the janitorial
contractor. The proceeds of this service are to be given to the
owner.
c) Wash and polish all mirrors, dispensers, faucets, flushometers,
and bright work with non-scratch disinfectant cleaners.
d) Wash and sanitize all toilets, toilet seats, urinals and sinks
with non-scratch disinfectant cleaner. Wipe dry all sinks.
e) Remove stains, descale toilets, urinals and sinks as requested.
f) Mop all restrooms floors with disinfectant germicidal solution.
g) Empty and sanitize all waste and sanitary napkin and tampon
receptacles.
h) Remove all restroom trash from building.
i) Spot clean fingerprints, marks and graffiti from walls,
partitions, glass, aluminum and light switches as required.
j) Empty and damp wipe all ashtrays.
k) Report all fixtures not working property to the supervisor.
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Janitorial supervisor to send the list to the Building Manager.
* Tenants who share restrooms with an adjacent space are both
responsible for cleaning and supplies.
2. WEEKLY SERVICES
a) Dust all low reach and high reach areas including but not limited
to, structural ledges, mirror tops, partition tops and edges, air
conditioning diffusers and return air grills.
3. MONTHLY SERVICES
a) Wipe down all tile walls and metal partitions. Partitions shall
be left in an unstreaked condition after this work.
b) Clean all ventilation frills.
Dust all doors and door jambs.
4. QUARTERLY SERVICES
a) Thoroughly clean and reseal all ceramic tile floors, using
approved sealers.
C. CLEANING STORE ROOMS, SERVICE CORRIDORS, ROOF AND SERVICE CLOSETS
NOTE:
Nightly and periodic services for offices, corridors, locker rooms and
restrooms included in the above areas shall be per the specifications
previously outlined for tenant areas and common areas on tenant floors.
Additional work not previously specified shall be as follows:
1. NIGHTLY SERVICE
a) Remove trash from all of the above areas.
b) Maintain an orderly arrangement of all janitorial supplies and
paper products in the storage rooms and service closets.
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c) Maintain an orderly arrangement of all equipment stored in these
areas such as mops, buckets, brooms, vacuum cleaners, scrubbers,
etc.
d) Clean and disinfect service sinks.
e) Sweep and damp mop service closet floors. Deodorize and
disinfect as required.
f) Sweep store room floors.
g) Receive and store all janitorial supplies in an orderly manner.
2. Weekly Services
a) Damp mop all composition floors in store rooms. Deodorize and
disinfect as required.
b) High dusting of these areas including all pipes, ducts, conduit,
ventilating diffusers and grills and mechanical, electrical
equipment, exposed beneath the hung-ceilings outside of the
mechanical equipment room.
D. EXTERIOR STRUCTURE AND GROUNDS SERVICES SPECIFICATIONS
The Owner is responsible for the exterior cleanliness of the property. The
following specifications apply to these areas.
1. Nightly Services
a) Police entire perimeter of building including landscaped areas,
storm drain grills, and ventilation grills, including public
sidewalks.
b) Spot sweep accumulations of dirt, papers and leaves in all comer
areas where wind tends to cause a collection of this debris.
c) Spot clean and dust all architectural aluminum and ledges around
entrances to the building.
d) Spot clean all exterior glass at building entrances.
e) Sweep sidewalk, steps and landscaped area, walks and benches
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leading to the main entry doors.
f) Clean building entrances periodically.
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ENERGY PARK PLACE LEASE
GUARANTY
This Guaranty is attached to a Lease dated as of the 15 day of SEPTEMBER
1993, by and between the PORT AUTHORITY OF THE CITY OF SAINT PAUL ("Lessor") and
ENDOCARDIAL THERAPEUTICS, INC., a Minnesota corporation, ("Tenant").
The undersigned, in consideration of the leasing of the Leased Premises
described in the attached Lease to the Tenant therein mentioned, at the request
of the undersigned and on the faith of this Guaranty, hereby absolutely,
unconditionally and irrevocably guarantee to Lessor the full and complete
performance of all of the Tenant's covenants and obligations under said Lease,
including extension, renewal or holdover thereof, and the full payment by Tenant
of all Annual Base Rent, Annual Percentage Rent, additional rent and all other
charges and amounts required to be paid under the Lease, and the undersigned
will pay all Lessor's expenses,, including attorney's fees, incurred in
enforcing the obligation of Tenant under said Lease, or incurred in enforcing
this Guaranty.
The undersigned hereby waive all requirements of notice of the acceptance
of this Guaranty A. The undersigned's obligation hereunder shall remain fully
binding although: (a) Lessor may have waived one or more defaults by Tenant,,
extended the time of performance by Tenant, modified or amended the Lease,
released returned or misapplied other collateral given later as additional
security (including other guaranties) or released Tenant from the performance of
its obligation under such Lease; or (b) Tenant may have assigned, sublet or
otherwise transferred the Lease.
The undersigned shall not be subrogated to any of the rights of Lessor
under the Lease or in or to the Premises described therein, or to any other
rights of Lessor, by reasons of any of the provisions of this Guaranty or by
reason of the performance by the undersigned of any of its or their obligations
under this Guaranty.
This Guaranty shall survive expiration or termination of the Lease.
Without limiting the generality of the foregoing, the undersigned hereby
acknowledge that if the holder of any mortgage, deed of trust, underlying ground
lease, holder of any like encumbrance or purchaser at foreclosure shall succeed
to the interests of Lessor under this Lease, the undersigned shall continue as
guarantors of the Lease and said Guaranty shall remain in full force and effect
for the benefit of any holder of said encumbrances or foreclosure purchaser, as
the case may be.
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If this Guaranty is signed by more than one person, their obligations shall be
joint and several and the release of one such guarantor shall not release any
other of such guarantors. This Guaranty shall be binding upon the undersigned
and their respective heirs, executors, administrators, representatives,
successors and assigns.
GUARANTOR:
____________________________________
Jeffrey R. Budd
GUARANTOR:
____________________________________
Graydon E. Beatty
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<PAGE>
LEASE MODIFICATION AND EXTENSION AGREEMENT
THIS LEASE MODIFICATION AND EXTENSION AGREEMENT is made this 6th day of February
1995, by and between PORT AUTHORITY OF THE CITY OF ST. PAUL, a public body of
Corporate and politic created pursuant to Chapter 469 of Minnesota statutes,
herein called "Lessee" and ENDOCARDIAL SOLUTIONS, INC., a Minnesota Corporation
herein called "Lessee".
RECITALS
WHEREAS, by a lease dated Sept. 15 1993, ENDOCARDIAL THERAPEUTICS, INC. did
lease to Lessee Suite(s) 110E on the first floor(s) in that certain office
building known as ENERGY PARK PLACE EAST BUILDING located at 1350 Energy Lane,
St. Paul, Minnesota 55108 . Said space consists of approximately 12,517 rentable
square feet, is shown in Exhibit A attached to said lease, and is herein called
the "premises" and the "existing space"; and
WHEREAS, Lessee is the successor to the interests of Endocardial Solutions,
Inc. under said lease; and
WHEREAS, the term of said lease is scheduled to expire on September 30 1996
and
WHEREAS, the parties wish to add certain space to the premises, extend the
term of said lease, and make certain changes to said lease.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in said lease, the parties hereto agree as follows:
1. ENLARGEMENT OF PREMISES: Effective as of April 1 1995, the
description of the premises contained in said lease is amended so as to add
Suite(s) 107E consisting of approximately 2,157 rentable square feet and
hereinafter called the "additional space". As of April 1, 1995, the total space
(hereinafter called the "enlarged premises") leased to Lessee under said lease
shall consist of a total area of approximately 14,674 rentable square feet. The
enlarged premises are generally shown on the floor plan(s) attached hereto as
Exhibit "A", which exhibit is made a part hereof by this reference. As of April
1, 1995, that certain Exhibit "A" attached to said lease is hereby superseded
(by Exhibit "A" attached hereto) and of no further force and effect.
2. EXTENSION OF LEASE TERM: The term of said lease is hereby extended
(for the enlarged premises) for period of six (6) months from October 1, 1996 to
and including March 31 ,1997 unless otherwise terminated as provided in said
lease.
3. RENT: As of April 1 1995, the monthly base rent payable under said
lease shall be increased by
$1,188.15/$6. 61psf net) per month for the extended term of said lease, said
rent for Suite 110E for the period 10/1/96-3/31/97 shall be $4.95/psf net
(12,517 rsf). The base rent, as increased herein, shall continue to be, payable
in advance by the first of each month and subject to Lessee's total share of
common area maintenance, taxes, HVAC< electrical, janitorial and garbage. If
the additional space is added to the premises on a date other than the first or
last day of the month, the resulting increase in rent shall be prorated for such
partial month.
4. CONDITION OF EXISTING AND ADDITIONAL SPACE: Lessee is presently in
possession of the existing space and accepts same for said extended term in its
present condition as of the date hereof. Lessee has inspected the additional
space and accepts same in its present condition as of the date hereof. Any
improvements to be done by Lessee to the additional space shall be at Lessee's
sole cost and expense, and shall be performed in accordance with the provisions
of in said lease.
5. OTHER LESSEE(S) IN POSSESSION OF ADDITIONAL SPACE: The additional
space is presently occupied by other lessee(s) who intend(s) to vacate said
additional space prior to February 28, 1995. Lessee agrees not to hold Lessor
in any way responsible for any delay by such other lessee(s) in vacating the
additional space, except that the provisions of this Agreement shall not become
effective until such date as the additional space has been vacated by such other
lessee(s). This Agreement is subject to the full execution of a lease
termination of the existing lessee.
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<PAGE>
6. AUTHORITY: If Lessee is a corporation, each individual executing this
Agreement on behalf of such corporation represents and warrants that Lessee is a
duly authorized and existing corporation, that such corporation has (and is
qualified to do) business in the State of Minnesota, that such corporation has
full right and authority to enter into this Agreement, and that each person
signing this Agreement on behalf of such corporation is authorized to do so.
If Lessee is a division or subsidiary of a corporation:
(a) Each of the persons executing this Agreement on behalf of Lessee
does hereby covenant and warrant that the parent corporation is a duly
authorized and existing corporation, that Lessee or the parent corporation has
(and is qualified to do) business in the State of Minnesota, that Lessee has
full right and authority to enter into this Agreement on behalf of the parent
corporation as well as on its own behalf, and that each person signing this
Agreement on behalf of Lessee was authorized to do so; and
(b) Lessee shall, within 30 days after request by Lessor, deliver to
Lessor a certified copy of a resolution of the Board of Directors of the parent
corporation authorizing or ratifying the execution of this Agreement.
If Lessee is a partnership, each individual executing this
Agreement on behalf of said partnership represents and warrants that he or she
is duly authorized to sign and deliver this Agreement on behalf of said
partnership and that this Agreement is binding upon said partnership in
accordance with its terms.
If this Agreement is signed by only one person on behalf of
Lessee, that person represents and warrants to Lessor that his or her signature
alone is sufficient to bind Lessee to the provisions of this Agreement.
7. MISCELLANEOUS:
(a) The provisions of this Lease Modification and Extension Agreement
shall be fully applicable to the enlarged premises and shall remain in full
force and effect for the duration of the term of said lease, as extended herein.
(b) Except as otherwise set forth herein, all of the terms and
conditions of said lease shall remain in full force and effect, and shall be
fully applicable to the additional space as well as the existing space,
throughout the duration of the term of said lease, as extended herein. Said
lease, as amended and extended herein, constitutes the entire agreement between
the parties hereto, and no further modification of said lease shall be binding
unless evidenced by an agreement in writing signed by Lessor and Lessee.
(c) The captions and paragraph numbers appearing in this Agreement
are inserted only as a matter of convenience and in no way define, limit,
construe, affect or describe the scope or intent of the provisions in this
Agreement.
8. This Lease Modification and Extension Agreement will not be in effect
until duly signed by Lessor and Lessee.
9. IMPROVEMENTS/RENT CREDIT: Provided Lessee is not in default, and
Lessee completes the following at Lessee's expense:
A) Tie in all stray electrical lines in Suite 107E to a common meter
in Suite 110E.
B) Spend a minimum of $7,000 for HVAC economizers in Suite 110E.
C) Spend a minimum of $13,000 for the electrical upgrade to 800 amp
service.
D) Make HVAC modifications already agreed to for Suite 110E per the
September 16, 1994 phase Improvements Agreement with the property
manager,
Lessee shall receive a $20,000 rent credit spread evenly over the
months April 1, 1995 to September 30, 1995.
10. RIGHT OF CANCELLATION: Article 50 is hereby deleted with no further
force or effect.
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11. EXTENSION OF TERM: Article 53 shall be modified as follows:
Term (A): Add the following: Annual rent for Suite 107E shall be equal
to market rent as of the commencement of that extended term, but in no
event greater than $6.61/psf net plus Lessee's share of all operating
expenses.
Term (C): The term shall be three (3) years commencing upon expiration
of the extended term.
12. LONG TERM EXPANSION: In the event Lessee's expansion needs cannot be
accommodated at 1350 Energy Lane, the Port Authority of the City of Saint Paul
will receive a first option of expansion notice for Lessee's new location
requirement and will receive the opportunity to present options to stay in St.
Paul. This is a first right, but not an exclusive right and is not a restrictive
right.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease Modification
and Extension Agreement as of the day and year first above written
LESSOR LESSEE
PORT AUTHORITY OF THE CITY OF SAINT PAUL ENDOCARDIAL SOLUTIONS, INC.
By By
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Its Its
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By By
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Its Its
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EXHIBIT A
ENERGY PARK PLACE EAST
[MAP]
<PAGE>
CB COMMERCIAL
REAL ESTATE GROUP, INC.
February 7, 1995
VIA FAX
FAX: 644-7897
Mr. Dick Omilanowicz
Vice President Manufacturing
ENDOCARDIAL SOLUTIONS, INC.
1350 Energy Lane
Energy Park Place East #110E
St. Paul, MN 55108
RE: UPDATED LEASE PROPOSAL AT ENERGY PARK PLACE
Dear Dick:
On behalf of The Port Authority of the City of Saint Paul, CB Commercial Real
Estate Group, Inc. is pleased to present this updated proposal to ENDOCARDIAL
SOLUTIONS, INC. (ETI) to expand and extend its lease at Energy Park Place on the
following terms and conditions:
1. SUBJECT SPACE: 1350 Energy Lane, St. Paul, Minnesota 55108 (approximate
square footage):
Expansion: 107E 1,409 RSF Office
748 RSF Warehouse
---
2,157 RSF TOTAL
Existing: 110E 12,517 RSF
------
14,674 RSF TOTAL
2. LEASE TERM: Commencing April 1, 1995, or upon occupancy, whichever shall
first occur. Tenant will have occupancy in Suite 107E for construction of
improvements once the existing tenant vacates (March 1, 1995 estimated).
Expanding coterminous (one year, six months) with the current expiration
9/30/96, plus six (6) additional months for a new master expiration of March 31,
1997.
3 NET LEASE RATES:
Suite Months Rate PSF Blended Net Rate
107E 04/01/95 - 03/31/97 $8* net office $6.61*/RSF Net
(24 months) $4* net warehouse
110E 10-/01/96 - 03/31/97 $4.95* $4.95*/RSF Net
(6 months)
* TENANT ALSO RESPONSIBLE FOR ITS SHARE OF TOTAL ESTIMATED OPERATING EXPENSES
FOR TERM
4. 1995 ESTIMATED OPERATING EXPENSES: Tenant is responsible for its total
share of real estate taxes, common area maintenance (CAM) and heating,
ventilation, air conditioning and water supply (HVAC) costs for the term.
1995: $5.70/RSF ESTIMATED TAX/CAM/HVAC
<PAGE>
Mr. Dick Omilanowicz
February 7, 1995
Page 2
5. IMPROVEMENT: As is. Any improvements will be Tenant's expense. Tenant
must obtain a performance payment bond on all improvements over $10,000 and use
licensed, bonded, insured contractors. Tenant must comply with Energy Park HVAC
regulations. All plans must have prior Landlord approval. Tenant is
responsible for all architectural and demolition costs. Tenant must SEPARATE
the electrical wiring at Tenant's expense, in the expansion space, Suite 107 E,
tying it into one common meter in its existing separately metered Suite 110E, in
the event it is not separately metered. Tenant agrees to spend a minimum of
$7,000 for HVAC economizers in its existing suite, and $13,000 for the
electrical upgrade to 600 amp service by April 1, 1995, for which Tenant will
receive a $20,000 rent credit spread evenly over the months April 1, 1995 to
September 30, 1995. Tenant will also make HVAC modification already agreed to
for their existing space (the September 16, 1994 Phase 11 Imp.) agreement with
the property manager.
6. ELECTRICAL COSTS: Tenant is also responsible for its share of separately
metered electrical from NSP for the entire term.
7. JANITORIAL COSTS/GARBAGE COSTS: Tenant's responsibility.
8. RIGHT OF CANCELLATION: The only remaining Tenant's right of cancellation
will be made null and void with no further force or effect.
9. FIRST MONTH'S RENT: Due is the first month's gross rent when Tenant signs
lease.
10. OPTION TO RENEW: Renewal terms for Suite 107E will be at market, not to
exceed $6.61 per rentable square foot. The current option to renew on the
existing suite will be moved six months out.
11. REPRESENTATION: CB Commercial represents only the Landlord in this
transaction.
12. LEASE FORM: Landlord's standard lease form for your attorney's review.
13. LONG TERM EXPANSION: In the event Tenant's expansion needs cannot be
accommodated at 1350 Energy Lane, the Port Authority will receive a first option
of expansion notice for Tenant's new location requirement and will receive the
opportunity to present options to stay in St. Paul. This is a first right, but
not an exclusive right, and is not a restrictive right.
14. CONTINGENCIES: This proposal is contingent upon:
1) A signed proposal by FEBRUARY 10, 1995.
2) A lease execution by February 10, 1995.
3) A lease commencement on April 1, 1995.
3) Final terms and legal language approved by Landlord.
4) Existing tenant signing a termination and relocation agreement by
February 10, 1995.
4) Removal of existing tenant.
5) Other outstanding proposals.
6) Review of Tenant's latest audited corporate financial statements.
7) Landlord reserves the right to withdraw from negotiations at any time
for any reason. Only an executed lease amendment will bind the
parties.
<PAGE>
Mr. Dick Omilanowicz
February 7, 1995
Page 3
This aggressive financial package outlined above, combined with the following
benefits, should make a Lease renewal and expansion at Energy Park Place the
clear choice.
A. Convenient access/central location
B. Professionally landscaped
C. Free parking - subject to availability
D. Bus service - subject to MTC changes
E. Restaurants in the area
F. Neighboring hotels
G. Business services in the area
H. Professional image/mature landscaping
I. Expansion space may be available
J. Conference rooms/two-story atriums on site
K. Vending machines on site
L. Institutional Landlord
M. Professional property management with 24-hour emergency service
N. Sprinklered suites
O. Security service tours property
P. Recycling service available
Dick, we are eager to work with ENDOCARDIAL SOLUTIONS, INC. to put together a
Lease amendment that meets both your needs and those of The Port Authority of
the City of Saint Paul. Please sign below with acceptance of this non-binding
proposal, fax a copy, along with the financials, to my attention. If you have
any questions regarding this proposal, please do not hesitate to call me.
Thanks.
Very truly yours, AGREED AND ACCEPTED:
ENDOCARDIAL SOLUTIONS, INC.
Gerald P. Driessen
Senior Associate By:
(612) 924-4617 -------------------------------
Its:
------------------------------
Date:
-----------------------------
cc: Tanya Bell/CB Commercial Brokerage Services
Kathy Marinac/CB Commercial Property Management
Bill Morin/Port Authority of the City of St. Paul
CONSULT YOUR ADVISORS - THIS DOCUMENT HAS BEEN PREPARED FOR APPROVAL BY YOUR
ATTORNEY. NO REPRESENTATION OR RECOMMENDATION IS MADE BY CB COMMERCIAL AS TO
THE LEGAL SUFFICIENCY OR TAX CONSEQUENCES OF THIS DOCUMENT OR THE TRANSACTION
TO WHICH IT RELATES. THESE ARE QUESTIONS FOR YOUR ATTORNEY.
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON,
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS, LEAD PAINT AND UNDERGROUND
STORAGE TANKS.
THE PARTIES HERETO AGREE TO COMPLY WITH ALL APPLICABLE FEDERAL, STATE AND LOCAL
NEWS, REGULATIONS, CODES, ORDINANCES, AND ADMINISTRATIVE ORDERS HAVING
JURISDICTION OVER THE PARTIES, PROPERTY OR THE SUBJECT MATTER OF THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, THE 1964 CIVIL RIGHTS ACT AND ALL AMENDMENTS
THERETO, THE FOREIGN INVESTMENT IN REAL ESTATE PROPERTY TAX ACT, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT AND THE
AMERICANS WITH DISABILITIES ACT.
<PAGE>
CB COMMERCIAL
REAL ESTATE GROUP, INC.
February 7, 1995
VIA FAX
FAX: 644-7897
Mr. Jeff Budd
ENDOCARDIAL SOLUTIONS, INC.
1350 Energy Lane
Energy Park Place East #110E
St. Paul, MN 55108
RE: LEASE MODIFICATION AND EXTENSION AGREEMENT DATE FEBRUARY 6,1995
Dear Jeff:
This letter is to modify your most recent Lease Modification and Extension
Agreement dated February 6, 1995, with the change made to Clause II-C. The
electrical upgrade will now be changed to a 400-amp service.
Additionally, Dick Omilanowicz has requested to remove the supplemental cooling
unit which is currently being installed into your clean room area if Endocardial
Solutions were ever to vacate in the future. The St. Paul Port Authority is in
agreement with this as long as the entire space is adequately heated and cooled
with approved HVAC equipment connected to the Energy Park Utility Plant. All
holes, gaps and any other modifications would be required to restore this area
to an acceptable standard by the Landlord.
As previously mentioned, you have been approved to go ahead with the tenant
improvement work proposed and contracted directly by you and Watson-Forsberg Co.
This is in accordance to our discussions and Watson-Forsberg contract dated
March 23, 1995. This also includes the Yale Mechanical specs of March 14, 1995.
Please sign below with your approval and return the original copy to me. You
may reach me at the above mentioned numbers with any further questions.
Sincerely, ACCEPTED BY:
---------------------------
Katherine A. Marinac, CPM Name/Title
----------------------------
Date
<PAGE>
LEASE AMENDMENT NUMBER TWO
THIS LEASE AMENDMENT, is made this 16th day of May, 1995, by and between
Port Authority of the City of St. Paul, a Public Body Corporate and Politic,
created pursuant to Chapter 469 of Minnesota Statutes, herein called 'Lessor"
and Endocardial Solutions, Inc., an Minnesota Corporation, herein called
"Lessee'.
AGREEMENT
AS AN ADDITION TO CLAUSE NUMBER SEVEN 'OPERATING EXPENSES" in your Lease
dated September 15, 1993, and Lease Modification and Extension Agreement dated
February 6, 1995, the real estate tax language is amended as follows:
The space occupied by Tenant is subject to real estate taxation or a tax in
lieu thereof during the lease term. Nonetheless, the parties acknowledge that
because the Port Authority is a governmental agency, space in the Building not
leased to for-profit entities is exempt from real estate taxes. tenant's share
of Operating Expenses attributable to real estate taxes will be calculated based
on the following formula:
<TABLE>
<S> <C>
Total Building Real Estate Taxes Payable - Special Assessment = Per square foot rate
- -------------------------------------------------------------------------------------
Building's Total Taxable Rentable Square Footage
(Effective June 30th of Each Year and Payable Following Year)
Total Building Special Assessments For Real Estate Taxes = Per square foot rate
- --------------------------------------------------------------------------------
Building's Total Square Footage
Total per square foot rate x tenant's square footage = annual payment (paid monthly
per budget
estimate and adjusted to
actual expense each year)
</TABLE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease Amendment as
of the day and year first written above.
LESSOR: LESSEE:
Port Authority of Endocardial Solutions, Inc.
City of Saint Paul
By: By:
---------------------------- ------------------------------
Its: Its:
---------------------------- -------------------------------
By: By:
---------------------------- -------------------------------
Its: Its:
----------------------------- -------------------------------
<PAGE>
LEASE AMENDMENT NUMBER THREE
THIS LEASE MODIFICATION AND EXTENSION AGREEMENT is made this 4th day of
June, 1996, by and between the PORT AUTHORITY OF THE CITY OF ST. PAUL, a public
body corporate and politic, created pursuant to Chapter 469 of Minnesota
Statues, herein called 'Lessor", and ENDOCARDIAL SOLUTIONS, INC., a Delaware
corporation, herein called 'Tenant'.
RECITALS
WHEREAS, by a lease dated September 15, 1993, Endocardial Therapeutics,
Inc. did lease to Tenant Suite 110E on the first floor in that certain office
building known as Energy Park Place East Building, located at 1350 Energy Lane,
St. Paul, Minnesota. Said space consists of approximately 12,517 rentable
square feet, is shown in Exhibit A attached to said lease, and is herein called
the "premises' and the 'existing space'; and by Lease Modification and Extension
Agreement dated February 6, 1995, Tenant did lease Suite 107E and extended term;
and by Lease Amendment Number Two dated May 16, 1995, the tax clause was
modified; and
WHEREAS, the term of said lease is scheduled to expire on March 31, 1997;
and
WHEREAS, Tenant is the successor to the interests of Endocardial Solutions,
Inc., a Minnesota corporation under said Lease; and
WHEREAS, the parties wish to add certain space to the premises, extend the
term of said lease, and make certain changes to said lease.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in said lease, the parties hereto agree as follows:
1. ENLARGEMENT OF PREMISES: Effective as of July 1, 1996, the description
of the premises contained in said lease is amended so as to add Suite 1113E,
consisting of approximately 2,805 rentable square feet and hereinafter called
the "additional space". As of July 1, 1996, the total space (hereinafter called
the "enlarged premises") leased to Tenant under said lease shall consist of a
total area of approximately 17,479 rentable square feet. The enlarged premises
are generally shown on the floor plan attached hereto as Exhibit "A", which
exhibit is made a part hereof by this reference. As of July 1, 1996, that
certain Exhibit "A" attached to said lease is hereby superseded (by Exhibit "A'
attached hereto) and of no further force and effect.
2. EXTENSION OF LEASE TERM: The term of said lease is hereby extended
(for the enlarged premises) for a period of six (6) months from April 1, 1997,
to and including September 30, 1997, unless otherwise terminated as provided in
said lease.
3. RENT: The following increase in base rent payable shall be as follows
for the extended term of said lease.
SUITE DATES SF NET/SF MONTHLY NET
113E 7/l/96 - 11/30/96 900 $8.00 $600.00 Partial suite
(op. exp.
based only
on 900 SF)
12/l/96 - 9/30/97 2,805 $8.00 $1,870 Entire suite
<PAGE>
107E 4/l/97 - 9/30/97 2,157 $6.61 $1,188.15
110E 4/l/97 - 9/30/97 12,517 $4.95 $5,163.26
The base rent, as increased herein, shall continue to be payable in advance by
the first of each month and subject to operating expenses. If the additional
space is added to the premises on a date other than the first or last day of the
month, the resulting increase in rent shall be prorated for such partial month.
4. CONDITION OF EXISTING AND ADDITIONAL SPACE: Tenant is presently in
possession of the existing space and accepts same for said extended term in
its present condition as of the date hereof. Tenant has inspected the
additional space and accepts same in its present condition as of the date
hereof. Any improvements to be done by Tenant to the additional space shall
be at Tenant's sole cost and expense, and shall be performed in accordance
with the provisions of said lease. Pursuant to Sections 5 and 6 of this
lease, and provided Lessor approves plans, and contractors are licensed,
bonded and insured, and HVAC modifications comply with Energy Center
regulations, Tenant shall proceed to complete certain improvements to Suite
113E as shown on attached Exhibit D. Provided Tenant is not in default, and
in consideration of Tenant accepting the premises in "as-is" condition and
completing its own tenant improvements, Lessor agrees to reimburse Tenant for
the cost of building standard improvements, including architectural fees,
permits, performance payment bonds, demolition, and construction financing,
prior to September 1, 1996. The tenant improvement reimbursement shall be
given to Tenant in the form of Net Rent Abatement. Upon completion of tenant
improvements, Tenant shall present Lessor with copies of all invoices,
contractor unconditional lien releases and complete set of "As-Built"
drawings. Then, Tenant and Lessor agree to execute an amendment to this lease
setting forth the amount of Net Rent Abatement which shall be equivalent to
the actual amount Tenant spends on building standard improvements for Suite
113E, not to exceed $20,009.55 in Net Rent. If Tenant does not improve Suite
113E by said amount by September 1, 1996, said rent credit is null and void.
5. ELECTRICAL: Tenant will have access to an additional 200 amp
service, as designated and approved by property manager.
6. PALLET STORAGE: Tenant's pallet storage must comply with government
codes and Energy Park covenants. No exterior pallet storage is allowed.
7. PARKWAY LOT STRIPPING: Tenant will have the exclusive right to park
its automobiles immediately next to its loading dock. In the event
Lessor resurfaces the parking lot, Lessor will stripe automobile
parking stalls in front of Tenant's loading dock.
8. EXTENSION OF TERM: Article 53 of the Master Lease and Article 13 of
the First Amendment are hereby deleted, with no further force and effect, and
replaced with the following:
GRANT. Lessor hereby grants to Tenant the one-time option to extend the
Term upon the terms and conditions set out in this Article, if
(a) Tenant is not in default under this Lease, beyond the time to cure, at
the time such option is exercised and at the time such extension is to
commence, and
(b) Tenant delivers to Lessor, not later than March 31, 1997, written
notice exercising its option to extend the Term.
TERM. During the extended Term:
<PAGE>
(a) Annual Rent shall be equal to Market Rent as of the commencement of
that extended Term, but in no event greater than:
SUITE OPTION TERM SF RENT
-------------------------------------------
#113E 10/l/97 - 3/31/99 2,805 Market terms and conditions.
#107E 10/l/97 - 3/31/99 2,157 Market terms and conditions
not to exceed $6.61 Net.
#110E 10/l/97 - 9/30/98 12,517 Market terms and conditions,
not to exceed $5.10/RSF Net.
10/l/98 - 3/31/99 12,517 Market terms and conditions,
not to exceed $5.25/RSF Net.
(b) Occupancy costs shall be as determined in the manner set out in
Lessor's then current standard form of Lease for the Building.
(c) the Term shall be eighteen (18) months, commencing upon expiration of
the original Term; and
(d) the other terms and conditions shall be as set out in this Lease,
except that there shall be no further right of renewal.
DOCUMENTATION. Lessor and Tenant shall execute and deliver appropriate
documentation to evidence extension of the Terms and terms and conditions of
this Lease during the extended Term.
NON-SEVERABILITY. The rights of Tenant under this Article will not be
severed from this Lease or separately sold, assigned or otherwise transferred,
and shall expire on the expiration or earlier termination of this Lease.
9. EXPANSION SPACES Article 52 of the Master Lease is hereby deleted with
no further force or effect.
10. AUTHORITY: If Tenant is a corporation, each individual executing this
Agreement on behalf of such corporation represents and warrants that Tenant is a
duly authorized and existing corporation, that such corporation has (and is
qualified to do) business in the State of Minnesota, that such corporation has
full right and authority to enter into this Agreement, and that each person
signing this Agreement on behalf of such corporation is authorized to do so.
If Tenant is a division or subsidiary of a corporation:
(a) Each of the persons executing this Agreement on behalf of Tenant does
hereby covenant and warrant that the parent corporation is a duly authorized and
existing corporation, that Tenant or the parent corporation has (and is
qualified to do) business in the State of Minnesota, that Tenant has full right
and authority to enter into this Agreement on behalf of the parent corporation
as well as on its own behalf, and that each person signing this Agreement on
behalf of Tenant was authorized to do so; and
(b) Tenant shall, within 30 days after request by Lessor, deliver to
Lessor a certified copy of a resolution of the Board of Directors of the parent
corporation authorizing or ratifying the execution of this Agreement.
<PAGE>
If Tenant is a partnership, each individual executing this Agreement on
behalf of said partnership represents and warrants that he or she is duly
authorized to sign and deliver this Agreement on behalf of said partnership and
that this Agreement is binding upon said partnership in accordance with its
terms.
If this Agreement is signed by only one person on behalf of Tenant, that
person represents and warrants to Lessor that his or her signature alone is
sufficient to bind Tenant to the provisions of this Agreement.
11. MISCELLANEOUS:
(a) The provisions of this Lease Modification and Extension Agreement
shall be fully applicable to the enlarged premises and shall remain in full
force and effect for the duration of the term of said lease, as extended herein.
(b) Except as otherwise set forth herein, all of the terms and conditions
of said lease shall remain in full force and effect, and shall be fully
applicable to the additional space as well as the existing space, throughout the
duration of the term of said lease, as extended herein. Said lease, as amended
and extended herein, constitutes the entire agreement between the parties
hereto, and no further modification of said lease shall be binding unless
evidenced by an agreement in writing signed by Lessor and Tenant.
(c) The captions and paragraph numbers appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
affect or describe the scope or intent of the provisions in this Agreement.
12. This Lease Modification and Extension Agreement will not be in effect
until duly signed by Lessor and Tenant.
IN WITNESS WHEREOF, Lessor and Tenant have executed this Lease Modification and
Extension Agreement as of the day and year first above written.
LESSOR: TENANT:
PORT AUTHORITY OF THE CITY OF SAINT PAUL ENDOCARDIAL SOLUTIONS, INC.
By: By:
------------------------------------ ------------------------------
Its: Its:
------------------------------------ ------------------------------
By: By:
------------------------------------ ------------------------------
Its: Its:
------------------------------------ ------------------------------
MTA009.GPD
CONSULT YOUR ATTORNEY: This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the
legal sufficiency, legal effect, or tax consequence of this document or the
transaction to which it relates. These are questions for your attorney and
financial advisors.
<PAGE>
EXHIBIT A
ENLARGED PREMISES
[MAP]
<PAGE>
EXHIBIT D
[MAP]
<PAGE>
EXHIBIT D
LUND
MARTIN
CONSTRUCTION, INC.
MR. DICK OMILANOWICZ
ENDOCARDIAL SOLUTIONS, INC.
1350 ENERGY LANE, SUITE 110
ST. PAUL, MN 55108
ESTIMATE SUMMARY PROJECT: Endocardial Solutions, Inc.
Per plans from Carlsen & Frank Office Expansion
Architects dated February 22, 1996
with changes as noted below DATE: March 13, 1996
FROM: Michael Snyder
<TABLE>
<CAPTION>
DESCRIPTION COST
<S> <C>
Demolition $3,330
Carpentry $1,610
Millwork New base cabinet, top, and upper in Coffee Rm #110 $760
Doors, Frames, Hardware New hardware only, reuse all doors / frames $463
Drywall $1,640
Tile $760
Acoustical Ceiling $1,828
Flooring Does not include new VCT in Engineering Lab #109 per plan $5,838
Painting $3,315
Mechanical $985
Fire Protection $860
Electrical $6,550
Low Voltage Wiring $4,950
General Conditions Supervision, Permit, Bond, Etc. $2,139
- -----------------------------------------------------------------------------------------------------
SUBTOTAL $35,028
Fee 8% $2,802
- -----------------------------------------------------------------------------------------------------
ESTIMATE TOTAL $37,830
-------
</TABLE>
CLARIFICATIONS
No. 1: All work to be completed during normal working hours.
No. 2: The floor in the Engineering Lab #109 will be scraped clean. Some
carpet glue residue may remain.
An equal opportunity employer.
<PAGE>
MASTER LEASE AGREEMENT
COMDISCO, INC. - LESSOR
MASTER LEASE AGREEMENT dated November 15, 1994 by and between COMDISCO, INC.
("Lessor") and Endocardial Solutions, Inc. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14-19):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Schedule.
In the event of a conflict, the terms of a Schedule prevail over this Master
Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the term
of a Schedule will begin and continue through the Initial Term and thereafter
until terminated by either party upon prior written notice received during the
Notice Period. No termination may be effective prior to the expiration of the
Initial Term.
3. Rent and Payment.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any
payment is not made when due, Lessee will pay interest at the Overdue Rate.
Upon Lessee's execution of each Schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any remittance upon statements made by the Lessor.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb Lessee's
quiet and peaceful possession, and unrestricted use of the Equipment. To the
extent permitted by the manufacturer, Lessor assigns to Lessee during the term
of the Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES
NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A
PARTICULAR PURPOSE. Lessor is not responsible for any liability, claim, loss,
damage or expense of any kind (including strict liability in tort) caused by the
Equipment except for any loss or damage caused by the negligent acts of Lessor.
In no event is Lessor responsible for special, incidental or consequential
damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the
rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's
name precautionary Uniform Commercial Code financing statements showing the
interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Schedules as appropriate. Lessee
will, at its expense, keep the Equipment free and clear from any items or
encumbrances of any kind (except any caused by Lessor) and will indemnify and
hold Lessor, Owner, any Assignee and Secured Party harmless from and against any
loss caused by Lessee's failure to do so.
5.2 Relocation or sublease. Upon prior written consent, Lessee may
relocate Equipment to any Location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax,
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) the sublease is
not to a leasing entity affiliated with the manufacturer of the Equipment
described on the Schedule. Lessor acknowledges Lessee's right to sublease for a
term which extends beyond the expiration of the Initial Term. If Lessee
subleases the Equipment for a term extending beyond the expiration of such
Initial Term of the applicable Schedule, Lessee will remain obligated upon the
expiration of the initial Term to return such
<PAGE>
Equipment, or, at Lessor's sole discretion to (i) return like Equipment or (ii)
negotiate a mutually acceptable lease extension or purchase. If the parties
cannot mutually agree upon the terms of an extension or purchase, the term of
the Schedule will extend upon the original terms and conditions until terminated
pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and will
not materially change Lessee's duties or materially increase the burdens or
risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor.
The Secured Party will not disturb Lessee's quiet and peaceful
possession and unrestricted use of the Equipment so long as Lessee is
not in default and the Secured Party continues to receive all Rent
payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor.
Lessee reserves its right to have recourse directly against Lessor for
any defense or claim,
(c) Subject to and without impairment of Lessee's Leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the
extent of the Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts is absolute and unconditional and
is not subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Attachments and Reconfigurations; and Inspection
by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available, Lessee will
maintain in force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and will provide Lessor with a
complete copy of that contract. If Lessee has the Equipment maintained by a
party other than the manufacturer, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment are eligible for
manufacturer's maintenance at the expiration of the lease term. The lease term
will continue upon the same terms and conditions until rectification has been
obtained.
7.2 Attachments and Reconfigurations. Upon receiving the prior written
consent of Lessor, Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessee will,
upon return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of reconfiguration will be accessions to the Equipment.
7.3 Inspection by Lessor. Upon request, Lessee, during reasonable business
hours and subject to Lessee's security requirements, will make the
Equipment and its related log and maintenance records available to Lessor
for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the taws of the jurisdiction of its incorporation,
is duly qualified to do business in each jurisdiction (including the
jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires
such
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qualification; and has full corporate power and authority to hold
property under the Master Lease and each Schedule and to enter into
and perform its obligations under such Lease.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duty authorized by
all necessary corporate action on the part of the Lessee, and the
Master Lease and each Schedule are not inconsistent with the Lessee's
Certificate of Incorporation or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee,
enforceable in accordance with their terms.
(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the
Lessee in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse
effect on the ability of the Lessee to perform its obligations under
the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable Law.
(e) The Lessee has no material Liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the Liabilities
and obligations of the Lessee as set forth in the Financial Statements
and Liabilities and obligations which have occurred in the ordinary
course of business, and which have not been, in any case or in the
aggregate, materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all
patents, patent applications, trademarks, trade names, inventions,
franchises, licenses, permits, computer software and copyrights
necessary for the operations of its business as now conducted, with no
known infringement of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with
their respective terms, subject to the effect of applicable bankruptcy
and other similar laws affecting the rights of creditors generally,
and rules of law concerning equitable remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Schedule, Lessee shall,
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitations expenses of transportation and in-transit insurance), return
the Equipment to Lessor in the same operating order, repair, condition and
appearance as when received, less normal depreciation and wear and tear. Lessee
shall return the Equipment to Lessor at its address set forth herein or at such
other address within the continental United States as directed by Lessor,
provided, however, that Lessee's expense shall be Limited to the cost of
returning the equipment to Lessor's address as set forth herein. During the
period subsequent to receipt of a notice under Section 2, Lessor may demonstrate
the Equipment's operation in place and Lessee will supply any of its personnel
as may reasonably be required to assist in the demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. Indemnity.
Lessee will indemnify and hold Lessor, any Assignee and any Secured Party
harmless from and against any and
all claims, costs, expenses, damages and liabilities, including reasonable
Attorneys' fees, arising out of the ownership (for strict liability in tort
only), selection, possession, leasing, operation, control, use, maintenance,
delivery, return or other disposition of the Equipment. However, Lessee is not
responsible to a party indemnified hereunder for any claims, costs, expenses,
damages and liabilities occasioned by the negligent acts of such indemnified
party. Lessee agrees to carry bodily injury and property damage Liability
insurance during the term of the Master Lease in amounts and against risks
customarily insured against by the Lessee on equipment owned by it. Any amounts
received by Lessor under that insurance will be credited against Lessee's
obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or Loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the Lessor of cancellation or
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expiration, and will insure Lessor's interests regardless of any breach or
violation by Lessee of any representation, warranty or condition contained in
such policies and will be primary without right of contribution of any insurance
effected by Lessor. Upon the execution of any Schedule, the Lessee will furnish
appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that Loss to Lessor and Lessee will,
at Lessor's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty
made by the Lessee in the Schedule or in any document or certificate
furnished to the Lessor hereunder if that failure or inaccuracy
continues for ten (10) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under
any bankruptcy or insolvency Law or for the appointment of a trustee
or other officer with similar powers, the adjudication of Lessee as
insolvent, the Liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent
due under the defaulted Schedule (discounted at the same rate of
interest at which such defaulted Schedule was discounted with a
Secured Party plus any prepayment fees charged to Lessor by the
Secured Party or, if there is no Secured Party, then discounted at 6%)
together with all Rent and other amounts currently due as liquidated
damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove
and repossess the Equipment without being Liable to Lessee for damages
due to the repossession, except those resulting from Lessors, its
assignees', agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSORS RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, Lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term
less the Default Costs; or
(b) if leased, the present value (discounted at three points over the
prime rate as referenced in the Wall Street Journal at the time of the
mitigation) of the rentals for a term not to exceed the initial Term,
less the Default Costs.
4
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Any proceeds will be applied against Liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Lessor or its duly appointed representative will
have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Lease.
14.2 Financial Statements. Lessee will provide to Lessor the financial
statements specified in this Section, prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not Less than a monthly income statement, balance sheet and statement of
cash flows, certified by Lessee's Chief Executive or Financial officer to be
true and correct; and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets as
of the end of such year (consolidated if applicable), and related statements of
income or Loss, retained earnings or deficit and changes in the financial
position and capital structure of Lessee for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result of which would allow the Lender or any secured party to
demand immediate payment of the indebtedness; (iii) there is a material adverse
change in Lessee's credit standing; or (iv) Lessor determines (in reasonable
good faith) that Lessee will be unable to perform its obligations under this
Master Lease.
14.4 Merger and Sate Provisions. Lessee will notify Lessor of any proposed
Merger at (east sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Tern)(s) of all Schedules, and will return
the Equipment in accordance with Section 9.
14.5 Entire Agreement. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE
PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
on the same day as sent via facsimile transmission, provided that the original
is sent by personal delivery or mail by the receiving party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO
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CONFLICT OF LAW PROVISIONS. NO RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF
THE UNIFORM COMMERCIAL CODE WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED
IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, Legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
14.13 Nonspecified Features and Licensed Products. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee will obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.14 Additional Documents. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with a purchase price
in, excess of $1,000,000, Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 Lessor's Right to Match. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party
offer and Lessor will have three (3) business days to match the offer. Lessee
will obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgages Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.18 Equipment Procurement Charges/Progress Payments. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Lease.
14.19 Definitions.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
ATTACHMENT - means any accessory, equipment or device and the installation
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
CASUALTY LOSS - means the irreparable Loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT CERTIFICATE - means the Lessor provided certificate which must be
signed by Lessee within ten (10) days of the Commencement Date as requested by
Lessor.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
EQUIPMENT - means the property described on a Schedule and any replacement for
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
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EVENT OF DEFAULT means the events described in Subsection 13.1.
FAIR MARKET Value means the aggregate amount which would be obtainable in an
arm's length transaction between an informed and written buyer/user and an
informed and writing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INSTALLATION DATE - means the day on which Equipment is installed and qualified
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the initial Term.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is Lien free and of the same
model, type, configuration and manufacture as Equipment.
LIKE PART - means a substituted part which is then free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets of the Lessee to any other person or entity or any stock acquisition of
the Lessee by any other person or entity.
NOTICE PERIOD - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
OVERDUE RATE - means the lesser of five percent (5%) of the payment due or the
maximum rate permitted by the taw of the state where the equipment is located.
OWNER - means the owner of Equipment.
RECONFIGURATION - means any change to equipment that would upgrade or downgrade
the performance capabilities of the Equipment in any way.
RENT - means the rent, including interim Rent, Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT SCHEDULE - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means an Equipment Schedule which incorporates all of the terms and
conditions of this Master Lease and, for purposes of Section 14.12, its
associated Commencement Certificate(s).
SECURED PARTY - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
ENDOCARDIAL SOLUTIONS, INC. COMDISCO, INC.
as Lessee as Lessor
By: By:
------------------------------ -----------------------------------
James Bullock K.A. Halverson
Title: Title:
-------------------------- ------------------------------
President & CEO President
By:
---------------------------
Leota Paulsen
Title:
------------------------
Controller
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EXHIBIT A
(MULTIPLE QUARTER DELIVERY
SCHEDULE NO. VL-1
DATED AS OF NOVEMBER 15, 1994
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 15, 1994 (-MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Leota Paulsen - Controller 6111 North River Road
phone (612) 644-7890 Rosemont, IL 60018
fax (612) 644-7897 Attn: Venture Lease Division
ADDRESS FOR NOTICES:
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attn: Leota Paulsen
CENTRAL BILLING LOCATION: PAYING AGENT
same as above Comdisco, Inc.
P.O. Box 91744
Chicago, Illinois 60693
Attn.:
Lessee Reference No.:______________
(24 digits maximum
LOCATION OF EQUIPMENT: INITIAL TERM: 36 MONTHS
same as above LEASE RATE FACTOR: 3.20%
Attn:
EQUIPMENT (as defined below): ADVANCE: $22,400.00
Item Machine Type/ Serial
No. Qty Manufacturer Feature Description Number Rent
-- --- ------------ ------- ----------- ------ ----
Provided Lessee successfully completes a round of equity
financing of at least $5 million ("Equity Round"), then Lessor
shall finance Equipment specifically approved by Lessor up to an
aggregate purchase price of $700,000.00 which shall be delivered
to and accepted by Lessee commencing on the closing date of the
Equity Round and continuing for 12 months thereafter and for
which Lessor receives vendor Invoices approved for payment not
including upgrades thereto and further excluding custom use
equipment, installation costs and delivery costs, rolling stock,
special tooling, custom equipment, "stand-alone" software, molds
and fungible item 3,- provided, however, $200,000.00 of the
$700,000.00 can be used for software and leasehold improvements.
After the initial six months of the twelve month take down
period, Lessor shall have the right to review Lessee's financial
condition and progress, and at Lessor' a option and discretion
the take down period shall be extended an additional six months
beyond the initial six month period at the same terms and
conditions as contained in this equipment schedule.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more than
twelve (12) months prior to the expiration of the lease term.-
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include at I Equipment purchased by
Lessor, consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. NONE
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
invoices containing the Equipment Location, description, serial number and cost,
an acceptance certificate upon acceptance of the Equipment by Lessee, the
Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter. Each Commencement
Certificate will incorporate the terms and conditions of the Master Lease and
this Schedule and will constitute a separate Schedule. Notwithstanding the
foregoing, if the Equipment pertains to Sale - Leaseback Equipment, then the
Commencement Date shall be the date that Lessor tenders the Purchase Price.
4. Option to Extend
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred twenty (120) days
written notice prior to the expiration of the Initial Term. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Lease shall continue in full force
and effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not Less than one hundred
twenty (120) days prior written notice, which notice shall be effective as of
the Rent Interval next following receipt.
5. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
one hundred twenty (120) days prior to the expiration of the initial Term,
Lessee will have the option at the expiration of the Initial Term of this
Schedule to purchase all, but not less than all, of the Equipment Listed herein
for a purchase price not to exceed 25% of Lessor's original cost and upon terms
and conditions to be mutually agreed upon by the parties following Lessee's
written notice, plus any taxes applicable at time of purchase. Said purchase
price shalt be paid to Lessor at Least thirty (30) days before the expiration
date of the Initial Term. Title to the Equipment shall automatically pass to
Lessee upon payment in full of the purchase price but, in no event, earlier than
the expiration of the fixed Initial Term. If the parties are unable to agree on
the purchase price or the terms and conditions with respect to said purchase,
then the Lease with respect to this Equipment shall remain in full force and
effect. It is agreed and understood that Lessor is retaining a purchase money
security interest in the Equipment listed herein and this Schedule shall
constitute a Security Agreement under the Uniform Commercial Code of the state
in which the Equipment is located. Lessor and Lessee agree that for purposes of
this paragraph, any Licensed software will not be considered part of the
Equipment.
6. Special Terms
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
a. Section 2, "Term"
In tine 1 after the word "Equipment", add the words "upon Lessee's
execution of an acceptance certificate or an approved invoice for
payment".
In line 2 after the word "begin", add the words "on the first day of
the next Rent Interval".
b. Section 3, "RENT AND PAYMENT"
In line 2 before the words "Interim Rent", add the word "No"; after
the words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
<PAGE>
In line 4 after the words "on the Schedule", add the words "not to
exceed one month's Rent".
c. Section 5.1, "Title"
In line 5 after the word "appropriate", delete the period and add the
words "provided Lessor promptly advises Lessee in writing, except as
provided in Sections 5.2 and 7.2."
d. Section 5.2, "RELOCATION OR SUBLEASE"
In Line 1 before the word "consent", delete the word "reasonable";
after the words "Secured Party", add the words ", which consent shall
not be unreasonably withheld".
To the end of the last paragraph of this Section, add the words ",
except as agreed to by Lessor in writing".
e. Section 5.3, "ASSIGNMENT BY LESSOR"
At the end of subsection (a), delete the word "and"
At the end of subsection (b), add the word "and".
f. Section 7.1, "CARE, USE AND MAINTENANCE"
To the end of this Section, add the followirg:
Lessor agrees that Lessee may self-maintain Equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained Equipment."
g. Section 7.2, "ATTACHMENTS AND RECONFIGURATIONS"
In Line 1 after the word "Lessor", add the words "which consent shall
not be unreasonably withheld".
h. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
i. Section 12, "RISK OF LOSS"
In Line 8 of the first paragraph after the word "will", insert the
words "upon request,".
In line 3 of the second paragraph after the word "will", insert the
words within the later of the date of Lessee's receipt of insurance
proceeds or thirty (30) days thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
j. Section 13.1 (c) "DEFAULT"
In line 1 delete the word "failure" and replace with the word
"inability"
k. Section 13.2, "REMEDIES"
In line 1 before the word "notice", insert the word "written".
l. Section 13.3, "MITIGATION"
In tine 1 of subsection (b), delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%)"; in Line 2 after the words "Initial
Term", add the words "or any extension thereof,".
m. Section 14.1, "BOARD ATTENDANCE"
In Line 1 after the word ",attend". insert the words "up to two (2)
per year of"; and in line 2 after the word "meetings", insert the
words "up to the expiration of the lease term".
<PAGE>
n. Section 14.2, "FINARCIAL STATEMENTS"
In Line 15, delete the words "tax returns".
o. Section 14.3, "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT"
In clause (ii), delete the words "would allow" and replace with the
words "has caused"; at the end of clause (ii), insert the word "; or";
at the end of clause (iii), delete the word "; or" and replace with a
period; delete clause (iv) in its entirety.
p. Section 14.4, "MERGER AND SALE PROVISIONS"
In line 5 after the word "documentation", insert the words "reasonably
requested and".
q. Section 14.7, "BINDING NATURE"
To the end of this Section, add the words "except with the prior
written consent of Lessor and as provided in Section 5.2".
r. Section 14.8, "SURVIVAL OF OBLIGATIONS"
In line 4, insert the word "and" between the words "execution" and
"delivery", delete the words "expiration or termination of this Master
Lease", and add the words "and the agreements and obligations provided
in Sections 6.2 and 11 of this Master Lease shall survive the
termination of the Master Lease".
s. Section 14.19, "DEFINITIONS"
In line 2 of the definition "Casualty Value" after the word "term",
add the words "discounted to present Value using a rule of six percent
(6%)".
To the end of the definition "Installation Date", add the words ", and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Overdue Rate", delete the words, "the
Lesser... payment due" and insert the words "interest at the
Lesser of 18% per annum"
In line 1 of the definition "Rent", delete the words", including
interim Rent,".
In Line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit A"
Master Lease: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease including, without Limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
Endocardial Solutions, Inc. COMDISCO MEDICAL EQUIPMENT GROUP, INC.
as Lessee as Lessor
By: By:
------------------------------ -----------------------------------
James Bullock K.A. Halverson
Title: Title:
-------------------------- --------------------------------
President & CEO President
By:
----------------------------
Leota Paulsen
Title:
-------------------------
Controller
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated ________ is executed pursuant to Schedule No. _____
to the Master Lease Agreement dated __________between Comdisco, Inc.
("Lessor") and ("Lessee"). All of the terms, conditions, representations and
warranties of the Master Lease and Schedule No. _____ are incorporated
herein and made a part hereof and this Commencement Certificate constitutes a
Schedule for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
(See attached Invoices)
2 DATE: (See attached invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT dated Nov 15, 1994 by and between COMDISCO MEDICAL
EQUIPMENT GROUP, INC. ("Lessor") and ENDOCARDIAL SOLUTIONS, ("Lessee").
IN CONSIDERATION of the mutual agreements described below the parties agree as
follows (all capitalized terms are defined in Section 14.13):
1. PROPERTY LEASED AND DEPOSIT.
1.1 PROPERTY LEASED. Lessor leases to Lessee all of the
Equipment described on each Schedule. In the event of a conflict, the
terms of a Schedule prevail over this Master Lease.
1.2 DEPOSIT. Upon the execution of an applicable Schedule,
Lessee will pay to Lessor a Deposit. So long as Lessee is not in
default of the applicable Schedule, Lessor will return the Deposit to
Lessee upon the expiration of the lease term for all items of
Equipment leased under the applicable Schedule. No interest will be
payable by Lessor to Lessee on the Deposit.
2. Term.
On the Commencement Date Lessee will be deemed to accept the
Equipment, will be bound to its rental obligations for each item of
Equipment and the term of a Schedule will begin and continue through
the Initial Term and thereafter until terminated by either party upon
prior written notice received during the Notice Period. No
termination may be effective prior to the expiration of the Initial
Term.
3. Rent and Payment.
Rent is due and payable in advance, in immediately available
funds, on the first day of each Rent Interval to the payee and at the
location specified in Lessor's invoice. Interim Rent is due and
payable when invoiced. If any payment is not made when due, Lessee
will pay interest at the Overdue Rate.
4. Selection and Warranty and Disclaimer of Warranties.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment
and disclaims any reliance upon statements made by the Lessor.
4.2 WARRANTY AND DISCLAIMER OF WARRANTY Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb Lessee's
quiet and peaceful possession, and unrestricted use of the Equipment. To the
extent permitted manufacturer, Lessor assigns to Lessee during the term of the
Schedule any manufacturers warranties for the Equipment. LESSOR MAKES NO OTHER
WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION. THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A
PARTICULAR PURPOSE. ITS COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessor is
not responsible for any liability, claim loss damage or expense of any kind
(including strict inability in loss) caused by the Equipment except for any loss
or damage caused by the negligent acts of Lessor. In no event is Lessor
responsible for special, incidental or consequential damages.
5. Title and Assignment.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the
rights of the Owner. Lessor any assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's
name precautionary Uniform Commercial Code financing statements showing the
interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Schedules as appropriate. Except as
provided in Sections 5.2 and 7.2, Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except any
caused by Lessor) and will indemnify and hold Lessor, Owner, any Assignee and
Secured Party harmless from and against any loss caused by Lessee's failure to
do so.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may
relocate Equipment to any location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax
and (if) all
additional costs (including any administrative fees additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the
Lessor and the Secured Party. Such consent to sublease will be granted if (i)
Lessee meets the relocation requirements set out above, (ii) the sublease is
expressly subject and subordinate to the terms of the Schedule, (iii) Lessee
assigns its rights in the sublease to Lessor and the Secured Party as additional
collateral security. (iv) Lessee's obligation to maintain and insure the
Equipment is not altered. (v) all financing statements required to continue the
Secured Party's prior acted security interest, are filed and the sublease is not
to a leasing entity affiliated with the manufacturer of the Equipment described
on the Schedule. Lessor acknowledges Lessee's right to sublease for a term
which extends beyond the expiration of the Initial Term. If Lessee subleases
the Equipment for a Term extending beyond the expiration of such Initial Term of
the applicable Schedule, Lessee shall remain obligated upon the expiration of
the Initial Term to return such Equipment, or, at Lessor's sole discretion to
(i) return Like Equipment of (ii) negotiate a mutually acceptable lease
extension or purchase. If the parties cannot mutually agree upon the terms of
an extension or purchase the term of the Schedule will extend upon the original
terms and conditions until terminated pursuant to Section 2.
<PAGE>
No relocation or sublease will relieve Lessee from any of its
obligations under this Master Lease and the applicable Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each
Schedule have been fixed by Lessor in order to permit Lessor to sell
and or assign or transfer its interest or grant a security interest in
each Schedule and/or the Equipment to a Secured Party or Assignee. In
that event the term Lessor will mean the Assignee and any Secured
Party. However. any assignment, sale, or other transfer by Lessor
will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens
or risks imposed on Lessee. The Lessee consents to and will
acknowledge such assignments in a written notice given to Lessee.
Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of
Lessor's rights. but will not be obligated to perform
any of the obligations of Lessor. The Secured Party
will not disturb Lessee's quiet and peaceful possession
and unrestricted use of the Equipment so long as Lessee
is not in default and the Secured Party continues to
receive all Rent, payable under the Schedule;
(b) Lessee will pay all Rent and all other amounts payable
to the Secured Party, despite any defense or claim
which it has against Lessor. Lessee reserves its right
to have recourse directly against Lessor for any
defense or claim: and
(c) Subject to and without impairment of Lessee's leasehold
rights in Equipment, Lessee holds the Equipment for the
Secured Party to the extent of the Secured Party's
rights in that Equipment.
6. Net Lease and Taxes and Fees.
6.1 NET LEASE. Each Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts is absolute and
unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any
reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse
Lessor to all taxes. fees or any other charges (together with any
related interest or penalties not arising from the negligence of
Lessor) accrued for or arising during the term of each Schedule
against Lessor, Lessee or the Equipment by any governmental authority
(except only Federal, state and local taxes on the capital or the net
income of Lessor). Lessor will file all personal property tax returns
for the Equipment and pay all property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days at receipt
of an invoice.
7. Care, Use and Maintenance, Attachments and Reconfigurations, Inspection
by Lessor, Records and Operating Regulations.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the
Equipment in good operating order and appearance, protect the
Equipment from deterioration, other than normal wear and tear, and
will not use the Equipment for any purpose other than that for which
it was designed. If commercially available, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and upon request
will provide Lessor with a complete copy of that contract. Lessee's
obligation regarding the maintenance of the Equipment will include,
without limitation, all maintenance and repair, recommended or advised
either by the manufacturer, government agencies or regulatory bodies
and those commonly performed by prudent business and/or professional
practice. Upon return of the Equipment, Lessee will provide a letter
from the manufacturer certifying that the Equipment meets all current
specifications of the manufacturer, is in compliance with all
pertinent governmental or regulatory rules, laws or guidelines for its
operation or use, is qualified for the manufacturer's maintenance
contract and is at then current release, revisions and engineering
change levels. If Lessee has the Equipment maintained by a party
other than the manufacturer. Lessee agrees to pay any costs necessary
for the manufacturer to bring the Equipment to then current release,
revision and engineering change levels, and to identify the Equipment
as eligible for manufacturer's maintenance at the expiration of the
lease term. The lease term will continue upon the same terms and
conditions until rectification, has been obtained.
7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon prior written notice to
Lessor, Lessee may reconfigure and install Attachments on the Equipment.
In the event of ice a Reconfiguration or Attachment, Lessee shall, upon
return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order. repair and
appearance as when installed (normal wear and tear excluded). If any parts
are removed from the Equipment during the Reconfiguration or Attachment,
the restoration will include, at Lessee's option, the installation of
either the original removed parts or Like Parts. Alternatively. with
Lessor's prior written consent which will not be unreasonably withheld.
Lessee may return the Equipment with any Attachment or upgrade, if any
parts of the Equipment are removed during a Reconfiguration or Attachment,
Lessor may require Lessee to provide additional security, satisfactory to
the Lessor, in order to ensure performance of Lessee's obligations set
forth in this subsection. Neither Attachments nor parts installed on
Equipment in the course of Reconfiguration shall be accessions to the
Equipment.
However, if the Reconfiguration or Attachment (i) adversely affects
Lessor's tax benefits relating to the Equipment; (ii) is not capable of being
removed without causing material damage to the Equipment: or (iii) if at the
time of the Reconfiguration or Attachment the manufacturer does not offer on a
commercial basis a means for the removal of the additional items; then such
Reconfiguration or Attachment is subject to the prior written consent of Lessor.
7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable
business hours and subject to Lessee's security requirements, will make the
Equipment and its related log and maintenance records available to Lessor for
inspection.
<PAGE>
7.4 RECORDS. All instruction manuals, published statements of
capabilities and technical specifications, service. maintenance and repair
records, satisfaction. qualification, certification and calibration reports and
other printed material supposed by the manufacturer and related to the
installation and operation of the Equipment will be deemed a part of the
Equipment and Lessee agrees to provide such to Lessor upon request.
7.5 OPERATING REGULATIONS. Lessee warrants that Equipment will be
installed used and operated and otherwise be in compliance with (a) any
established operating procedures therefore of the manufacturer, and all statues,
regulations and orders of any governmental body having power to regain the
Equipment or its use. Lessee agrees that adherence to such installation use,
operation and compliance will be the sole obligation of the Lessee. Lessee will
obtain such licensing and registration of the Equipment as required by Federal,
state or local law or regulation. Any costs of such compliance, licensing and
registration will be determined by Lessee. Lessee further warrants that the
Equipment will be operated only by qualified personnel who are covered by
professional liability insurance in amounts and against risks customarily
insured against in the medical field.
8. Representations and Warranties of Lessee.
Lessee represents and warrants that for the Master Lease and each Schedule:
(a) The execution delivery and performance of the Lessee have been duly
authorized by all necessary corporate action;
(b) The individual executing was duly authorized to do so:
(c) The Master Lease and each Schedule constitute legal, valid and
binding agreements of the Lessee enforceable in accordance with their
terms; and
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
9. Delivery and Return of Equipment.
Lessee assumes the full expense of transportation and in-transit insurance
to Lessee's premises and for installation of the Equipment. Upon expiration or
termination of each Schedule, Lessee will, at Lessor's instructions and at
Lessee's expense (including transportation and in-transit insurance), have the
Equipment deinstalled, audited by the manufacturer, packed and shipped in
accordance with the manufacturer's specifications and returned to Lessor in the
same operating order repair and appearance as when installed and maintained
pursuant to Section 7 hereof, (ordinary wear and tear excluded), to a location
within the continental led States as directed by Lessor. All items returned to
Lessor in addition to the shipment become property of Lessor.
10. Labeling.
Upon request Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or Labeling which
might be interpreted as a claim of ownership.
11. Indemnity and Liability Insurance.
11.1 INDEMNITY. Lessee will indemnify and hold Lessor, its parent
company, any Assignee and any Secured Party harmless from and against any and
all claims, costs, expenses. damages and liabilities including reasonable
attorney's fees arising out of the ownership (for strict liability in tort
only). selection, possession. leasing, operation. control, use maintenance.
delivery, return or other disposition of the Equipment. However, Lessee is
not responsible to a party indemnified hereunder for any claims, costs,
expenses, damages and liabilities occasioned by the negligent acts of such
indemnified party. Lessee agrees to carry bodily injury and property damage
liability insurance during the term of the Master Lease in amounts and
against risks customarily insured against by the Lessee on equipment owned by
it. Any amounts received by Lessor under that insurance will be credited
against Lessee's obligations under this Section.
11.2 LIABILITY INSURANCE. Effective upon delivery of the Equipment
under the applicable Schedule and during the continuance of the Master Lease
as to the applicable Schedule, Lessee will, at its own expense, carry and
maintain comprehensive general liability insurance including product and
completed operations liability insurance with regard to each item of
Equipment against risks customarily insured against in the medical field.
Such risks will include, without limitations the risks of death, bodily
injury and property damage associated with the Equipment. The amount of such
general liability insurance will not be less than $3,000,000.00 per
occurrence. Lessee agrees to increase the amount of such comprehensive
general liability insurance to remain current with amounts customarily
carried against such risks in the medical field. Such uninsurance
obligations of Lessee will survive the expiration or other termination of the
applicable Schedule with regard to claims which relate back to events
occurring during the lease term of the applicable Schedule. All policies for
such insurance will name the Lessor, its parent company. any Assignee and any
Secured Party as additional insured and will provide for at least thirty (30)
days prior written notice to Lessor of cancellation or expiration. The
Lessee will furnish appropriate evidence of Such insurance.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility or all risks of physical damage to or loss of
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less the Casualty Value. All policies for such
insurance will name the Lessor and any Secured Party additional insured and as
loss payee and will provide for at least thirty (30) days prior written notice
to the Lessor of cancellation or expiration the Lessee will furnish. appropriate
evidence of such insurance.
Lessee shall promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casually Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
<PAGE>
13. Default, Remedies and Mitigation.
13.1 DEFAULT. The occurrence of any one or more of the following
Events of Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for then (10) days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty
made by the Lessee in the Schedule or in any document or certificate
furnished to the Lessor hereunder it that failure or inaccuracy
continues for fifteen (15) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under
any bankruptcy or insolvency law or for the appointment of a trustee
or other officer with similar powers, the adjudication of Lessee as
insolvent, the liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured Party
13.2 REMEDIES, Upon the Occurrence of any of the above Events of
Default Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity:
(b) recover from Lessee any damages and or expenses, including Default
costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent
due under the defaulted Schedule (discounted at the same rate of
interest at which such defaulted Schedule was discounted with a
Secured Party plus any prepayment fees charged to Lessor by the
Secured Party or, if there is no Secured Party, then discounted at 6%)
together with all Rent and other amounts currently due as liquidated
damages and not as a penalty
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter Lessee's premises to remove
and repossess the Equipment without being liable to Lessee for damages
due to the repossession, except those resulting from Lessor's, its
assignees'. agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent
permitted by law, are cumulative and may be exercised successively or
concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms
of Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to renegotiate Lessor's damages as described below. EXCEPT AS SET
FORTH IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER
CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS
DAMAGES 0R MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor
may sell, lease or otherwise dispose of all or any part of the Equipment at a
public or private sale for cash or credit with the privilege of purchasing the
Equipment. The proceeds from any sale, lease or other inspection of the
Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market value of the Equipment at the expiration of the initial Term
less the Default costs; or
(b) if leased, the present value (discounted at three points over the
prime rate as referenced in the WALL STREET JOURNAL at the time of the
mitigation) of the rentals for a term not to exceed the Initial Term,
less the Default Costs.
All proceeds will be applied against liquidated damages and all other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and
Lessor may recover the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 ENTIRE AGREEMENT. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders.
ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY
A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE
ENFORCED.
14.2 NO WAIVER. No action taken by Lessor or Lessee shall be deemed
to constitute a waiver of compliance with any representation warranty or
covenant contained in this Master Lease or a Schedule. The waiver by Lessor or
Lessee of a breach of any provision of this Master Lease or a Schedule will not
operate or be construed as a waiver of any subsequent breach.
14.3 BINDING NATURE. Each Schedule is binding upon, and inures to
the benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
<PAGE>
14.4 SURVIVAL OF OBLIGATIONS. All agreements, obligations
including. but not limited to those arising under Section 6.2.
representations and warranties contained its Master Lease, any Schedule or in
any document delivered in connection with agreements are for the benefit of
Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.5 NOTICES. Any notice, request or other communication to either
party by the other will be given in writing and deemed received upon the
earlier of actual receipt or three days after mailing if mailed postage
prepaid by regular or airmail to Lessor (to the attention of "Medical
Equipment Lease Administrator" or Lessee, at in the address set out in the
Schedule or. one day after it is sent by courier or facsimile transmission if
receipt is verified by the receiving party.
14.6 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN AND EACH SCHEDULE
WILL HAVE BEEN MADE EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL
BE GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO
RIGHTS OR REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE
WILL BE CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR
A SCHEDULE.
14.7 SEVERABILITY. If any one or more of the provisions of this
Master Lease or a Schedule is for any reason held invalid, illegal or
unenforceable. the remaining provisions of this Master Lease and any such
Schedule will be unimpaired, and the invalid, illegal or unenforceable
provision replaced by a mutually acceptable valid, legal and enforceable
provision that is closest to the original intention of the parties.
14.8 COUNTERPARTS. This Master Lease and any Schedule may be
executed in any number of counterparts, each of which will be deemed an
original, but all such counterparts together constitute one and the same
instrument. If Lessor grants a security interest in all or any part of a
Schedule, the Equipment or sums payable thereunder, only that counterpart
Schedule marked Secured Party's Original can transfer Lessor's rights and all
other counterparts will be marked "Duplicate".
14.9 NONSPECIFIED FEATURES AND LICENSED PRODUCTS. If the Equipment
is supplied from Lessor's inventory and contains any features not specified
in the Schedule, Lessee grants Lessor the right to remove any such features.
Any removal will be performed by the manufacturer or another party acceptable
to Lessee, upon the request of Lessor, at a time convenient to Lessee.
provided that Lessee will not unreasonably delay the removal of such features.
Lessee shall obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
licensed products as confidential information of the owner to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.10 ADDITIONAL DOCUMENTS. Lessee will, upon execution of this
Master Lease and as may be requested thereafter, provide Lessor with a
secretary's certificate of incumbency and authority and any other documents
reasonably requested by Lessor. Upon the execution of each Schedule with an
aggregate Rent in excess of $1,000,000, Lessee will provide Lessor with an
opinion from Lessee's counsel regarding the representations and warranties in
Section 8. Lessee will furnish, upon request, audited financial statements
for the most recent period.
14.11 ELECTRONIC COMMUNICATIONS. Each of the parties may
communicate with the other by electronic means under mutually agreeable terms.
14.12 LESSORS RIGHT TO MATCH. Lessee's rights under Section 5.2
and 7.2 are subject to Lessor's right to match any sublease or upgrade
proposed by a third party. Lessee will provide Lessor with the terms of the
third party offer and Lessor will have three (3) business days to match the
offer. Lessee shall obtain such upgrade from or sublease the Equipment to
Lessor if Lessor has timely matched the third party offer.
14.13 DEFINITIONS.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
ATTACHMENT - means any accessory, equipment or device and the installation
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, it a Casualty Value Table is
attached to the relevent Schedule its terms will control.
COMMENCEMENT CERTIFICATE - means the Lessor provided certificate which must
be signed by Lessee within ten days of the Commencement Date as requested by
Lessor.
COMMENCEMENT DATE - is defined in each Schedule.
<PAGE>
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs reselling
in a Lessee default or Lessor's enforcement of its remedies.
DEPOSIT - means an amount indicated on the applicable Schedule.
EQUIPMENT - means the property described on a Schedule and any replacement for
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
EVENT OF DEFAULT - means the events described in Subsection 13.I.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INSTALLATION DATE - means the day on which Equipment is installed and qualified
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
LNTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LICENSED PRODUCTS - means any software or other licensed products attached, to
Like Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model. type, configuration and manufacture as Equipment.
LIKE PART -means a substituted part which is lien free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment, will be eligible for maintenance coverage with the manufacturer
of the Equipment.
NOTICE PERIOD - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
OVERDUE RATE - means the lesser of 18% per year or the maximum rate permitted by
the law of the state where the Equipment is located.
OWNER - means the owner of Equipment.
RECONFIGURATION - means any change to Equipment that would upgrade or downgrade
the performance capabilities of the Equipment in any way.
RENT - means the rent. including Interim Rent, Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means an Equipment Schedule which incorporates all of the terms and
conditions of this Master Lease and, for purposes of Section 14.8, its
associated Commencement Certificate(s).
SECURED PARTY - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of TIRE CLAY and year first above written.
Endocardial Solutions, Inc. COMDISCO MEDICAL EQUIPMENT GROUP, INC.
as Lessee as Lessor
By: By:
--------------------------- ----------------------------------
James Bullock K.A. Halverson
Title: Title:
--------------------------- ----------------------------------
President & CEO President
By:
---------------------------
Leota Paulsen
Title:
--------------------------
Controller
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY
SCHEDULE NO. ME-1
DATED AS OF NOVEMBER 15, 1994
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 15, 1994 (-MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO MEDICAL
EQUIPMENT GROUP, INC.
ADMIN.CONTACT/PHONE NO.: 612-644-7890 ADDRESS FOR ALL NOTICES:
ADDRESS FOR NOTICES:
1350 Energy Lane, Suite 110 6111 North River Road
St. Paul, MN 55108-52S4 Rosemont, IL 60018
Attn: Leota Paulsen Attn: Venture Lease Division
Attn:
CENTRAL BILLING LOCATION: Advance: $16,000.00
Attn:
Lessee Reference No.:_____________________ Lease Rate Factor: 3.20%
(24 digits maximum
Location of Equipment:
Various
EQUIPMENT (as defined below): Initial Term: 36 months
Item Machine Type/ Serial
No. Qty Manufacturer Feature Description Number Rent
--- --- ------------ ------- ----------- ------ ----
Provided Lessee successfully completes a round of equity financing of at
Least $5,000,000.00 ("Equity Round") then Lessor shall finance demo units
assembled by Lessee specifically approved by Lessor up to an aggregate
purchase price of $500,000.00 which shall be delivered to and accepted by
Lessee commencing an the closing date of the Equity Round and continuing for
twelve months thereafter;, and for which Lessor receives vendor invoices
approved for payment, not including upgrades thereto, and further excluding
leasehold improvements, installation costs and delivery costs, rolling stock,
special tooling, stand-alone' software, application software bundled into
computer hardware, hand-held items, molds and fungible Items. After the
initial six months of the twelve month take down period, Lessor shall have
the right to review Lessee's financial condition and progress, and at
Lessor's option and discretion the take down period shall be extended an
additional six months beyond the initial six month period at the same terms
and conditions as contained in this equipment schedule.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more than
twelve (12) months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase Documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. NONE
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor
with Invoices containing the Equipment location, description, serial number
and cost, an acceptance certificate upon acceptance of the Equipment by
Lessee, the Installation Date and Lessee's signature. Lessor will summarize
all Invoices and/or IAFs received in the same calendar month into a
Commencement Certificate in the form attached to this Schedule as Exhibit 1
and the Initial Term will begin the first day of the calendar month
thereafter. Each Commencement Certificate will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a
separate Schedule. Notwithstanding the foregoing, if the Equipment pertains
to Sale - Leaseback Equipment, then the Commencement Date shall be the date
that Lessor tenders the Purchase Price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred twenty (120) days
written notice prior to the expiration of the initial Term. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Lease shall continue in full force
and effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not less than one hundred
twenty (120) days prior written notice, which notice shall be effective as of
the Rent Interval next following receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than one
hundred twenty (120) days prior to the expiration of the Initial Term, Lessee
will have the option at the expiration of the Initial Term of this Schedule to
purchase all, but not less than all, of the Equipment listed herein for a
purchase price not to exceed 25% of Lessor's original cost and upon terms and
conditions to be mutually agreed upon by the parties following Lessee's written
notice, plus any taxes applicable at time of purchase. Said purchase price
shall be paid to Lessor at least thirty (30) days before the expiration date of
the Initial Term. Title to the Equipment shall automatically pass to Lessee
upon payment in full of the purchase price but, in no event, earlier than the
expiration of the fixed Initial Term. If the parties are unable to agree on the
purchase price or the terms and conditions with respect to said purchase, then
the Lease with respect to this Equipment shall remain in full force and effect.
It is agreed and understood that Lessor is retaining a purchase money security
interest in the Equipment listed herein and this Schedule shall constitute a
Security Agreement under the Uniform Commercial Code of the state in which the
Equipment is located. Lessor and Lessee agree that for purposes of this
paragraph, any licensed software will not be considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
a. Section 1.2, "Deposit"
<PAGE>
Delete this Section in its entirety and replace with the following:
"Upon Lessee's execution of this Schedule, Lessee will pay the
additional Advance specified in the Schedule, not to exceed one month's
rent. The Advance will be credited towards the final rent payment if
Lessee is not then in default. No interest will be paid on the
Advance."
b. Section 2, "Term"
In line 2 after the word "Equipment", add the words "upon Lessee's
execution of an acceptance certificate or an approved invoice for
payment".
In line 3 after the word "begin", add the words "on the first day of
the next Rent Interval".
c. Section 3, "Rent and Payment"
In line 3 before the words "Interim Rent", add the word "No"; after
the words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
d. Section 5.1, "Title"
In line 6 after the word "appropriate", add the words "provided Lessor
promptly advises Lessee in writing".
e. Section 5.2, "Relocation or Sublease",
In line 1, delete the word "notice', and add the words "consent, which
consent shall not be unreasonably withheld".
In lines 2 and 3, delete the words "(i) the Equipment will not be used
by an entity exempt from federal income tax and (ii)".
To the end of the last paragraph of this Section, add the words ",
except as agreed to by Lessor in writing".
f. Section 5.3, "Assignment by Lessor"
At the end of paragraph (a), delete the word "and" At the end of
paragraph (b), add the word "and".
g. Add the following as new Section 6.3, "Tax Indemnification":
"It is understood by the parties hereto that some of the Equipment
listed on this Equipment Schedule will be re-located at Lessee's
customer's premises outside the U.S. Lessee hereby indemnifies
Lessor for any additional taxes, fees, imposts, charges or other
impositions ("Additional Costs") associated with location outside
the U.S. of the Equipment and or payment of rent to Lessor.
Additional Costs include, without limitation, any and all withholding
taxes, VAT, customs fees, transfer taxes, and duties. Lessee hereby
agrees that Lessor will not be considered importer of record at any
time. All necessary documentation to make equipment to move
equipment between countries will clearly state that Lessee is the
importer of record."
h. Section 7.1, "Care, Use and Maintenance"
In line 11, delete the word "manufacturer" and add the word "Lessee".
To the end of this Section, add the following:
Lessor agrees that Lessee may self-maintain equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained equipment.
i. Section 7.2, "Attachments and Reconfigurations"
<PAGE>
In line 1, delete the word "notice" and insert the words "consent,
which consent shall not be unreasonably withheld".
j. Section 8, "Representations and Warranties of Lessee"
To the end of paragraph (c), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies"
k. Section 9, "Delivery and Return of Equipment"
To the end of this section, add the following:
Lessor understand that Lessee is assembling component parts which will
ultimately be in the Equipment, and as such Lessor will accept a letter
from the Lessee not the manufacturer as it relates to the auditing, and
shipment specifications of the Equipment. Lessee hereby agrees that it
will use customary and reasonable standards used for equipment of this
type when de-installing, auditing, and shipping the Equipment.
l. Section 12, "Risk of Loss"
In line 7 of the first paragraph after the word "expiration", delete
the period and insert the words "and will insure Lessor's interests
regardless of breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primarily
without right of contribution from any insurance effected by Lessor."
In line 7 of the first paragraph after the word "will", insert the
words ", upon request".
In line 3 of the second paragraph after the second appearance of the
word "will" insert the words ", within the later of the date of
Lessee's receipt of insurance proceeds or thirty (30) days
thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
m. Section 13.1 "Default"
In line 2 of paragraph (a) , delete the word and number "ten (10)" and
add the word and number "five (5)".
In line 1 of paragraph (c), delete the word "failure" and replace with
the word "inability".
n. Section 13.2, "Remedies"
In line 1 of paragraph (c) before the word "notice", insert the word
"written".
o. Section 13.3, "Mitigation"
In line I of paragraph (b), delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%)"; in line 2 after the words "Initial Term",
add the words "or any extension thereof,".
p. Section 14.3, "Binding Nature"
To the end of this Section, delete the period and add the words
"except with the prior written consent of Lessor as provided in
Section 5.2."
q. Section 14.4, "Survival of Obligations"
<PAGE>
In line 1, delete the words "including but not limited to those" and
insert the words "as well as in Section 11" after the words" arising
under Section 6.2 of this Master Lease".
r. Section 14.13, "Definitions"
In line 1 of the definition "Casualty Value" after the word "term",
add the words "discounted to present value using a rule of six percent
(6%)".
To the end of the definition "Installation Date", add the words ", and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Rent", delete the words ", including
Interim Rent,".
In line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit A".
s. Add the following new sections:
"Section 14.14, "Obligation to Lease Additional Equipment"
Upon notice to Lessee, Lessor will not be obligated to lease any equipment
which would have a Commencement Date after said notice, if (i) Lessee is in
default under this Master Lease or any Schedules, or (ii) Lessee is in
default under any loan agreement , the result of which has caused the
lender or any secured party to demand immediate repayment of the
indebtedness."
"Section 14.15, "Merger and Sale Provisions"
Lessee will notify Lessor of any proposed Merger at least sixty (60) days
prior to the closing date. Lessor may, in its discretion, either (i)
consent to the assignment of the Master Lease and all relevant Schedules to
the successor entity, or (ii) terminate the Master Lease and all relevant
Schedules. If Lessor elects to consent to the assignment, Lessee and its
successor will sign the assignment documentation reasonably requested and
provided by Lessor. If Lessor elects to terminate the Master Lease and all
relevant Schedules, then Lessee will pay Lessor all amounts then due and
owing and a termination fee equal to the present value (discounted at 6%)
of the remaining Rent for the balance of the Initial Term(s) of all
Schedules, and will return the Equipment in accordance with Section 9.11
"Section 14.16, "Financial Statements"
Lessee will provide to Lessor the financial statements specified in this
Section, prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements',); provided,
however, after the effective date of the initial registration statement
covering a public offering of Lessee's securities, the term "Financial
Statements" will be deemed to refer to only those statements required by
the Securities and Exchange Commission, to be provided no less frequently
than quarterly. Lessee will provide to Lessor (i) as soon as practicable
(within thirty (30) days) after the end of each month, the same information
which Lessee provides to its Board of Directors, but which will include not
less than a monthly income statement, balance sheet and statement of cash
flows, certified by Lessee's Chief Executive or Financial officer to be
true and correct; and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets
as of the end of such year (consolidated if applicable) , and related
statements of income or loss, retained earnings or deficit and changes in
the financial position and capital structure of Lessee for such year,
setting forth in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by an audit report and opinion of
the independent certified public accountants selected by Lessee. Lessee
will promptly furnish to Lessor any additional information (including but
not limited to, income statements, balance sheets, and names of principal
creditors) as Lessor reasonably believes necessary to evaluate Lessee Is
continuing ability to meet financial obligations.,,
<PAGE>
"Section 14.17, "Contingency"
The financing of this Equipment Schedule is contingent upon Lessee
executing a blanket lien, giving Lessor a first priority security interest
in all of Lessee's intangible and tangible assets up to lesser of all
outstanding obligations (including, without limitation, principal,
interest, and taxes) due under this Master Lease or $500,000.00 (the
"Secured Amount") provided the Lessee may substitute for the first priority
security interest in such assets by providing to Lessor a first priority
security interest in cash, certificates of deposit, marketable securities
and the like reasonably acceptable to the Lessor in an amount equal to the
Secured Amount.*
Master Lease: This Equipment Schedule is issued pursuant to the Master Lease
identified on page I hereof. All of the terms, conditions, representations and
warranties of the Master Lease are hereby incorporated herein and made a part
hereof as if they were expressly set forth in this Equipment Schedule. By their
execution and delivery of this Equipment Schedule, the parties hereby reaffirm
all of the terms, conditions, representations and warranties of the Master Lease
(including, without limitation, the representations and warranties set forth in
Section 8 thereof) except as modified herein.
Endocardial Solutions, Inc. COMDISCO MEDICAL EQUIPMENT GROUP, INC.
as Lessee as Lessor
By: By:
--------------------------------- ----------------------------------
James Bullock K.A. Halverson
Title: Title:
------------------------------ ------------------------------
President & CEO President
By:
-----------------------------
Leota Paulsen
Title:
-----------------------------
Controller
*Section 11.2, "Liability Insurance"
It is the understanding of lessee and lessor that, not withstanding the terms of
this section to the contrary, lessee shall not be required to obtain product
liability insurance until such time as lessee begins operation of Equipment with
human subjects.
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated November 15, 1994 is executed pursuant to Schedule
No. ME-1 to the Master Lease Agreement dated November 15, 1994 between Comdisco
Medical Equipment Group, Inc. ("Lessor") and Endocardial Solutions, Inc.
("Lessee"). All of the terms, conditions, representation and warranties of the
Master Lease Agreement and Equipment Schedule No. ME-1 are incorporated herein
and made a part hereof and this Commencement Certificate constitutes a Schedule
for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
(See attached Invoices)
2 DATE: (See attached invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date
<PAGE>
EXHIBIT A
MEDICAL EQUIPMENT
EQUIPMENT SCHEDULE NO. ME-2 DATED AS OF October 28, 1996
TO MASTER LEASE AGREEMENT DATED AS OF November 15, 1994 ("MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO MEDICAL
EQUIPMENT GROUP, INC.
ADMIN. CONTACT/PHONE NO.: 612-644-7890
ADDRESS FOR NOTICES: ADDRESS FOR ALL NOTICES:
1350 Energy Lane, Suite 110 6111 North River Road
St. Paul, MN 55108-5254 Rosemont, Illinois 60018
Attn: Leota Paulsen Attn: Marketing Support
Corporate
ATTN:
CENTRAL BILLING LOCATION: ADVANCE: $12,540.00
ATTN:
LESSEE REFERENCE NO.:
(24 digits maximum) LEASE RATE
FACTOR: 3.135%
LOCATION OF EQUIPMENT:
various
INITIAL
TERM: 36 months
EQUIPMENT (as defined below):
ITEM MACHINE TYPE/ SERIAL QUARTERLY
NO. QTY. MANUFACTURER FEATURE DESCRIPTION NUMBER RENT
- -- ---- ------------ ------- ----------- ------ ----
Lessor shall finance demo units assembled by Lessor specifically approved by
lessor up to an aggregate purchase price of $400,000.00 which shall be
delivered to and accepted by Lessee during the period from the date hereof
through July 31, 1997, and for which Lessor receives vendor invoices approved
for payment, not including upgrades thereto, and further excluding leasehold
improvements, installation costs and delivery costs, rolling stock, special
tooling, "stand-alone" software, application software bundled into computer
hardware, hand-held items, molds and fungible items.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more
than twelve (12) months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. NONE
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to:
(1) Lessor's prior approval of the Equipment; and (2) at
Lessor's appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its
Installation Date. Lessee agrees to confirm the Commencement Date by
providing Lessor with Invoices containing the Equipment location,
description, serial number and cost, an acceptance certificate upon
acceptance of the Equipment by Lessee, the Installation Date and Lessee's
signature. Lessor will summarize all Invoices and/or IAFs received in the
same calendar month into a Commencement Certificate in the form attached to
this Schedule as Exhibit 1 and the Initial Term will begin the first day of
the calendar month thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule
and will constitute a separate Schedule. Notwithstanding the foregoing, if
the Equipment pertains to Sale - Leaseback Equipment, then the Commencement
Date shall be the date that Lessor tenders the Purchase Price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred twenty (120) days
written notice prior to the expiration of the Initial Term. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Lease shall continue in full force
and effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not less than one hundred
twenty (120) days prior written notice, which notice shall be effective as of
the Rent Interval next following receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than one hundred twenty (120) days prior to the expiration of the
Initial Term, Lessee will have the option at the expiration of the Initial
Term of this Schedule to purchase all, but not less than all, of the
Equipment listed herein for a purchase price not to exceed 25!k of Lessor's
original cost and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time
of purchase. Said purchase price shall be paid to Lessor at least thirty
(30) days before the expiration date of the Initial Term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term. If the parties are unable to agree on the purchase price or
the terms and conditions with respect to said purchase, then the Lease with
respect to this Equipment shall remain in full force and effect. It is agreed
and understood that Lessor is retaining a purchase money security interest in
the Equipment listed herein and this Schedule shall constitute a Security
Agreement under the Uniform Commercial Code of the state in which the
Equipment is located. Lessor and Lessee agree that for purposes of this
paragraph, any licensed software will not be considered part of the Equipment.
6 SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain
to this Schedule are hereby modified and amended as follows:
a. Section 1.2, "Deposit"
Delete this Section in its entirety and replace with the following:
"Upon Lessee's execution of this Schedule, Lessee will pay the
additional Advance specified in the Schedule, not to exceed one
month's rent. The Advance will be credited towards the final rent
payment if Lessee is not then in default.
<PAGE>
No interest will be paid on the Advance."
b. Section 2, "Term"
In line 2 after the word "Equipment", add the words "upon Lessee's
execution of an acceptance certificate or an approved invoice for
payment".
In line 3 after the word "begin", add the words "on the first day of
the next Rent Interval".
c. Section 3, "Rent and Payment"
In line 3 before the words "Interim Rent", add the word "No"; after the
words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
d. Section 5.1, "Title"
In line 6 after the word "appropriate", add the words "provided Lessor
promptly advises Lessee in writing".
e. Section 5.2, "Relocation or Sublease"
In line 1, delete the word "notice" and add the words "consent, which
consent shall not be unreasonably withheld".
In lines 2 and 3, delete the words "(i) the Equipment will not be used
by an entity exempt from federal income tax and (ii)".
To the end of the last paragraph of this Section, add the words ",
except as agreed to by Lessor in writing".
f. Section 5.3, "Assignment by Lessor"
At the end of paragraph (a), delete the word "and
At the end of paragraph (b), add the word "and".
g. Add the following as new Section 6.3, "Tax Indemnification":
"It is understood by the parties hereto that some of the Equipment
listed on this Equipment Schedule will be re-located at Lessee's
customer's premises outside the U.S. Lessee hereby indemnifies Lessor
for any additional taxes, fees, imposts, charges or other impositions
("Additional Costs") associated with location outside the U.S. of the
Equipment and or payment of rent to Lessor. Additional Costs include,
without limitation, any and all withholding taxes, VAT, customs fees,
transfer taxes, and duties. Lessee hereby agrees that Lessor will not
be considered importer of record at any time. All necessary
documentation to make equipment to move equipment between countries
will clearly state that Lessee is the importer of record."
h. Section 7.1, "Care, Use and Maintenance"
In line 11, delete the word "manufacturer" and add the word "Lessee".
To the end of this Section, add the following:
Lessor agrees that Lessee may self-maintain equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained equipment."
i. Section 7.2, "Attachments and Reconfigurations"
In line 1, delete the word "notice" and insert the words "consent,
which consent shall not be unreasonably withheld".
j. Section 8, "Representations and Warranties of Lessee"
To the end of paragraph (c), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
k. Section 9, "Delivery and Return of Equipment"
<PAGE>
To the end of this section, add the following:
Lessor understand that Lessee is assembling component parts which will
ultimately be in the Equipment, and as such Lessor will accept a letter
from the Lessee not the manufacturer as it relates to the auditing, and
shipment specifications of the Equipment. Lessee hereby agrees that it
will use customary and reasonable standards used for equipment of this
type when deinstalling, auditing, and shipping the Equipment.
l. Section 11.2, "Liability Insurance"
It is the understanding of Lessee and Lessor that, not withstanding the
terms of this section to the contrary, Lessee shall not be required to
obtain product liability insurance until such time as Lessee begins
operation of Equipment with human subjects.
m. Section 12, "Risk of Loss"
In line 7 of the first paragraph after the word "expiration", delete
the period and insert the words "and will insure Lessor's interests
regardless of breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primarily
without right of contribution from any insurance effected by Lessor."
In line 7 of the first paragraph after the word "will", insert the
words upon request".
In line 3 of the second paragraph after the second appearance of the
word "will", insert the words ", within the later of the date of
Lessee's receipt of insurance proceeds or thirty (30) days
thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
n. Section 13.1 "Default"
In line 2 of paragraph (a), delete the word and number "ten (10)" and
add the word and number "five (5)".
In line 1 of paragraph (c), delete the word "failure" and replace with
the word "inability".
o. Section 13.2, "Remedies"
In line 1 of paragraph (c) before the word "notice", insert the word
"written".
p. Section 13.3, "Mitigation"
In line 1 of paragraph (b) , delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%) "; in line 2 after the words "Initial
Term", add the words "or any extension thereof,".
q. Section 14.3, "Binding Nature"
To the end of this Section, delete the period and add the words "except
with the prior written consent of Lessor as provided in Section 5.2."
r. Section 14.4, "Survival of Obligations"
In line 1, delete the words "including but not limited to those" and
insert the words "as well as in Section 11" after the words "arising
under Section 6.2 of this Master Lease".
s. Section 14.13, "Definitions"
In line 1 of the definition "Casualty Value" after the word "term", add
the words "discounted to present value using a rule of six percent
(6%)".
To the end of the definition "Installation Date", add the words "and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Rent", delete the words", including
Interim Rent,".
<PAGE>
In line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit A".
t. Add the following new sections:
"Section 14.14, "Obligation to Lease Additional Equipment"
Upon notice to Lessee, Lessor will not be obligated to lease any
equipment which would have a Commencement Date after said notice, if
(i) Lessee is in default under this Master Lease or any Schedules, or
(ii) Lessee is in default under any loan agreement, the result of
which has caused the lender or any secured party to demand immediate
repayment of the indebtedness."
"Section 14.15, "Merger and Sale Provisions"
Lessee will notify Lessor of any proposed Merger at least sixty (60)
days prior to the closing date. Lessor may, in its discretion, either
(i) consent to the assignment of the Master Lease and all relevant
Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If lessor elects to consent to the
assignment, Lessee and its successor will sign the assignment
documentation reasonably requested and provided by Lessor. If Lessor
elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination
fee equal to the present value (discounted at 6%) of the remaining Rent
for the balance of the Initial Term(s) of all Schedules, and will
return the Equipment in accordance with Section 9."
"Section 14.16, "Financial Statements"
Lessee will provide to Lessor the financial statements specified in
this Section, prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements");
provided, however, after the effective date of the initial
registration statement covering a public offering of Lessee's
securities, the term "Financial Statements" will be deemed to refer to
only those statements required by the Securities and Exchange
Commission, to be provided no less frequently than quarterly. Lessee
will provide to Lessor (i) as soon as practicable (within thirty (30)
days) after the end of each month, the same information which Lessee
provides to its Board of Directors, but which will include not less
than a monthly income statement, balance sheet and statement of cash
flows, certified by Lessee's Chief Executive or Financial officer to be
true and correct; and (ii) as soon as practicable (and in any event
within ninety (90) days) after the end of each fiscal year, audited
balance sheets as of the end of such year (consolidated if applicable),
and related statements of income or loss, retained earnings or deficit
and changes in the financial position and capital structure of Lessee
for such year, setting forth in comparative form the corresponding
figures for the preceding fiscal year, and accompanied by an audit
report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability
to meet financial obligations."
"Section 14.17, "Contingency"
The financing of this Equipment Schedule is contingent upon Lessee
executing a blanket lien, giving Lessor a first priority security
interest in all of Lessee's intangible and tangible assets up to lesser
of all outstanding obligations (including, without imitation,
principal, interest, and taxes) due under this Master Lease or
$400,000.000 (the "Secured Amount") provided the Lessee may substitute
for the first priority security interest in such assets by providing to
Lessor a first priority security interest in cash, certificates of
deposit, marketable securities and the like reasonably acceptable to
the Lessor in an amount equal to the Secured Amount.
MASTER LEASE: This Equipment Schedule is issued pursuant to the Master Lease
identified on page 1 hereof. All of the terms, conditions, representations and
warranties of the Master Lease are hereby incorporated herein and made a part
hereof as if they were expressly set forth in this Equipment Schedule. By their
execution and delivery of this Equipment Schedule, the parties hereby reaffirm
all of the terms, conditions, representations and warranties of the Master Lease
(including, without limitation, the representations and warranties set forth in
Section 8 thereof) except as modified herein.
ENDOCARDIAL SOLUTIONS, INC. COMDISCO MEDICAL GROUP, INC.
as Lessee as Lessor
By: By:
------------------------- -------------------------------
Leota Pearson James Labe
Title: Title:
---------------------- ----------------------------
Controller President, Venture Lease
Division
Date: Date:
---------------------- ---------------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated October 28, 1996 is executed pursuant to
Schedule No. ME-3 to the Master Lease Agreement dated November 15, 1994
between Comdisco Medical Equipment Group, Inc. ("Lessor") and Endocardial
Solutions, Inc. ("Lessee"). All of the terms, conditions, representations
and warranties of the Master Lease Agreement and Equipment Schedule No. ME3
are incorporated herein and made a part hereof and this Commencement
Certificate constitutes a Schedule for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR TYPE/MODEL SERIAL # LOCATION
--- ---- ---------- -------- --------
(See attached Invoices)
2 INSTALLATION DATE: (See attached invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-3
DATED AS OF October 28, 1996
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 15, 1994 ("MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Leota Paulsen - Controller 6111 North River Road
phone (612) 644-7890 Rosemont, Illinois 60018
fax (612) 644-7897 Attn.: Venture Lease Division
ADDRESS FOR NOTICES:
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attn.: Leota Paulsen
CENTRAL BILLING LOCATION: PAYING AGENT:
Same as above Comdisco, Inc.
P.O. Box 91744
Chicago, Illinois 60693
Attn:
Lessee Reference No.: ______________
(24 digits maximum)
LOCATION OF EQUIPMENT: Initial Term: 36 months
same as above
Attn.:
LEASE RATE Factor: 3.135%
EQUIPMENT (as defined below): ADVANCE: $10,972.50
ITEM MACHINE TYPE/ SERIAL
NO. QTY. MANUFACTURER FEATURE DESCRIPTION NUMBER RENT
- --- -- -------------- ------- ----------- ------ ----
Lessor shall finance Equipment specifically approved by Lessor up to an
aggregate purchase price of $350,000.00 which shall be delivered to and
accepted by Lessee commencing on the date hereof and continuing until July
31, 1997, and for which Lessor receives vendor invoices approved for
payment not including upgrades thereto and further excluding custom use
equipment, installation costs and delivery costs, rolling stock, special
tooling, custom equipment, "Stand-alone" software, molds and fungible
items.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more
than twelve (12) months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. NONE
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to:
(1) Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its
Installation Date. Lessee agrees to confirm the Commencement Date by
providing Lessor with Invoices containing the Equipment location,
description, serial number and cost, an acceptance certificate upon
acceptance of the Equipment by Lessee, the Installation Date and Lessee's
signature. Lessor will summarize all Invoices and/or IAFs received in the
same calendar month into a Commencement Certificate in the form attached to
this Schedule as Exhibit 1 and the Initial Term will begin the first day of
the calendar month thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule
and will constitute a separate Schedule. Notwithstanding the foregoing, if
the Equipment pertains to Sale - Leaseback Equipment, then the Commencement
Date shall be the date that Lessor tenders the Purchase Price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred twenty (120)
days written notice prior to the expiration of the Initial Term. In such
event, the rent to be paid during said extended period shall be mutually
agreed upon and if the parties cannot mutually agree, then the Lease shall
continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. This Schedule will
continue in effect following said extended period until terminated by either
party upon not less than one hundred twenty (120) days prior written notice,
which notice shall be effective as of the Rent Interval next following
receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than one hundred twenty (120) days prior to the expiration of the
initial Term, Lessee will have the option at the expiration of the Initial
Term of this Schedule to purchase all, but not less than all, of the
equipment listed herein for a purchase price not to exceed 25% of Lessor's
original cost and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time
of purchase. Said purchase price shall be paid to Lessor at least thirty (30)
days before the expiration date of the Initial Term. Title to the Equipment
shall automatically pass to Lessee upon payment in full of the purchase price
but, in no event, earlier than the expiration of the fixed Initial Term. If
the parties are unable to agree on the purchase price or the terms and
conditions with respect to said purchase, then the Lease with respect to this
Equipment shall remain in full force and effect. It is agreed and understood
that Lessor is retaining a purchase money security interest in the Equipment
listed herein and this Schedule shall constitute a Security Agreement under
the Uniform Commercial Code of the state in which the Equipment is located.
Lessor and Lessee agree that for purposes of this paragraph, any licensed
software will not be considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to this
Schedule are hereby modified and amended as
follows:
a. Section 2, "TERM"
In line 1 after the word "Equipment", add the words "upon Lessee's
execution of an acceptance certificate or an approved invoice for
payment".
In line 2 after the word "begin", add the words "on the first day of
the next Rent Interval".
b. Section 3, "RENT AND PAYMENT"
<PAGE>
In line 2 before the words "Interim Rent", add the word "No"; after
the words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
In line 4 after the words "on the Schedule", add the words "not to
exceed one month's Rent".
c. Section 5.1, "TITLE"
In line 5 after the word "appropriate", delete the period and add the
words "provided Lessor promptly advises Lessee in writing, except as
provided in Sections 5.2 and 7.2."
d. Section 5.2, "RELOCATION OR SUBLEASE"
In line 1 before the word "consent", delete the word "reasonable"
after the words "Secured Party", add the words
", which consent shall not be unreasonably withheld".
To the end of the last paragraph of this Section, add the words ",
except as agreed to by Lessor in writing".
e. Section 5.3, "ASSIGNMENT BY LESSOR"
At the end of subsection (a), delete the word "and"
At the end of subsection (b), add the word "and"
f. Section 7.1, "CARE, USE AND MAINTENANCE
To the end of this Section, add the following:
Lessor agrees that Lessee may self-maintain Equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained Equipment.
g. Section 7.2, "ATTACHMENTS AND RECONFIGURATIONS"
In line 1 after the word "Lessor", add the words "which consent shall
not be unreasonably withheld".
h. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally,
and rules of law concerning equitable remedies."
i. Section 12, "RISK OF LOSS"
In line 8 of the first paragraph after the word "will', insert the
words ", upon request,".
In line 3 of the second paragraph after the word "will", insert the
words ", within the later of the date of Lessee's receipt of
insurance proceeds or thirty (30) days thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
j. Section 13.1 (c)"DEFAULT"
In line 1 delete the word "failure" and replace with the word
"inability"
k. Section 13.2, "REMEDIES"
In line 1 before the word "notice", insert the word "written".
<PAGE>
l. Section 13.3, "MITIGATION"
In line 1 of subsection (b), delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%,)"; in line 2 after the words "Initial
Term", add the words "or any extension thereof,".
m. Section 14.1, "BOARD ATTENDANCE"
In line 1 after the word "attend", insert the words "up to two (2) per
year of"; and in line 2 after the word "meetings", insert the words "up
to the expiration of the lease term".
n. Section 14.2, "FINANCIAL STATEMENTS"
In line 15, delete the words "tax returns".
o. Section 14.3, "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT"
In clause (ii), delete the words "would allow" and replace with the
words "has caused"; at the end of clause (ii), insert the word ";or";
at the end of clause (iii), delete the word "; or" and replace with a
period; delete clause (iv) in its entirety.
p. Section 14.4, "MERGER AND SALE PROVISIONS"
In line 5 after the word "documentation", insert the words "reasonably
requested and".
q. Section 14.7, "BINDING NATURE"
To the end of this Section, add the words "except with the prior
written consent of Lessor and as provided in Section
5.2".
r. Section 14.8, "SURVIVAL OF OBLIGATIONS"
In line 4, insert the word "and" between the words "execution"
and "delivery", delete the words "expiration or termination of
this Master Lease", and add the words "and the agreements and
obligations provided in Sections 6.2 and "of this Master Lease
shall survive the termination of the Master Lease".
s. Section 14.19, "DEFINITIONS"
In line 2 of the definition "Casualty Value" after the word "term", add
the words "discounted to present value using a rule of six percent
(6%)".
To the end of the definition "Installation Date" add the words ", and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Overdue Rate", delete the words, "the
lesser... payment due" and insert the words "interest at the lesser
of 18% per annum"
In line 1 of the definition "Rent", delete the words ", including
Interim Rent,".
In line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit A".
<PAGE>
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease
are incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
ENDOCARDIAL SOLUTIONS, INC. COMDISCO, INC.
as Lessee as Lessor
By: By:
------------------------ --------------------------
Leota Pearson James Labe
Title: Title:
------------------------- -----------------------
Controller President, Venture Lease
Division
Date: Date:
--------------------------- -------------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated October 28, 1996 is executed pursuant to Schedule
No. _______ to the Master Lease Agreement dated November 15, 1994 between
Comdisco, Inc. ("Lessor") and ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease and Schedule No. _______are
incorporated herein and made a part hereof and this Commencement Certificate
constitutes a Schedule for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR. TYPE/MODEL SERIAL # LOCATION
--- ----- ---------- -------- --------
(See attached Invoices)
2. INSTALLATION DATE: (See attached Invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the Lessee
on its Installation Date.
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-4
DATED AS OF OCTOBER 28, 1996
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 15, 1994 ("MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Leota Paulsen - Controller 6111 North River Road
phone (612) 644-7890 Rosemont, Illinois 60018
fax (612) 644-7897 Attn.: Venture Lease Division
ADDRESS FOR NOTICES:
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attn.: Leota Paulsen
CENTRAL BILLING LOCATION: PAYING AGENT:
same as above Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.:_____________________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 36 months
same as above
Attn.: LEASE RATE FACTOR: 3.211%
EQUIPMENT (as defined below): ADVANCE: $8,027.50
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- --- --- ------------- ------- ----------- ------ ----
Lessor shall finance Non-Standard Equipment (including software and
leasehold improvements) specifically approved by Lessor up to an aggregate
purchase price of $250,000.00 which shall be delivered to and accepted by
Lessee commencing on the date hereof and continuing until July 31, 1997,
and for which Lessor receives vendor invoices approved for payment.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more than
twelve (12) months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. None
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
an acceptance certificate upon acceptance of the Equipment by Lessee, the
Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter. Each Commencement
Certificate will incorporate the terms and conditions of the Master Lease and
this Schedule and will constitute a separate Schedule. Notwithstanding the
foregoing, if the Equipment pertains to Sale - Leaseback Equipment, then the
Commencement Date shall be the date that Lessor tenders the Purchase Price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term
of this Schedule for a period of one (1) year by giving Lessor at least one
hundred twenty (120) days written notice prior to the expiration of the Initial
Term. In such event, the rent to be paid during said extended period shall be
mutually agreed upon and if the parties cannot mutually agree, then the Lease
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. This Schedule will
continue in effect following said extended period until terminated by either
party upon not less than one hundred twenty (120) days prior written notice,
which notice shall be effective as of the Rent Interval next following receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve
(12) months and no later than one hundred twenty (120) days prior to the
expiration of the Initial Term, Lessee will have the option at the expiration of
the Initial Term of this Schedule to purchase all, but not less than all, of the
Equipment listed herein for a purchase price not to exceed 25% of Lessor's
original cost and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term. If the parties
are unable to agree on the purchase price or the terms and conditions with
respect to said purchase, then the Lease with respect to this Equipment shall
remain in full force and effect. It is agreed and understood that Lessor is
retaining a purchase money security interest in the Equipment listed herein and
this Schedule shall constitute a Security Agreement under the Uniform Commercial
Code of the state in which the Equipment is located. Lessor and Lessee agree
that for purposes of this paragraph, any licensed software will not be
considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
a. Section 2, "TERM"
In line 1 after the word "Equipment", add the words "upon
Lessee's execution of an acceptance certificate or an approved
invoice for payment".
In line 2 after the word "begin", add the words "on the first day of
the next Rent Interval".
b. Section 3, "RENT AND PAYMENT"
<PAGE>
In line 2 before the words "Interim Rent", add the word "No"; after
the words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
In line 4 after the words "on the Schedule", add the words "not to
exceed one month's Rent".
c. Section 5.1, "TITLE"
In line 5 after the word "appropriate", delete the period and add the
words "provided Lessor promptly advises Lessee in writing, except
as provided in Sections 5.2 and 7.2."
d. Section 5.2, "RELOCATION OR SUBLEASE"
In line 1 before the word "consent", delete the word "reasonable";
after the words "Secured Party", add the words " which consent shall
not be unreasonably withheld".
To the end of the last paragraph of this Section, add the words ",
except as agreed to by Lessor in writing".
e. Section 5.3, "Assignment by Lessor"
At the end of subsection (a), delete the word "and"
At the end of subsection (b), add the word "and".
f. Section 7.1, "CARE, USE AND MAINTENANCE"
To the end of this Section, add the following:
Lessor agrees that Lessee may self-maintain Equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained Equipment."
g. Section 7.2, "ATTACHMENTS AND RECONFIGURATIONS"
In line 1 after the word "Lessor", add the words "which consent shall
not be unreasonably withheld".
h. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
i. Section 12, "RISK OF LOSS"
In line 8 of the first paragraph after the word "will", insert the
words ", upon request,".
In line 3 of the second paragraph after the word "will", insert the
words ", within the later of the date of Lessee's receipt of insurance
proceeds or thirty (30) days thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
j. Section 13.1 (c) "DEFAULT"
In line 1 delete the word "failure" and replace with the word
"inability"
k. Section 13.2, "REMEDIES"
In line 1 before the word "notice", insert the word "written".
1. Section 13.3, "MITIGATION"
In line 1 of subsection (b), delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%)"; in line 2 after the words "Initial Term",
add the words "or any extension thereof,".
<PAGE>
m. Section 14.1, "BOARD ATTENDANCE"
In line 1 after the word "attend". insert the words "up to two (2) per
year of"; and in line 2 after the word "meetings", insert the words
"up to the expiration of the lease term".
n. Section 14.2, "FINANCIAL STATEMENTS"
In line 15, delete the words "tax returns".
o. Section 14.3, "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT"
In clause (ii), delete the words "would allow" and replace with the
words "has caused"; at the end of clause (ii), insert the word "; or";
at the end of clause (iii), delete the word "; or" and replace with a
period; delete clause (iv) in its entirety.
p Section 14.4, "MERGER AND SALE PROVISIONS"
In line 5 after the word "documentation", insert the words "reasonably
requested and".
q. Section 14.7, "BINDING NATURE"
To the end of this Section, add the words "except with the prior
written consent of Lessor and as provided in Section 5.2".
r. Section 14.8, "SURVIVAL OF OBLIGATIONS"
In line 4, insert the word "and" between the words "execution" and
"delivery'" delete the words "expiration or termination of this Master
Lease", and add the words "and the agreements and obligations provided
in Sections 6.2 and 11 of this Master Lease shall survive the
termination of the Master Lease".
s. Section 14.19, "DEFINITIONS"
In line 2 of the definition "Casualty Value" after the word "term" add
the words "discounted to present value using a rule of six percent
(6%)".
To the end of the definition "Installation Date", add the words ", and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Overdue Rate", delete the words, "the
lesser ... payment due" and insert the words "interest at the lesser
of 18% per annum"
In line 1 of the definition "Rent", delete the words 1, including
Interim Rent,".
In line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit
A".
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified
on page 1 of this Schedule. All of the terms and conditions of the Master
Lease are incorporated in and made a part of this Schedule as if they were
expressly set forth in this Schedule. The parties hereby reaffirm all of
the terms and conditions of the Master Lease (including, without limitation,
the the representations and warranties set forth in Section 8) except as
modified herein by this Schedule. This Schedule may not be amended or
rescinded except by a writing signed by both parties.
ENDOCARDIAL SOLUTIONS, INC. COMDISCO, INC.
as Lessee as Lessor
By: By:
---------------------------- ---------------------------
Leota Pearson James Labe
Title: Title:
------------------------- -------------------------
Controller President, Venture Lease
Division
Date: Date:
-------------------------- -------------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated October 28, 1996 is executed pursuant to Schedule
No. _______to the Master Lease Agreement dated November 15, 1994 between
Comdisco, Inc. ("Lessor") and ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease and Schedule No. _____are
incorporated herein and made a part hereof and this Commencement Certificate
constitutes a Schedule for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR. TYPE/MODEL SERIAL # LOCATION
(See attached Invoices)
2. INSTALLATION DATE: (See attached Invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the Lessee
on its Installation Date.
<PAGE>
EXHIBIT A
(MULTIPLE QUARTER DELIVERY)
SCHEDULE NO. VL-2
DATED AS OF AUGUST 20, 1996
TO MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 15, 1994 ("MASTER LEASE")
LESSEE: ENDOCARDIAL SOLUTIONS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Leota Paulsen - Controller 6111 North River Road
phone (612) 644-7890 Rosemont, Illinois 60018
fax (612) 644-7897 Attn.: Venture Lease Division
ADDRESS FOR NOTICES:
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
Attn.: Leota Paulsen
CENTRAL BILLING LOCATION: PAYING AGENT:
same as above Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.:_____________________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 36 months
same as above
Attn.: LEASE RATE FACTOR: 3.135%
EQUIPMENT (as defined below): ADVANCE:
Phase I $3,135
Phase II $7,837
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- --- ---- ------------ ------- ----------- ------ -----
Lessor shall finance Equipment specifically approved by Lessor up to an
aggregate purchase price of $350,000.00. $100,000 (Phase I") shall be available
immediately and the remaining $250,000 ("Phase II") will be available upon
Comdisco Ventures formal approval). Equipment shall be delivered to an accepted
by Lessee during the period August 20, 1996 through July 15, 1997 for which
Lessor receives vendor invoices approved for payment not including upgrades
thereto and further excluding custom use equipment, installation costs and
delivery costs, rolling stock, special tooling, custom equipment, "stand-alone"
software, molds and fungible items. In no event shall software costs or
leasehold improvement costs exceed $150,000 hereunder.
<PAGE>
1. NOTICE PERIOD: Not less than one hundred twenty (120) days nor more than
twelve (12) months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. NONE
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3 COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
an acceptance certificate upon acceptance of the Equipment by Lessee, the
Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month into a Commencement Certificate
in the form attached to this Schedule as Exhibit 1 and the Initial Term will
begin the first day of the calendar month thereafter. Each Commencement
Certificate will incorporate the terms and conditions of the Master Lease and
this Schedule and will constitute a separate Schedule. Notwithstanding the
foregoing, if the Equipment pertains to Sale - Leaseback Equipment, then the
Commencement Date shall be the date that Lessor tenders the Purchase Price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least one hundred twenty (120)
days written notice prior to the expiration of the Initial Term. In such
event, the rent to be paid during said extended period shall be mutually
agreed upon and if the parties cannot mutually agree, then the Lease shall
continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. This Schedule will
continue in effect following said extended period until terminated by either
party upon not less than one hundred twenty (120) days prior written notice,
which notice shall be effective as of the Rent Interval next following
receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
one hundred twenty (120) days prior to the expiration of the Initial Term,
Lessee will have the option at the expiration of the Initial Term of this
Schedule to purchase all, but not less than all, of the Equipment listed
herein for a purchase price not to exceed 25% of Lessor's original cost and
upon terms and conditions to be mutually agreed upon by the parties following
Lessee's written notice, plus any taxes applicable at time of purchase. Said
purchase price shall be paid to Lessor at least thirty (30) days before the
expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but,
in no event, earlier than the expiration of the fixed Initial Term. If the
parties are unable to agree on the purchase price or the terms and conditions
with respect to said purchase, then the Lease with respect to this Equipment
shall remain in full force and effect. It is agreed and understood that
Lessor is retaining a purchase money security interest in the Equipment
listed herein and this Schedule shall constitute a Security Agreement under
the Uniform Commercial Code of the state in which the Equipment is located.
Lessor and Lessee agree that for purposes of this paragraph, any licensed
software will not be considered part of the Equipment.
6. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to
this Schedule are hereby modified and amended as follows:
a. Section 2, "Term"
In line 1 after the word "Equipment", add the words "upon Lessee's
execution of an acceptance certificate or an approved invoice for
payment".
In line 2 after the word "begin", add the words "on the first day of
the next Rent Interval".
b. Section 3, "RENT AND PAYMENT"
<PAGE>
In line 2 before the words "Interim Rent", add the word "No"; after
the words "Interim Rent", delete the words "is due and payable when
invoiced" and replace with the words "is required".
In line 4 after the words "on the Schedule", add the words "not to
exceed one Rent".
c. Section 5.1, "Title"
In line 5 after the word "appropriate", delete the period and add the
words "provided Lessor promptly advises Lessee in writing, except as
provided in Sections 5.2 and 7.2."
d. Section 5.2, "RELOCATION OR SUBLEASE"
In line 1 before the word "consent", delete the word "reasonable";
after the words "Secured Party", add the words', which consent
shall not be unreasonably withheld".
To the end of the last paragraph of this Section, add the words
", except as agreed to by Lessor in writing".
e. Section 5.3, "ASSIGNMENT BY LESSOR"
At the end of subsection (a), delete the word "and"
At the end of subsection (b), add the word "and".
f. Section 7.1, "CARE, USE AND MAINTENANCE"
To the end of this Section, add the following:
Lessor agrees that Lessee may self-maintain Equipment, provided the
foregoing requirement regarding recertification will apply to such
self-maintained Equipment."
g. Section 7.2, "ATTACHMENTS AND RECONFIGURATIONS"
In line 1 after the word "Lessor", add the words "which consent shall
not be unreasonably withheld".
h. Section 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
To the end of subsection (b), add the following:
", subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies."
i. .Section 12, "RISK OF LOSS"
In line 8 of the first paragraph after the word "will", insert the
words ", upon request,".
In line 3 of the second paragraph after the word "will", insert the
words ", within the later of the date of Lessee's receipt of insurance
proceeds or thirty (30) days thereafter,".
To the end of this Section, add the following:
"To the extent the insurance proceeds are paid directly to Lessor by
virtue of being named an additional insured under Lessee's equipment
policy, Lessee's obligation to pay Lessor pursuant to the foregoing
shall be decreased by the amount of such insurance proceeds."
j. Section 13.1 (c) "DEFAULT"
In line 1 delete the word "failure' and replace with the word
"inability'
k. Section 13.2, "REMEDIES"
In line 1 before the word "notice", insert the word "written".
1. Section 13.3, "MITIGATION"
In line 1 of subsection (b), delete the words "three points over the
prime rate as referenced in the Wall Street Journal" and replace with
the words "six percent (6%)"; in line 2 after the words "Initial Term",
add the words "or any extension thereof,".
<PAGE>
m. Section 14.1, "BOARD ATTENDANCE"
In line 1 after the word "attend". insert the words "up to two (2) per
year of"; and in line 2 after the word "meetings", insert the words
"up to the expiration of the lease term".
n. Section 14.2, "FINANCIAL STATEMENTS"
In line 15, delete the words "tax returns".
o. Section 14.3, "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT"
In clause (ii), delete the words "would allow" and replace with the
words "has caused"; at the end of clause (ii), insert the word ";
or"; at the end of clause (iii), delete the word "; or" and replace
with a period; delete clause (iv) in its entirety.
p. Section 14.4, "MERGER AND SALE PROVISIONS"
In line 5 after the word "documentation", insert the words "reasonably
requested and".
q. Section 14.7, "BINDING NATURE"
To the end of this Section, add the words "except with the prior
written consent of Lessor and as provided in Section 5.21".
r. Section 14.8, "SURVIVAL OF OBLIGATIONS"
In line 4, insert the word "and" between the words "execution" and
"delivery", delete the words "expiration or termination of this Master
Lease", and add the words land the agreements and obligations provided
in Sections 6.2 and 11 of this Master Lease shall survive the
termination of the Master Lease".
s. Section 14.19, "DEFINITIONS"
In line 2 of the definition "Casualty Value" after the word "term'"
add the words "discounted to present value using a rule of six percent
(6%)".
To the end of the definition "Installation Date", add the words ", and
Lessee has executed an acceptance certificate".
In line 1 of the definition "Overdue Rate", delete the words, "the
lesser .. payment due" and insert the words interest at the lesser of
18% per annum"
In line 1 of the definition "Rent", delete the words 1, including
Interim Rent,".
In line 1 of the definition "Schedule" after the words "Equipment
Schedule", insert the words "substantially in the form of Exhibit A".
MASTER LEASE: This Schedule is issued pursuant to the Master Lease
identified on page 1 of this Schedule. All of the terms and conditions of
the Master Lease are incorporated in and made a part of this Schedule as if
they were expressly set forth in this Schedule. The parties hereby reaffirm
all of the terms and conditions of the Master Lease (including, without
limitation, the representations and warranties set forth in Section 8) except
as modified herein by this Schedule. This Schedule may not be amended or
rescinded except by a writing signed by both parties.
ENDOCARDIAL SOLUTIONS, INC. COMDISCO, INC.
as Lessee as Lessor
By: By:
---------------------------- -------------------------------
Leota Pearson James Labe
Title: Title:
------------------------- --------------------------
Controller President, Venture Lease
Division
Date: Date:
--------------------------- --------------------------
<PAGE>
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated October 28, 1996 is executed pursuant to Schedule
No. _____to the Master Lease Agreement dated November 15, 1994 between Comdisco,
Inc. ("Lessor") and ("Lessee"). All of the terms, conditions, representations
and warranties of the Master Lease and Schedule No. _____are incorporated herein
and made a part hereof and this Commencement Certificate constitutes a Schedule
for the Equipment described below.
1. EQUIPMENT:
EQUIPMENT
QTY MFGR. TYPE/MODEL SERIAL # LOCATION
(See attached Invoices)
2. INSTALLATION DATE: (See attached Invoices)
3. INITIAL TERM STARTS ON:
4. TOTAL EQUIPMENT COST:
5. RENT:
6. REPRESENTATIONS OF LESSEE:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the Lessee
on its Installation Date.
<PAGE>
DRAFT OF OCTOBER 25,1994
ENDOCARDIAL SOLUTIONS, INC.
AMENDED AND RESTATED
1993 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN
Section 1. PURPOSE OF PLAN,
PURPOSE. This Plan shall be known as the "ENDOCARDIAL SOLUTIONS,
INC. AMENDED AND RESTATED 1993 LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and
is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
Endocardial Solutions, Inc., a Minnesota corporation (the "Company"), to offer
such personnel additional incentives to put forth maximum efforts for the
success of the business, and to afford them an opportunity to acquire a
proprietary interest in the Company through stock options and other long-term
incentive awards as provided herein. Options granted under this Plan may be
either incentive stock options ('Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code"), or options that
do not qualify as Incentive Stock Options. Awards granted under this Plan shall
be SARS, restricted stock or performance awards as hereinafter described. With
respect to outstanding Incentive Stock Options at the time of amendment of this
Plan, such options shall continue to be governed by the terms of the Plan prior
to this amendment.
Section 2. STOCK SUBJECT TO PLAN.
Subject to the provisions of Section 15 hereof, the stock to be
subject to options or other awards under the Plan shall be the Company's
authorized but unissued shares of Common Stock, $.Ol par value (the "Common
Shares"). Such shares shall be authorized but unissued shares. Subject to
adjustment as provided in Section 15 hereof, the maximum number of shares on
which options may be exercised or other awards issued under this Plan shall be
850,000 shares. If an option or award under the Plan expires, or for any reason
is terminated or unexercised with respect to any shares, such shares shall again
be available for options or awards thereafter granted during the term of the
Plan.
Section 3. ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by the Board of Directors of
the Company or a committee thereof. The members of any such committee shall be
appointed by and serve at the pleasure of the Board of Directors. (The group
administering the Plan shall hereinafter be referred to as the "Committee".)
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan: (i) to determine
the purchase price of the Common Shares covered by each option or award, (ii) to
determine the employees to whom and the time or times at which such options and
awards shall be granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an SAR or in
connection with performance awards, either cash, Common Shares of the Company or
a combination thereof, (iv) to determine the terms of exercise of each option
and award, (v) to accelerate the time at which all or any part of an option or
award may be exercised, (vi) to amend or modify the terms of any option or award
with the consent of the optionee, (vii) to interpret the Plan, (viii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (ix) to
determine the terms and provisions of each option and award agreement under the
Plan (which agreements need not be identical), including the designation of
those options intended to be Incentive Stock Options, and (x) to make all other
determinations necessary or advisable for the administration of the Plan,
subject to the exclusive authority of the Board of Directors under Section 16
herein to amend or terminate the Plan. The Committee's determinations on the
<PAGE>
foregoing matters, unless otherwise disapproved by the Board of Directors of the
Company, shall be final and conclusive.
(c) The Committee shall select one of its members as its Chair
and shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the
Committee shall be made by not less than a majority of its members. Any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be fully effective as if it had been made by a majority vote
at a meeting duly called and held. The grant of an option or award shall be
effective only if a written agreement shall have been duly executed and
delivered by and on behalf of the Company following such grant. The Committee
may appoint a Secretary and may make such rules and regulations for the conduct
of its business as it shall deem advisable.
Section 4. ELIGIBILITY AND GRANT,
(a) ELIGIBILITY. Incentive Stock Options may only be granted
under this Plan to any full or part-time employee (which term as used herein
includes, but is not limited to, officers and directors who are also employees)
of the Company and of its present and future subsidiary corporations within the
meaning of Section 424(f) of the Code (herein called "subsidiaries"). Full or
part-time employees, officers, consultants, directors (including directors who
are not employees of the Company) or independent contractors of the Company or
one of its subsidiaries shall be eligible to receive options which do not
qualify as Incentive Stock Options and awards. In determining the persons to
whom options and awards shall be granted and the number of shares subject to
each, the Committee may take into account the nature of services rendered by the
respective employees or consultants, their present and potential contributions
to the success of the Company and such other factors as the Committee in its
discretion shall deem relevant.
(b) GRANT OF ADDITIONAL OPTIONS. A person who has been granted
an option or award under this Plan may be granted additional options or awards
under the Plan if the Committee shall so determine; provided, however, that for
Incentive Stock Options to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the Common
Shares with respect to which all Incentive Stock Options are exercisable for the
first time by an employee during any calendar year (under all plans described in
subsection (d) of Section 422 of the Code of his or her employer corporation and
its parent and subsidiary corporations) exceeds $100,000, such options shall be
treated as options that do not qualify as Incentive Stock Options. Nothing in
the Plan or in any agreement thereunder shall confer on any employee any right
to continue in the employ of the Company or any of its subsidiaries or affect,
in any way, the right of the Company or any of its subsidiaries to terminate his
or her employment at any time.
Section 5. PRICE.
The option price for all Incentive Stock Options granted under
the Plan shall be determined by the Committee but shall not be less than 100% of
the fair market value of the Common Shares at the date of grant of such option.
The option price for options granted under the Plan that do not qualify as
Incentive Stock Options and, if applicable, the price for all awards shall also
be determined by the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market value of the Common
Shares shall be as reasonably determined by the Committee. If on the date of
grant of any option or award hereunder the Common Shares are not traded on an
established securities market, the Committee shall make a good faith attempt to
satisfy the requirements of this Section 5 and in connection therewith shall
take such action as it deems necessary or advisable.
2
<PAGE>
Section 6. TERM
Each option and award and all rights and obligations thereunder
shall expire on the date determined by the Committee and specified in the option
or award agreement. The Committee shall be under no duty to provide terms of
like duration for options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such option and the term of options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such option.
Section 7. EXERCISE OF OPTION OR AWARD,
(a) EXERCISABILITY. The Committee shall have full and complete
authority to determine whether an option or award will be exercisable in full at
any time or from time to time during the term thereof, or to provide for the
exercise thereof in such installments, upon the occurrence of such events (such
as termination of employment for any reason) and at such times during the term
of the option as the Committee may determine and specify in the option or award
agreement.
(b) NO VIOLATION OF STATE OR FEDERAL LAWS. The exercise of any
option or award granted hereunder shall only be effective at such time that the
sale of Common Shares pursuant to such exercise will not violate any state or
federal securities or other laws.
(c) METHOD OF EXERCISE. An optionee or grantee electing to
exercise an option or award shall give written notice to the Company of such
election and of the number of shares subject to such exercise. The full
purchase price of such shares shall be tendered with such notice of exercise.
Payment shall he made to the Company in cash (including bank check, certified
check, personal check, or money order), or, at the discretion of the Committee
and as specified by the Committee, (i) by delivering certificates for the
Company's Common Shares already owned by the optionee or grantee having a fair
market value as of the date of grant equal to the full purchase price of the
shares, or (ii) by delivering the optionee's or grantee's promissory note, which
shall provide for interest at a rate not less than the minimum rate required to
avoid the imputation of income, original issue discount or a below-market-rate
loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor
provisions thereto, or (iii) a combination of cash, the optionee's or grantee
promissory note and such shares. The fair market value of such tendered shares
shall be determined as provided in Section 5 herein. The optionee's or
grantee's promissory note shall be a full recourse liability of the optionee and
may, at the discretion of the Committee, be secured by a pledge of the shares
being purchased. Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect to
such shares.
Section 8. STOCK APPRECIATION RIGHTS.
(a) GRANT. At the time of grant of an option or award under the
Plan (or at any other time), the Committee, in its discretion, may grant a Stock
Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) EXERCISE. An SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the holder thereof elects to
exercise his or her SAR as to the
3
<PAGE>
number of shares specified in the notice and which shall further state what
portion, if any, of the SAR exercise amount (hereinafter defined) the holder
thereof requests is to be paid in cash and what portion, if any, is to be paid
in Common Shares of the Company. The Committee promptly shall cause to be paid
to such holder the SAR exercise amount either in cash, in Common Shares of the
Company, or any combination of cash and shares as the Committee may determine.
Such determination may be either in accordance with the request made by the
holder of the SAR or in the sole and absolute discretion of the Committee. The
SAR exercise amount is the excess of the fair market value of one share of the
Company's Common Shares on the date of exercise over the per share exercise
price in respect of which the SAR was granted, multiplied by the number of
shares as to which the SAR is exercised. For the purposes hereof, the fair
market value of the Company's shares shall be determined as provided in Section
5 herein.
Section 9. RESTRICTED STOCK AWARDS.
Awards of Common Shares subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted stock award shall
be evidenced by an agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the following
terms and conditions and any additional terms and conditions established by the
Committee that are consistent with the terms of the Plan:
(a) GRANT OF RESTRICTED STOCK AWARDS. Each restricted
stock award made under the Plan shall be for such number of Common Shares
as shall be determined by the Committee and set forth in the agreement
containing the terms of such restricted stock award. Such agreement shall
set forth a period of time during which the grantee must remain in the
continuous employment of the Company in order for the forfeiture and
transfer restrictions to lapse. If the Committee so determines, the
restrictions may lapse during such restricted period in installments with
respect to specified portions of the shares covered by the restricted stock
award. The agreement may also, in the discretion of the Committee, set
forth performance or other conditions that will subject the Common Shares
to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or
all outstanding restricted stock awards.
(b) DELIVERY OF COMMON SHARES AND RESTRICTIONS. At the
time of a restricted stock award, a certificate representing the number of
Common shares awarded thereunder shall be registered in the name of the
grantee. Such certificate shall be held by the Company or any custodian
appointed by the Company for the account of the grantee subject to the
terms and conditions of the Plan, and shall bear such a legend setting
forth the restrictions imposed thereon as the Committee, in its discretion,
may determine. The grantee shall have all rights of a shareholder with
respect to the Common Shares, including the right to receive dividends and
the right to vote such shares, subject to the following restrictions: (i)
the grantee shall not be entitled to delivery of the stock certificate
until the expiration of the restricted period and the fulfillment of any
other restrictive conditions set forth in the restricted stock agreement
with respect to such Common Shares; (ii) none of the Common Shares may be
sold, assigned, transferred, pledged, hypothecated or otherwise encumbered
or disposed of during such restricted period or until after the fulfillment
of any such other restrictive conditions; and (iii) except as otherwise
determined by the Committee, all of the Common Shares shall be forfeited
and all rights of the grantee to such Common Shares shall terminate,
without further obligation on the part of the Company, unless the grantee
remains in the continuous employment of the Company for the entire
restricted period in relation to which such Common Shares were granted and
unless any other restrictive conditions relating to the restricted stock
award are met. Any Common Shares,
4
<PAGE>
any other securities of the Company and any other property (except for cash
dividends) distributed with respect to the Common Shares subject to
restricted stock awards shall be subject to the same restrictions, terms
and conditions as such restricted Common Shares.
(c) TERMINATION OF RESTRICTIONS. At the end of the
restricted period and provided that any other restrictive conditions of the
restricted stock award are met, or at such earlier time as otherwise
determined by the Committee, all restrictions set forth in the agreement
relating to the restricted stock award or in the Plan shall lapse as to the
restricted Common Shares subject thereto, and a stock certificate for the
appropriate number of Common Shares, free of the restrictions and the
restricted stock legend, shall be delivered to the grantee or his or her
beneficiary or estate, as the case may be.
Section 10. PERFORMANCE AWARDS.
The Committee is further authorized to grant performance awards.
Subject to the terms of this Plan and any applicable award agreement, a
performance awards granted under the Plan (i) may be denominated or payable in
cash, Common Shares (including, without limitation, restricted stock), other
securities, other awards, or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee, in its discretion, and
payable to, or exercisable by, the holder of the performance awards, in whole or
in part, upon the achievement of such performance goals during such performance
periods as the Committee, in its discretion, shall establish. Subject to the
terms of this Plan and any applicable award agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any performance award granted, and the amount of any payment or
transfer to be made by the grantee and by the Company under any Performance
award shall be determined by the Committee.
Section 11. INCOME TAX WITHHOLDING AND TAX BONUSES.
(a) WITHHOLDING OF TAXES. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to ensure that all applicable federal or
state payroll, withholding, income or other taxes, which are the sole and
absolute responsibility of an optionee or grantee under the Plan, are withheld
or collected from such optionee or grantee. In order to assist an optionee or
grantee in paying all federal and state taxes to be withheld or collected upon
exercise of an option or award which does not qualify as an Incentive Stock
Option hereunder, the Committee, in its absolute discretion and subject to such
additional terms and conditions as it may adopt, shall permit the optionee or
grantee to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the shares otherwise to be delivered upon exercise of such
option or award with a fair market value, determined in accordance with Section
5 herein, equal to such taxes or (ii) delivering to the Company Common Shares
other than the shares issuable upon exercise of such option or award with a fair
market value, determined in accordance with Section 5, equal to such taxes.
(b) TAX BONUS. The Committee shall have the authority, at the
time of grant of an option under the Plan or at any time thereafter, to approve
tax bonuses to designated optionees or grantees to be paid upon their exercise
of options or awards granted hereunder. The amount of any such payments shall
be determined by the Committee. The Committee shall have full authority in its
absolute discretion to determined the amount of any such tax bonus and the terms
and conditions affecting the vesting and payment thereafter.
5
<PAGE>
Section 12. ADDITIONAL RESTRICTIONS.
The Committee shall have full and complete authority to determine
whether all or any part of the Common Shares of the Company acquired upon
exercise of any of the options or awards granted under the Plan shall be subject
to restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options or awards.
Section 13. TEN PERCENT SHAREHOLDER.
Notwithstanding any other provision in the Plan, if at the time
an option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Shares of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the fair market value of the
Common Shares of the Company determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five (5) years from
the date such option is granted.
Section 14. NON-TRANSFERABILITY.
No option or award granted under the Plan shall be transferable
by an optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option shall be exercisable
only by such optionee or grantee.
Section 15. DILUTION OR OTHER ADJUSTMENTS.
If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options and awards shall be
made by the Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan, the number of shares and the price per share subject to outstanding
options and awards and the amount payable upon exercise of outstanding awards,
in order to prevent dilution or enlargement of option or award rights.
Section 16. AMENDMENT OR DISCONTINUANCE OF PLAN
The Board of Directors may amend or discontinue the Plan at any
time. Subject to the provisions of Section 15 no amendment of the Plan,
however, shall without shareholder approval: (i) increase the maximum number of
shares under the Plan as provided in Section 2 herein, (ii) decrease the minimum
price provided in Section 5 herein, (iii) extend the maximum term under Section
6, or (iv) modify the eligibility requirements for participation in the Plan.
The Board of Directors shall not alter or impair any option or award theretofore
granted under the Plan without the consent of the holder of the option.
Section 17. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to
be adopted by the Board of Directors or by the shareholders of the Company, and
no action taken by the Committee or the
6
<PAGE>
Board of Directors (other than the execution and delivery of an option or award
agreement), shall constitute the granting of an option or award hereunder.
Section 18. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The Plan was approved by the Board of Directors on May
5, 1993, and as amended on _______________, 1994 and the amendments shall be
effective upon the approval by the shareholders of the Company (the 'Effective
Date").
(b) Unless the Plan shall have been discontinued as provided in
Section 15 hereof, the Plan shall terminate May 4, 2003. No option or award may
be granted after such termination of the Plan shall not, without the consent of
the optionee or grantee, alter or impair any rights or obligations under any
option or award theretofore granted.
7
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ______ day of_______ , 19__ by and
between Endocardial Solutions, Inc., a Minnesota corporation (the "Company"),
("Employee").
WITNESSETH, THAT:
WHEREAS, the Company pursuant to its Amended and Restated 1993 Long-Term
Incentive and Stock Option Plan wishes to grant this stock option to Employee.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION
The Company hereby grants to Employee, on the date set forth above,
the right and option (hereinafter called "the option") to purchase all or any
part of an aggregate of ______ shares of Common Stock, par value $___. per
share, at the price of $_______ per share on the terms and conditions set forth
herein. This option is intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. DURATION AND EXERCISABILITY
(a) This option shall in all events terminate ten (10) years after
the date of grant. Subject to the terms and conditions set forth herein, this
option shall vest over forty-eight (48) months and may be exercised by Employee
in cumulative installments as follows:
On the first day of the month, __________shares
following six months of
employment, beginning _________, 19__
On the first day of the month, __________ shares
thereafter, beginning ________ , 19__
(b) During the lifetime of Employee, the option shall be exercisable
only by Employee and shall not be assignable or transferable by Employee, other
than by will or the laws of descent and distribution.
<PAGE>
(c) Notwithstanding the installment exercise provision set forth in
paragraph (a) above and subject to the other terms and conditions set forth
herein, this option may be exercised as to 100% of the Common Stock of the
Company for which this option was granted on the date of a "change of control"
as hereinafter defined. A "change of control" shall mean any of the following:
(i) A sale of all or substantially all of the assets of the
Company.
(ii) The acquisition of more than 80% of the Common Stock of the
Company (with all classes or series thereof treated as a
single class) by any person or group of persons, except a
Permitted Shareholder as hereinafter defined, acting in
concert. A "Permitted Shareholder" means a holder, as of the
date the Plan was adopted by the Company, of Company Common
Stock.
(iii) A reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another
company, a merger of the Company with another company
wherein there is an 80% or greater change in the ownership
of the Common Stock of the Company as a result of such
merger, or any other transaction in which the Company (other
than as the parent corporation) is consolidated for federal
income tax purposes or is eligible to be consolidated for
federal income tax purposes with another corporation.
(iv) In the event that the Common Stock of the Company is traded
on an established securities market and there is a public
announcement that any person has acquired or has the right
to acquire beneficial ownership of 51% or more of the then
outstanding Common Stock of the Company and for this purpose
the terms "person" and "beneficial ownership" shall have the
meanings provided in Section 13(d) of the Securities and
Exchange Act of 1934 or related rules promulgated by the
Securities and Exchange Commission or; the commencement of
or public announcement of an intention to make a tender
offer or exchange offer for 51% or more of the then
outstanding Common Stock of the Company.
<PAGE>
Employee understands that to the extent that the aggregate fair market value
(determined at the time the option was granted) of the Common Stock with respect
to which all options, that are incentive stock options within the meaning of
Section 422 of the Code, are exercisable for the first time by Employee during
any calendar year exceed $100,000, in accordance with Section 422(d) of the
Code, such options shall be treated as options that do not qualify as incentive
stock options.
3. EFFECT OF TERMINATION OF EMPLOYMENT
(a) In the event that Employee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than Employee's
serious misconduct or Employee's death or disability (as such term is defined in
Section 3(c) hereof), Employee shall have the right to exercise the option at
any time within one (1) month after such termination of employment to the extent
of the full number of shares Employee was entitled to purchase under the option
on the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of Employee's serious misconduct
during the course of employment, including but not limited to wrongful
appropriation of the Company's funds, or in the event that Employee violates the
covenants set forth in Section 5 hereof, the option shall be terminated as of
the date of the misconduct.
(c) If Employee shall die while in the employ of the Company or
a subsidiary, if any, or within one (1) month after termination of employment
for any reason other than serious misconduct or if employment is terminated
because Employee has become disabled (within the meaning of Code Section
22(e)(3)) while in the employ of the Company or a subsidiary, if any, and
Employee shall not have fully exercised the option, such option may be exercised
at any time within twelve (12) months after Employee's death or date of
termination of employment for disability by Employee, personal representatives
or administrators, or guardians of Employee, as applicable, or by any person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of shares Employee
was entitled to purchase under the option on the date of death,
<PAGE>
termination of employment, if earlier, or date of termination for such
disability and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
4. Manner of Exercise
(a) The option can be exercised only by Employee or other proper
party by delivering within the option period written notice to the Company at
its principal office. The notice shall state the number of shares as to which
the option is being exercised and be accompanied by payment in full of the
option price for all shares designated in the notice.
(b) Employee may pay the option price in cash, by check (bank
check, certified check or personal check), or by money order, or with the
approval of the Company (i) by delivering to the Company for cancellation Common
Stock of the Company with a fair market value as of the date of exercise equal
to the option price or the portion thereof being paid by tendering such shares,
(ii) by delivering to the Company the full option price in a combination of cash
and Employee's full recourse liability promissory note with a principal amount
not to exceed eighty percent (80%) of the option price and a term not to exceed
five (5) years, which promissory note shall provide for interest on the unpaid
balance thereof which at all times in not less than the minimum rate required to
avoid the imputation of income, original issue discount or a below-market rate
loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor
provisions thereto or (iii) by delivering to the Company a combination of cash,
Employee's promissory note and Common Stock of the Company with an aggregate
fair market value and a principal amount equal to the option price. For these
purposes, the fair market value of the Company's Common Stock as of any date
shall be as reasonably determined by the Company pursuant to the Plan.
5. MISCELLANEOUS
(a) This option is issued pursuant to the Company's 1993 Long-
Term Incentive and Stock Option Plan and is subject to its terms. The terms of
the Plan are available for inspection during business hours at the principal
offices of the Company.
(b) This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its subsidiaries,
nor will it interfere in any way with the right of the Company to terminate such
employment at any time. Employee shall have none of the
<PAGE>
rights of a shareholder with respect to shares subject to this option until such
shares shall have been issued to Employee upon exercise of this option.
(c) The exercise of all or any parts of this option shall only
be effective at such time that the sale of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
(d) If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization, recapitalization,
dividend in the form of stock (of whatever amount), stock split or other change
in the corporate structure of the Company, and all or any portion of the option
shall then be unexercised and not yet expired, then appropriate adjustments in
the outstanding option shall be made by the Company, in order to prevent
dilution or enlargement of option rights. Such adjustments shall include, where
appropriate, changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
(e) The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(f) If Employee shall dispose of any of the Common Stock of the
Company acquired by Employee pursuant to the exercise of the option within two
(2) years from the date this option was granted or within one (1) year after the
transfer of any such shares to Employee upon exercise of this option, then, in
order to provide the Company with the opportunity to claim the benefit of any
income tax deduction which may be available to it under the circumstances,
Employee shall promptly notify the Company of the dates of acquisition and
disposition of such shares, the number of shares so disposed of, and the
consideration, if any, received for such shares. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure (i) notice to the Company of any
disposition of the Common Stock of the Company within the time periods described
above and (ii) that, if necessary, all applicable federal or state payroll,
withholding, income or other taxes are withheld or collected from Employee.
(g) Employee agrees to disclose neither the contents nor any of
the terms and conditions of this option to any other person, and agrees that
such disclosure may result in both immediate
<PAGE>
termination of this option without the right to exercise any part thereof and
termination of employment with the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ENDOCARDIAL SOLUTIONS, INC.
By
---------------------------
Its
----------------------------
----------------------------
Employee
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ___ day of , 19__, by and between
Endocardial Solutions, Inc., a Minnesota corporation (the "Company"), and
("Employee").
WITNESSETH, THAT:
WHEREAS, the Company pursuant to its Amended and Restated 1993 Long-Term
Incentive and Stock Option Plan wishes to grant this stock option to Employee.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION
The Company hereby grants to Employee, on the date set forth above,
the right and option (hereinafter called "the option") to purchase all or any
part of an aggregate of _________ shares of Common Stock, par value $.__ per
share, at the price of $______ per share on the terms and conditions set forth
herein. This option is intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. DURATION AND EXERCISABILITY
(a) This option shall in all events terminate ten (10) years after the
date of grant. Subject to the terms and conditions set forth herein, this
option shall vest over forty-eight (48) months and may be exercised by Employee
in cumulative installments as follows:
On the first day of the month, ____________shares
following six months of employment,
beginning __________, 19__
On the first day of the month, _____________shares
thereafter, beginning ________, 19__
<PAGE>
(b) During the lifetime of Employee, the option shall be exercisable only
by Employee and shall not be assignable or transferable by Employee, other than
by will or the laws of descent and distribution.
(c) Notwithstanding the installment exercise provision set forth in
paragraph (a) above and subject to the other terms and conditions set forth
herein, this option may be exercised as to 100% of the Common Stock of the
Company for which this option was granted on the date of a "change of control"
as hereinafter defined. A "change of control" shall mean any of the following:
(i) A sale of all or substantially all of the assets of the
Company.
(ii) The acquisition of more than 80% of the Common Stock of the
Company (with all classes or series thereof treated as a
single class) by any person or group of persons, except a
Permitted Shareholder as hereinafter defined, acting in
concert. A "Permitted Shareholder" means a holder, as of the
date the Plan was adopted by the Company, of Company Common
Stock.
(iii) A reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another
company, a merger of the Company with another company
wherein there is an 80% or greater change in the ownership
of the Common Stock of the as a result of such merger, or
any other transaction in which the Company (other than as
the parent corporation) is consolidated for federal income
tax purposes or is eligible to be consolidated for federal
income tax purposes with another corporation.
(iv) In the event that the Common Stock of the Company is traded
on an established securities market and there is a public
announcement that any person has acquired or has the right
to acquire beneficial ownership of 51% or more of the then
outstanding Common Stock of the Company and for this purpose
the terms "person" and "beneficial ownership" shall have the
meanings provided in Section 13(d) of the Securities and
Exchange Act of 1934 or related rules
<PAGE>
promulgated by the Securities and Exchange Commission or;
the commencement of or public announcement of an intention
to make a tender offer or exchange offer for 51% or more of
the then outstanding Common of the Company.
Employee understands that to the extent that the aggregate fair market value
(determined at the time the option was granted) of the Common Stock with
respect to which all options, that are incentive stock options within the
meaning of Section 422 of the Code, are exercisable for the first time by
Employee during any calendar year exceed $100,000, in accordance with Section
422(d) of the Code, such options shall be treated as options that do not qualify
as incentive stock options.
3. EFFECT OF TERMINATION OF EMPLOYMENT
(a) In the event that Employee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than Employee's
serious misconduct or Employee's death or disability (as such term is defined in
Section 3(c) hereof), Employee shall have the right to exercise the option at
any time within one (1) month after such termination of employment to the extent
of the full number of shares Employee was entitled to purchase under the option
on the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed by
the Company or its subsidiaries, if any, by reason of Employee's serious
misconduct during the course of employment, including but not limited to
wrongful appropriation of the Company's funds, or in the event that Employee
violates the covenants set forth in Section 5 hereof, the option shall be
terminated as of the date of the misconduct.
(c) If Employee shall die while in the employ of the Company or
a subsidiary, if any, or within one (1) month after termination of employment
for any reason other than serious misconduct or if employment is terminated
because Employee has become disabled (within the meaning of Code Section
22(e)(3)) while in the employ of the Company or a subsidiary, if any, and
Employee shall not have fully exercised the option, such option may be exercised
at any time within twelve (12) months after Employee's death or date of
termination of employment for disability by Employee, personal
<PAGE>
representatives or administrators, or guardians of Employee, as applicable, or
by any person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, to the extent of the full number of
shares Employee was entitled to purchase under the option on the date of death,
termination of employment, if earlier, or date of termination for such
disability and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
4. MANNER OF EXERCISE
(a) The option can be exercised only by Employee or other proper
party by delivering within the option period written notice to the Company at
its principal office. The notice shall state the number of shares as to which
the option is being exercised and be accompanied by payment in full of the
option price for all shares designated in the notice.
(b) Employee may pay the option price in cash, by check (bank
check, certified check or personal check), or by money order.
5. MISCELLANEOUS
(a) This option is issued pursuant to the Company's Amended and
Restated 1993 Long-Term Incentive and Stock Option Plan and is subject to its
terms. The terms of the Plan are available for inspection during business hours
at the principal offices of the Company.
(b) This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its subsidiaries,
nor will it interfere in any way with the right of the Company to terminate such
employment at any time. Employee shall have none of the rights of a shareholder
with respect to shares subject to this option until such shares shall have been
issued to Employee upon exercise of this option.
(c) The exercise of all or any parts of this option shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws.
(d) If there shall be any change in the Common Stock of the Company
through merger, consolidation, reorganization, recapitalization, dividend in the
form of stock (of whatever amount), stock split or other change in the corporate
structure of the Company, and all or any portion of the option
<PAGE>
shall then be unexercised and not yet expired, then appropriate adjustments in
the outstanding option shall be made by the Company, in order to prevent
dilution or enlargement of option rights. Such adjustments shall include, where
appropriate, changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
(e) The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(f) If Employee shall dispose of any of the Common Stock of the
Company acquired by Employee pursuant to the exercise of the option within two
(2) years from the date this option was granted or within one (1) year after the
transfer of any such shares to Employee upon exercise of this option, then, in
order to provide the Company with the opportunity to claim the benefit of any
income tax deduction which may be available to it under the circumstances,
Employee shall promptly notify the Company of the dates of acquisition and
disposition of such shares, the number of shares so disposed of, and the
consideration, if any, received for such shares. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure (i) notice to the Company of any
disposition of the Common Stock of the Company within the time periods described
above and (ii) that, if necessary, all applicable federal or state payroll,
withholding, income or other taxes are withheld or collected from Employee.
(g) Employee agrees to disclose neither the contents nor any of the
terms and conditions of this option to any other person, and agrees that such
disclosure may result in both immediate termination of this option without the
right to exercise any part thereof and termination of employment with the
Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ENDOCARDIAL SOLUTIONS, INC.
By
-----------------------------
Its
----------------------------
Employee
isoag.jb
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
NON-INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ___ day of________ , 19__ by and between
Endocardial Solutions, Inc., a Minnesota corporation (the "Company") and
_____________________ ("Optionee").
WITNESSETH, THAT:
WHEREAS, the Company pursuant to its Amended and Restated 1993 Long-Term
Incentive and Stock Option Plan wishes to grant this stock option to Optionee.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION
The Company hereby grants to Optionee, on the date set forth above, the
right and option (hereinafter called "the option") to purchase all or any part
of an aggregate of ________ shares of Common Stock, par value $ .__ per share
("Common Shares"), at the price of $ _________ per share on the terms and
conditions set forth herein. This option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. DURATION AND EXERCISABILITY
(a) This option shall in all events terminate ten (10) years after the
date of grant. Subject to the other terms and conditions set forth herein, this
option shall be exercisable by Optionee as follows:
Cumulative percentage
On or after each of of shares at to which
the following dates opion is exercisable
- -------------------- ----------------------
______________, 19__ ____%
(b) During the lifetime of Optionee, the option shall be exercisable only
by Optionee and shall not be assignable or transferable by Optionee, other than
by will or the laws of descent and distribution.
3. EFFECT OF DEATH.
If Optionee shall die and Optionee shall not have fully exercised the
Option, the Option may be exercised at any time within twelve months after
Optionee's death by the legal representatives or
<PAGE>
administrators of Optionee, or by any person to whom the Option is transferred
by will or the applicable laws of descent and distribution, to the extent of the
full number of shares Optionee was entitled to purchase under the Option on the
date of death and subject to the condition that the Option shall not be
exercisable after the expiration of its term.
4. MANNER OF EXERCISE
(a) The option can be exercised only by Optionee or other proper
party by delivering within the option period written notice to the Company at
its principal office. The notice shall state the number of shares as to which
the option is being exercised and be accompanied by payment in full of the
option price for all shares designated in the notice.
(b) Optionee may pay the option price in cash, by check (bank check,
certified check or personal check), or by money order.
5. MISCELLANEOUS
(a) This option is issued pursuant to the Company's Amended and
Restated 1993 Long-Term Incentive and Stock Option Plan and is subject to its
terms. The terms of the Plan are available for inspection during business hours
at the principal offices of the Company.
(b) This Agreement shall not confer on Optionee any right with
respect to continuance of employment by the Company or any of its subsidiaries,
nor will it interfere in any way with the right of the Company to terminate such
employment at any time. Optionee shall have none of the rights of a shareholder
with respect to shares subject to this option until such shares shall have been
issued to Optionee upon exercise of this option.
(c) The exercise of all or any parts of this option shall only be
effective at such time that the sale of Common Shares pursuant to such exercise
will not violate any state or federal securities or other laws.
(d) If there shall be any change in the Common Shares of the Company
through merger, consolidation, reorganization, recapitalization, dividend in the
form of stock (of whatever amount), stock split or other change in the corporate
structure of the Company, and all or any portion of the option shall then be
unexercised and not yet expired, then appropriate adjustments in the outstanding
option shall
<PAGE>
be made by the Company, in order to prevent dilution or enlargement of option
rights. Such adjustments shall include, where appropriate, changes in the
number of shares of Common Shares and the price per share subject to the
outstanding option.
(e) The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(f) In order to provide the Company with the opportunity to claim the
benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Optionee. Optionee may elect to satisfy his federal and state income tax
withholding obligations upon exercise of this option by (i) having the Company
withhold a portion of the shares of Common Stock otherwise to be delivered upon
exercise of such option having a fair market value equal to the amount of
federal and state income tax required to be withheld upon such exercise, in
accordance with the rules of the Committee, or (ii) delivering to the Company
shares of its Common Stock other than the shares issuable upon exercise of such
option with a fair market value equal to such taxes, in accordance with the
rules of the Committee.
(g) Optionee agrees to disclose neither the contents nor any of the
terms and conditions of this option to any other person, and agrees that such
disclosure may result in both immediate termination of this option without the
right to exercise any part thereof and termination of employment with the
Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ENDOCARDIAL SOLUTIONS, INC.
By
------------------------------
Its
------------------------------
---------------------------------
"Optionee"
<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
DIRECTORS' STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this Endocardial Solutions,
Inc. Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and provide additional
incentive to the Outside Directors of the Company to serve as Directors.
None of the options granted hereunder shall be "incentive stock
options" within the meaning of Section 422 of the Code (as hereinafter defined).
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Endocardial Solutions, Inc., a Delaware
corporation.
(e) "CONTINUOUS STATUS AS A DIRECTOR" shall mean the absence of
any interruption or termination of service as a Director.
(f) "DIRECTOR" shall mean a member of the Board.
(g) "EMPLOYEE" shall mean any person, including officers and
Directors, employed by the Company or any parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(i) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(j) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(k) "OPTIONEE" shall mean an Outside Director who receives an
Option.
(l) "OUTSIDE DIRECTOR" shall mean a Director who is not an
Employee.
(m) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(n) "PLAN" shall mean this Directors' Stock Option Plan.
(o) "SHARES" shall mean shares of the Common Stock, as adjusted
in accordance with Section 10 of the Plan.
(p) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 200,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
<PAGE>
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option (an "Initial Grant") to purchase 10,000 Shares upon the date
on which such person first becomes a Director, whether through election by the
shareholders of the Company or appointment by the Board of Directors to fill a
vacancy. Options granted under this section 4(b)(ii) shall become vested and
thereby exercisable with respect to 33 1/3% on the date of such Initial Grant,
with respect to 33 1/3% of such Initial Grant on the twelve month anniversary
date of such Initial Grant and with respect to 33 1/3% of such Initial Grant on
the date of the second twelve month anniversary date; provided, however, an
unvested portion of an Initial Grant shall only vest so long as the Outside
Director remains a Director on the date such portion vests.
(iii) Each Outside Director shall automatically receive,
on the date of each Annual Meeting of Shareholders, an Option to purchase 5,000
Shares of the Company's Common Stock, such Option to become exercisable six
months subsequent to the date of grant; PROVIDED, however, that such Option
shall only be granted to Outside Directors who have served since the date of the
last Annual Meeting of Shareholders and will continue to serve after the date of
grant of such Option.
(iv) The terms of an Option granted hereunder shall be
as follows:
(A) The term of the Option shall be seven (7) years.
(B) The Option shall be exercisable only while the
Outside Director remains a Director of the Company, except
as set forth in Section 8 hereof.
(C) The exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the
Option.
(D) To the extent necessary to comply with the
applicable provisions of Rule 16b-3 promulgated under the
Exchange Act ("Rule 16b-3"), no Option will be exercisable
until a date more than six months subsequent to the date of
the grant of that Option.
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<PAGE>
(E) A Director shall be entitled to receive Options to
purchase a total of no more than 100,000 Shares of the
Company's Common Stock pursuant to the terms of this Plan.
(c) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 7(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 7(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier
of (i) its adoption by the Board or (ii) its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value ("Fair Market
Value") of a Share shall be determined by the Board in its discretion; PROVIDED,
however, that where there is a public market for the Common Stock, the fair
market value per Share shall be the closing price of the Common Stock in the
over-the-counter market on the date of grant, as reported in THE WALL STREET
JOURNAL (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System) or, in
the event the Common Stock is traded on the NASDAQ National Market System or
listed on a stock exchange, the fair market value per Share shall be the closing
price on such system or exchange on the date of grant of the Option, as reported
in THE WALL STREET JOURNAL.
(c) FORM OF CONSIDERATION. Subject to compliance with
applicable provisions of Section 16(b) of the Exchange Act, (or other applicable
law), the consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the Board and
may consist entirely of (i) cash, (ii) check, (iii) other Shares which (X) in
the case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (Y) have a Fair
Market Value on the date of exercise equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) authorization for
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the
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<PAGE>
total number of Shares as to which the Option is exercised, (v) delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (vi) delivery of an irrevocable subscription
agreement for the Shares which irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (vii) any combination of the foregoing methods of
payment or (viii) such other consideration and method of payment for the
issuance of Shares as may be permitted under applicable laws. In making its
determination as to the type of consideration to accept, the Board shall
consider whether acceptance of such consideration may be reasonably expected to
benefit the Company.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; PROVIDED however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be
issued to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS A DIRECTOR. If an Outside Director
ceases to serve as a Director, he may, but only within seven (7) years after
the date he ceases to be a Director of the Company, or by the date of
termination of the Option, whichever is earlier, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 8(b) above, in the event an Optionee is unable to continue his service
as a Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code) he may, but only within seven (7)
months from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. Notwithstanding the provisions of
Section 8(b) above, in the event of the death of an Optionee:
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<PAGE>
(i) during the term of the Option who is at the time of his
death a Director of the Company and who has been in Continuous Status as a
Director since the date of grant of the Option, the Option may be exercised, at
any time within seven (7) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as a
Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
seven (7) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION OR
MERGER.
(a) In the event that the number of outstanding shares of Common
Stock of the Company is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company without consideration, the number of Shares available under this
Plan and the number of Shares subject to outstanding Options and the exercise
price per share of such Options shall be proportionately adjusted, subject to
any required action by the Board or shareholders of the Company and compliance
with applicable securities laws; PROVIDED however, that no certificate or scrip
representing fractional shares shall be issued upon exercise of any Option and
any resulting fractions of a Share shall be ignored. Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive.
(b) In the event of a dissolution or liquidation of the Company,
a merger in which the Company is not the surviving corporation, a transaction or
series of related transactions in which 100% of the then outstanding voting
stock is sold or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option, accelerate and
become exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or sale
of assets on such conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as
5
<PAGE>
if this Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of the Shares
available for issuance pursuant to this Plan as shall be sufficient to satisfy
the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL.
(a) The Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months of its adoption by the Board. If such
shareholder approval is obtained at a duly held shareholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such shareholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the shareholders of the Company
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
17. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to shareholders, proxy statements and
other information provided to all shareholders of the Company.
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<PAGE>
ENDOCARDIAL SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I. INTRODUCTION
Section 1.01 PURPOSE. The purpose of the Endocardial Solutions, Inc.
1997 Employee Stock Purchase Plan (the "Plan") is to provide employees of
Endocardial Solutions, Inc., a Delaware corporation (the "Company"), and certain
related corporations with an opportunity to share in the ownership of the
Company by providing them with a convenient means for regular and systematic
purchases of the Company's Common Stock, par value $.01 per share, and, thus, to
develop a stronger incentive to work for the continued success of the Company.
Section 1.02 RULES OF INTERPRETATION. It is intended that the Plan
be an "employee stock purchase plan" as defined in Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder. Accordingly, the Plan shall be interpreted and
administered in a manner consistent therewith if so approved. All Participants
in the Plan will have the same rights and privileges consistent with the
provisions of the Plan.
Section 1.03 DEFINITIONS. For purposes of the Plan, the following
terms will have the meanings set forth below:
(a) "ACCELERATION DATE" means the earlier of the date of stockholder
approval or approval by the Company's Board of Directors of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company
Common Stock would be converted into cash, securities or other property,
other than a merger of the Company in which stockholders of the Company
immediately prior to the merger have the same proportionate ownership of
stock in the surviving corporation immediately after the merger; (ii) any
sale, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company; or
(iii) any plan of liquidation or dissolution of the Company.
(b) "AFFILIATE" means any subsidiary corporation of the Company,
as defined in Section 424(f) of the Code, whether now or hereafter
acquired or established.
(c) "COMMITTEE" means the committee described in Section 10.01.
(d) "COMMON STOCK" means the Company's Common Stock, $.01 par
value, as such stock may be adjusted for changes in the stock or the
Company as contemplated by Article XI herein.
<PAGE>
(e) "COMPANY" means Endocardial Solutions, Inc., a Delaware
corporation, and its successors by merger or consolidation as
contemplated by Article XI herein.
(f) "CURRENT COMPENSATION" means all regular wage, salary and
commission payments paid by the Company to a Participant in accordance
with the terms of his or her employment, but excluding annual bonus
payments and all other forms of special compensation.
(g) "FAIR MARKET VALUE" as of a given date means such value of
the Common Stock as reasonably determined by the Committee, but shall
not be less than (i) the closing price of the Common Stock as reported
for composite transactions if the Common Stock is then traded on a
national securities exchange, (ii) the last sale price if the Common
Stock is then quoted on the NASDAQ National Market System, or (iii)
the average of the closing representative bid and asked prices of the
Common Stock as reported on NASDAQ on the date as of which the fair
market value is being determined; provided, however, that the Fair
Market Value on the date of the commencement of the Company's initial
public offering of Common Stock shall be the price set forth on the
cover of the prospectus distributed in connection with such offering.
If on a given date the Common Stock are not traded on an established
securities market, the Committee shall make a good faith attempt to
satisfy the requirements of this Section 1.03 and in connection
therewith shall take such action as it deems necessary or advisable.
(h) "PARTICIPANT" means a Permanent Full-Time Employee who is
eligible to participate in the Plan under Section 2.01 and who has
elected to participate in the Plan.
(i) "PARTICIPATING AFFILIATE" means an Affiliate which has been
designated by the Committee in advance of the Purchase Period in
question as a corporation whose eligible Permanent Full-Time Employees
may participate in the Plan.
(j) "PERMANENT FULL-TIME EMPLOYEE" means an employee of the
Company or a Participating Affiliate as of the first day of a Purchase
Period, including an officer or director who is also an employee, but
excluding an employee whose customary employment is less than 20 hours
per week.
(k) "PLAN" means the Endocardial Solutions, Inc. 1997 Employee
Stock Purchase Plan, as amended, the provisions of which are set forth
herein.
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(l) "PURCHASE PERIOD" means any of the approximate 3-month
periods beginning on the first business day in January, April, July
and October, as appropriate, and ending on the last business day in
March, June, September and December, respectively; provided, however,
that the initial Purchase Period will commence on the date of the
closing of the Company's initial public offering of Common Stock and
will terminate on the last day of the calendar quarter in which the
Company's initial public offering is closed, and that the then current
Purchase Period will end upon the occurrence of an Acceleration Date.
(m) "STOCK PURCHASE ACCOUNT" means the account maintained on the
books and records of the Company recording the amount received from
each Participant through payroll deductions made under the Plan and
from the Company through matching contributions.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
Section 2.01 ELIGIBLE EMPLOYEES. All Permanent Full-Time
Employees shall be eligible to participate in the Plan beginning on the first
day of the first Purchase Period to commence after such person becomes a
Permanent Full-Time Employee. Subject to the provisions of Article VI, each
such employee will continue to be eligible to participate in the Plan so long as
he or she remains a Permanent Full-Time Employee.
Section 2.02 ELECTION TO PARTICIPATE. An eligible Permanent
Full-Time Employee may elect to participate in the Plan for a given Purchase
Period by filing with the Company, in advance of that Purchase Period and in
accordance with such terms and conditions as the Committee in its sole
discretion may impose, a form provided by the Company for such purpose (which
authorizes regular payroll deductions from Current Compensation beginning with
the first payday in that Purchase Period and continuing until the employee
withdraws from the Plan or ceases to be eligible to participate in the Plan).
Section 2.03 LIMITS ON STOCK PURCHASE. No employee shall be
granted any right to purchase Common Stock hereunder if such employee,
immediately after such a right to purchase is granted, would own, directly or
indirectly, within the meaning of Section 423(b)(3) and Section 424(d) of the
Code, Common Stock possessing 5% or more of the total combined voting power or
value of all the classes of the capital stock of the Company or of all
Affiliates.
Section 2.04 VOLUNTARY PARTICIPATION. Participation in the Plan
on the part of a Participant is voluntary and such participation is not a
condition of employment nor does participation in the Plan entitle a Participant
to be retained as an employee.
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ARTICLE III. PAYROLL DEDUCTIONS, COMPANY
CONTRIBUTIONS AND STOCK PURCHASE ACCOUNT
Section 3.01 DEDUCTION FROM PAY. The form described in Section
2.02 will permit a Participant to elect payroll deductions of any multiple of 1%
but not less than 1% or more than 15% of such Participant's Current Compensation
for each pay period, subject to such other limitations as the Committee in its
sole discretion may impose. A Participant may cease making payroll deductions
at any time, subject to such limitations as the Committee in its sole discretion
may impose. In the event that during a Purchase Period the entire credit
balance in a Participant's Stock Purchase Account exceeds the product of (a) 85%
of the Fair Market Value of the Common Stock on the first business day of that
Purchase Period, and (b) 2,000, then payroll deductions for such Participant
shall automatically cease, and shall resume on the first pay period of the next
Purchase Period.
Section 3.02 COMPANY CONTRIBUTIONS. The Company may, in the
sole discretion of the Committee, from time to time contribute to each
Participant's Stock Purchase Account an amount equal to up to 50% of each
payroll deduction credited to such Account. No Company contributions shall be
deemed to have been made until such contributions are credited to the
Participant's Stock Purchase Account as provided in Section 3.03.
Section 3.03 CREDIT TO ACCOUNT. Payroll deductions will be
credited to the Participant's Stock Purchase Account on each payday, and Company
contributions will be credited to the Participant's Stock Purchase Account on
the last business day of the Purchase Period at the time of and in connection
with the purchase of shares of Common Stock in accordance with Articles IV and V
hereof.
Section 3.04 INTEREST. No interest will be paid upon payroll
deductions, Company contributions or on any amount credited to, or on deposit
in, a Participant's Stock Purchase Account.
Section 3.05 NATURE OF ACCOUNT. The Stock Purchase Account is
established solely for accounting purposes, and all amounts credited to the
Stock Purchase Account will remain part of the general assets of the Company or
the Participating Affiliate (as the case may be).
Section 3.06 NO ADDITIONAL CONTRIBUTIONS. A Participant may not
make any payment into the Stock Purchase Account other than the payroll
deductions made pursuant to the Plan.
4
<PAGE>
ARTICLE IV. RIGHT TO PURCHASE SHARES
Section 4.01 NUMBER OF SHARES. Each Participant will have the
right to purchase on the last business day of the Purchase Period all, but not
less than all, of the largest number of whole shares of Common Stock that can be
purchased at the price specified in Section 4.02 with the entire credit balance
in the Participant's Stock Purchase Account, subject to the limitations that (a)
no more than 2,000 shares of Common Stock may be purchased under the Plan by any
one Participant for a given Purchase Period and (b) in accordance with Section
423(b)(8) of the Code, no more than $25,000 in Fair Market Value (determined at
the beginning of each Purchase Period) of Common Stock and other stock may be
purchased under the Plan and all other employee stock purchase plans (if any) of
the Company and the Affiliates by any one Participant for any calendar year. If
the purchases for all Participants would otherwise cause the aggregate number of
shares of Common Stock to be sold under the Plan to exceed the number specified
in Section 10.03, each Participant shall be allocated a pro rata portion of the
Common Stock to be sold.
Section 4.02 PURCHASE PRICE. The purchase price for any
Purchase Period shall be the lesser of (a) 85% of the Fair Market Value of the
Common Stock on the first business day of that Purchase Period or (b) 85% of the
Fair Market Value of the Common Stock on the last business day of that Purchase
Period, in each case rounded up to the next higher full cent.
ARTICLE V. EXERCISE OF RIGHT
Section 5.01 PURCHASE OF STOCK. On the last business day of a
Purchase Period, the entire credit balance in each Participant's Stock Purchase
Account will be used to purchase the largest number of whole shares of Common
Stock purchasable with such amount (subject to the limitations of Section 4.01),
unless the Participant has filed with the Company, in advance of that date and
subject to such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company which requests the distribution of the
entire credit balance in cash.
Section 5.02 CASH DISTRIBUTIONS. Any amount remaining in a
Participant's Stock Purchase Account after the last business day of a Purchase
Period will be paid to the Participant in cash within 30 days after the end of
that Purchase Period.
Section 5.03 NOTICE OF ACCELERATION DATE. The Company shall use
its best efforts to notify each Participant in writing at least ten days prior
to any Acceleration Date that the then current Purchase Period will end on such
Acceleration Date.
5
<PAGE>
ARTICLE VI. WITHDRAWAL FROM PLAN; SALE OF STOCK
Section 6.01 VOLUNTARY WITHDRAWAL. A Participant may, in
accordance with such terms and conditions as the Committee in its sole
discretion may impose, withdraw from the Plan and cease making payroll
deductions by filing with the Company a form provided for this purpose. In such
event, the entire credit balance in the Participant's Stock Purchase Account
will be paid to the Participant in cash within 30 days, provided that in no
event shall any Participant be entitled to withdraw from such Account any
Company contributions credited to such Account at the end of the Purchase Period
pursuant to Section 3.03. A Participant who withdraws from the Plan will not be
eligible to reenter the Plan until the beginning of the next Purchase Period
following the date of such withdrawal.
Section 6.02 DEATH. Subject to such terms and conditions as the
Committee in its sole discretion may impose, upon the death of a Participant, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's death occurred and in accordance with Section 5.01, the entire
credit balance in such Participant's Stock Purchase Account will be used to
purchase Common Stock, unless such Participant's estate has filed with the
Company, in advance of that day and subject to such terms and conditions as the
Committee in its sole discretion may impose, a form provided by the Company
which elects to have the entire credit balance in such Participant's Stock
Account distributed in cash within 30 days after the end of that Purchase Period
or at such earlier time as the Committee in its sole discretion may decide,
provided that in no event shall any Participant's estate be entitled to receive
from such Account any Company contributions credited to such Account at the end
of the Purchase Period pursuant to Section 3.03. Each Participant, however, may
designate one or more beneficiaries who, upon death, are to receive the Common
Stock or the amount that otherwise would have been distributed or paid to the
Participant's estate and may change or revoke any such designation from time to
time. No such designation, change or revocation will be effective unless made
by the Participant in writing and filed with the Company during the
Participant's lifetime. Unless the Participant has otherwise specified the
beneficiary designation, the beneficiary or beneficiaries so designated will
become fixed as of the date of the death of the Participant so that, if a
beneficiary survives the Participant but dies before the receipt of the payment
due such beneficiary, the payment will be made to such beneficiary's estate.
Section 6.03 TERMINATION OF EMPLOYMENT. Subject to such terms
and conditions as the Committee in its sole discretion may impose, upon a
Participant's normal or early retirement with the consent of the Company under
any pension or retirement plan of the Company or Participating Affiliate, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's approved
6
<PAGE>
retirement occurred and in accordance with Section 5.01, the entire credit
balance in such Participant's Stock Purchase Account will be used to purchase
Common Stock, unless such Participant has filed with the Company, in advance of
that day and subject to such terms and conditions as the Committee in its sole
discretion may impose, a form provided by the Company which elects to receive
the entire credit balance in such Participant's Stock Purchase Account in cash
within 30 days after the end of that Purchase Period, provided that (i) in no
event shall any Participant be entitled to receive from such Account any Company
contributions credited to such Account at the end of the Purchase Period
pursuant to Section 3.03, and (ii) such Participant shall have no right to
purchase Common Stock in the event that the last day of such a Purchase Period
occurs more than three months following the termination of such Participant's
employment with the Company by reason of such an approved retirement. In the
event of any other termination of employment (other than death) with the Company
or a Participating Affiliate, participation in the Plan will cease on the date
the Participant ceases to be a Permanent Full-Time Employee for any reason. In
such event, the entire credit balance in such Participant's Stock Purchase
Account will be paid to the Participant in cash within 30 days, provided that in
no event shall any Participant be entitled to receive from such Account any
Company contributions credited to such Account at the end of the Purchase Period
pursuant to Section 3.03. For purposes of this Section 6.03, a transfer of
employment to any Affiliate, or a leave of absence which has been approved by
the Committee, will not be deemed a termination of employment as a Permanent
Full-Time Employee.
ARTICLE VII. NONTRANSFERABILITY
Section 7.01 NONTRANSFERABLE RIGHT TO PURCHASE. The right to
purchase Common Stock hereunder may not be assigned, transferred, pledged or
hypothecated (whether by operation of law or otherwise), except as provided in
Section 6.02, and will not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition or levy of attachment or similar process upon the right to purchase
will be null and void and without effect.
Section 7.02 NONTRANSFERABLE ACCOUNT. Except as provided in
Section 6.02, the amounts credited to a Stock Purchase Account may not be
assigned, transferred, pledged or hypothecated in any way, and any attempted
assignment, transfer, pledge, hypothecation or other disposition of such amounts
will be null and void and without effect.
7
<PAGE>
ARTICLE VIII. STOCK CERTIFICATES
Section 8.01 DELIVERY. Promptly after the last day of each
Purchase Period and subject to such terms and conditions as the Committee in its
sole discretion may impose, the Company will cause to be delivered to or for the
benefit of the Participant a certificate representing the Common Stock purchased
on the last business day of such Purchase Period.
Section 8.02 SECURITIES LAWS. The Company shall not be required
to issue or deliver any certificate representing Common Stock prior to
registration under the Securities Act of 1933, as amended, or registration or
qualification under any state law if such registration is required. The Company
shall use its best efforts to accomplish such registration (if and to the extent
required) not later than a reasonable time following the Purchase Period, and
delivery of certificates may be deferred until such registration is
accomplished.
Section 8.03 COMPLETION OF PURCHASE. A Participant shall have
no interest in the Common Stock purchased until a certificate representing the
same is issued to or for the benefit of the Participant.
Section 8.04 FORM OF OWNERSHIP. The certificates representing
Common Stock issued under the Plan will be registered in the name of the
Participant or jointly in the name of the Participant and another person, as the
Participant may direct on a form provided by the Company.
ARTICLE IX. EFFECTIVE DATE, AMENDMENT AND
TERMINATION OF PLAN
Section 9.01 EFFECTIVE DATE. The Plan was approved by the Board
of Directors on January 23, 1997 and shall be approved by the stockholders of
the Company within twelve (12) months thereof.
Section 9.02 PLAN COMMENCEMENT. The initial Purchase Period
under the Plan will commence on the date of the commencement of the Company's
initial public offering of Common Stock. Thereafter, each succeeding Purchase
Period will commence and terminate in accordance with Section 1.03(l).
Section 9.03 POWERS OF BOARD. The Board of Directors may amend
or discontinue the Plan at any time. No amendment or discontinuation of the
Plan, however, shall without stockholder approval be made that: (i) absent such
stockholder approval, would cause Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Act") to become unavailable with respect to the Plan,
(ii) requires stockholder approval under any rules or regulations of the
National Association of Securities Dealers, Inc. or any securities exchange that
are applicable
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<PAGE>
to the Company, or (iii) permit the issuance of Common Stock before payment
therefor in full
Section 9.04 AUTOMATIC TERMINATION. The Plan shall
automatically terminate when all of the shares of Common Stock provided for in
Section 10.03 have been sold.
ARTICLE X. ADMINISTRATION
Section 10.01 THE COMMITTEE. The Plan shall be administered
by a committee (the "Committee") of two or more directors of the Company,
none of whom shall be officers or employees of the Company and all of whom
shall be "disinterested persons" with respect to the Plan within the meaning
of Rule 16b-3 under the Act. The members of the Committee shall be appointed
by and serve at the pleasure of the Board of Directors.
Section 10.02 POWERS OF COMMITTEE. Subject to the provisions of
the Plan, the Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan, to
establish deadlines by which the various administrative forms must be received
in order to be effective, and to adopt such other rules and regulations for
administering the Plan as it may deem appropriate. The Committee shall have
full and complete authority to determine whether all or any part of the Common
Stock acquired pursuant to the Plan shall be subject to restrictions on the
transferability thereof or any other restrictions affecting in any manner a
Participant's rights with respect thereto but any such restrictions shall be
contained in the form by which a Participant elects to participate in the Plan
pursuant to Section 2.02. Decisions of the Committee will be final and binding
on all parties who have an interest in the Plan.
Section 10.03 STOCK TO BE SOLD. The Common Stock to be issued
and sold under the Plan may be treasury shares or authorized but unissued
shares, or the Company may purchase Common Stock in the market for sale under
the Plan. Except as provided in Section 11.01, the aggregate number of shares of
Common Stock to be sold under the Plan will not exceed 200,000 shares.
Section 10.04 NOTICES. Notices to the Committee should be
addressed as follows:
Endocardial Solutions, Inc.
1350 Energy Lane, Suite 110
St. Paul, MN 55108-5254
9
<PAGE>
ARTICLE XI. ADJUSTMENT FOR CHANGES
IN STOCK OR COMPANY
Section 11.01 STOCK DIVIDEND OR RECLASSIFICATION. If the
outstanding shares of Common Stock are increased, decreased, changed into or
exchanged for a different number or kind of securities of the Company, or shares
of a different par value or without par value, through reorganization,
recapitalization, reclassification, stock dividend, stock split, amendment to
the Company's Certificate of Incorporation, reverse stock split or otherwise, an
appropriate adjustment shall be made in the maximum numbers and kind of
securities to be purchased under the Plan with a corresponding adjustment in the
purchase price to be paid therefor.
Section 11.02 MERGER OR CONSOLIDATION. If the Company is merged
into or consolidated with one or more corporations during the term of the Plan,
appropriate adjustments will be made to give effect thereto on an equitable
basis in terms of issuance of shares of the corporation surviving the merger or
of the consolidated corporation, as the case may be.
ARTICLE XII. APPLICABLE LAW
Rights to purchase Common Stock granted under the Plan shall be
construed and shall take effect in accordance with the laws of the State of
Delaware.
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<PAGE>
ENDOCARDIAL THERAPEUTICS, INC.
May 25, 1994
Mr. James W. Bullock
8514 Huntspring Drive
Lutherville, Maryland 21093
Re: EMPLOYMENT TERMS
Dear Jim:
Endocardial Therapeutics Inc. ("ETI") is pleased to offer you the position
of President and Chief Executive Officer, on the following terms.
Your compensation will be at the annual rate of $170,000, payable semi-
monthly, less payroll deductions and all required withholdings. Your
compensation rate will be increased by a minimum of 5 % on each of the first
three anniversaries of your start date provided you remain actively employed at
ETI. You will be eligible for the following standard Company benefits: medical
insurance, vacation, sick leave, holidays. Details about these benefits are
provided in the ETI Employee Handbook. ETI will reimburse you for reasonable
expenses to continue your current medical insurance until you are eligible to
participate under the company's medical insurance plan. ETI may modify the
benefits available to you from time to time as it deems necessary, and may
modify your compensation rate after the fourth anniversary of your start date.
Also, as we discussed, we understand that you intend to propose an employee
bonus plan for consideration by the ETI Board of Directors.
You will receive reimbursement of your relocation expenses for your move
from Maryland to Minnesota, up to a maximum reimbursement of $60,000. Such
relocation expenses shall include points (excluding any amounts that are paid by
the seller) on your mortgage to purchase a residence in Minnesota and other
reasonable moving and househunting expenses for which you have receipts. You
also will be reimbursed on or prior to April 15, 1995 for the additional federal
and state income taxes incurred by you as a result of the relocation expenses
paid by ETI on your behalf. In addition, ETI will reimburse your reasonable
travel and living expenses until the earlier of September 15, 1994 or until you
are relocated.
As an employee of ETI you will be expected to abide by company rules and
regulations, acknowledge in writing that you have read the company's Employee
Handbook, and sign and comply with ETI's Proprietary Information and Inventions
Agreement.
<PAGE>
Mr. James W. Bullock
Page 2
Promptly after your start date we will recommend to the ETI Board of
Directors that they grant to you an incentive stock option under ETI's 1993
Stock Option Plan for the purchase of 330,000 shares of ETI's common stock at an
exercise price of $0.17 per share, which option will vest monthly over the 48
month period following date of grant. You will be permitted to exercise the
option, in full or in part, prior to the time that it is fully vested, subject
to your execution of a stock restriction agreement to permit ETI to repurchase
from you at your exercise price any unvested shares. You will be permitted to
pay the exercise price of your option with a full recourse promissory note,
bearing interest at the minimum rate necessary to avoid imputation of interest
under the Internal Revenue Code of 1986, which promissory note will be secured
by the purchased stock and will be due and payable upon the earlier of the
termination of your employment, or May 31, 1999. Except as provided in this
paragraph, your option will be subject to the normal terms and conditions of the
Plan.
Either you or ETI may terminate your employment with ETI at any time, with
or without cause. This at-will employment relationship cannot be changed except
in a writing signed by a Company officer. If your employment is terminated by
ETI without cause, you will be entitled to the following severance payment
depending upon the date of termination, which severance will be paid as a
continuation of your then current monthly salary:
If terminated prior to: Salary Continuation
----------------------- -------------------
lst anniversary of start date 12 months
2nd anniversary of start date 9 months
3rd anniversary of start date 6 months
4th anniversary of start date 3 months
On or after 4th anniversary 0 months
The employment terms in this letter supersede any other agreements or
promises made to you by anyone, whether oral or written. As required by law,
this offer is subject to satisfactory proof of your right to work in the United
States.
<PAGE>
Mr. James W. Bullock
Page 3
Please sign and date this letter, and return it to me at your earliest
convenience to formerly accept employment at ETI under the terms described
above. We would like you to start on May 31, 1994. Also, as we previously have
discussed, you will be appointed to the company's Board of Directors to replace
Jeff Budd.
We are pleased to have you on board, and look forward to working with you.
Sincerely,
Ronald H. Kase, Board Member
Accepted by:
- --------------------------------
James W. Bullock
- -------------------------------
Date
<PAGE>
ENDOCARDIAL SOLUTIONS
December 29, 1994
I hearby choose not to exercise a stock restriction agreement for any portion of
my incentive stock options.
Jim Bullock
President/CEO
Endocardial Solutions, Inc.
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Agreement, made and entered into this 28th day of June, 1996, by and
between Endocardial Solutions, Inc., a Minnesota corporation (the "Company"),
with its principal offices at 1350 Energy Lane, Suite 110, St. Paul, Minnesota,
55108-5254, and Dennis J. McFadden (the "Employee"), residing at 1813 Linner
Road, Wayzata, Minnesota 55391.
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon the Employee's separation
from employment with the under any of the circumstances described herein; and
WHEREAS, this Agreement entered into by the Company in the belief that it
is in the best interest of the Company to provide stable conditions of
employment for the Employee no withstanding the possibility, threat, or
occurrence of certain types of changes in control, thereby enhancing the
Company's ability to attract and retain highly qualified people;
NOW, THEREFORE, in lieu of the foregoing recitals and in consideration of
the mutual covenants, promises, payments, and undertakings of the parties
hereto, the parties agree as follows
1. TERM OF AGREEMENT. The Employee shall be employed on an at-will
basis. This Agreement is not, and shall not be construed as, an employment
contract affecting in any way the duration of the Employee's employment or any
terms and conditions thereof except those set forth herein. The Employee and
the Company may terminate their employment relationship at any time, for any
reason, or for no reason.
2. TERMINATION OF EMPLOYMENT.
(a) PRIOR TO A CHANGE IN CONTROL. Prior to a Change in Control (as
defined in section 3(a) hereof), the Company may terminate the Employee from
employment with the Company at-will with or without Cause (as defined in section
3(c) hereof), at any time.
(b) AFTER A CHANGE IN CONTROL.
(i) From and after the date of a Change in Control (as defined
in section 3(a) hereof) during the term of this Agreement, the Company shall not
terminate the Employee from employment with the Company except as provided in
this section 2(b), or as a result of the Employee's Disability (as defined in
section 3(d) hereof) or his death.
<PAGE>
(ii) From and after the date of a Change in Control (as defined
in section 3(a) hereof) during the term of this Agreement, the Company shall
have the right to terminate the Employee from employment with the Company at any
time during the term of this Agreement for Cause (as defined in section 3(c)
hereof), by written notice to the Employee, specifying the particulars of the
conduct of the Employee forming the basis for such termination.
(iii) From and after the date of a Change in Control (as defined
in section 3(a) hereof) during the term of this Agreement: (a) the Company shall
have the right to terminate the Employee's employment without Cause (as defined
in section 3(c) hereof), at any time; and (b) the Employee shall, upon the
occurrence of such termination by the Company without Cause or upon the
voluntary termination of the Employee's employment by the Employee for Good
Reason (as defined in section 3(b) hereof), be entitled to receive the benefits
provided in section 4 hereof. The Employee shall evidence a voluntary
termination for Good Reason by written notice to the Company given within ten
(10) days after the date of the occurrence of any event that the Employee knows
or should reasonably have known constitutes Good Reason on for voluntary
termination. Such notice need only identify the Employee and set forth in
reasonable detail the facts and circumstances claimed by the Employee to
constitute Good Reason. Any notice given by the Employee pursuant to this
section 2 shall be effective ten (10) days after the date it is given by the
Employee.
3. DEFINITIONS.
(a) A "Change in Control" shall mean:
(i) A change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not the Company "is then subject to such reporting
requirement;
(ii) The public announcement (which, for purposes of this
definition, shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by the Company or any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act) that such person has
become the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act) directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the Company's then
outstanding securities;
(iii) The Continuing Directors cease to constitute a majority of
the Company's Board of Directors;
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<PAGE>
(iv) The shareholders of the Company approve: (a) any
consolidation or Merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company stock
would be converted into cash, securities, or other property, other than a merger
of the Company in which shareholders immediately prior to the merger have the
same proportionate ownership of stock of the surviving corporation immediately
after the merger; (b) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company; or (c) any plan of liquidation or dissolution of the
Company; or
(v) The majority of the Continuing Directors (as defined in
section 3(e) hereof) determine in their sole and absolute discretion that there
has been a Change in Control of the Company.
(b) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of the Employee's employment by the Company for
Cause (as defined in section 3(c) hereof), for Disability (as defined in section
3(d) hereof), or for death:
(i) The assignment to the Employee of employment
responsibilities which are not of comparable responsibility and status as of the
employment responsibilities held by the Employee immediately prior to a Change
in Control (as defined in section 3(a) hereof);
(ii) Any unreasonable reduction by the Company in the
Employee's base salary as in effect immediately prior to the change in control;
(iii) The failure by the Company to obtain, as specified in
section 5(a) hereof, an assumption of the obligations of the Company to perform
this Agreement by any successor to the Company; or
(iv) Any other material breach of this Agreement by the Company
which is not cured thirty (30) days after written notice thereof from the
Employee.
(c) "'Cause" shall mean termination by the Company of the Employee's
employment based upon:
(i) Repeated violations by the Employee of any of his duties
or his repeated failures or omissions to carry out lawful and reasonable orders
which, in the reasonable judgment of the Company, are willful and deliberate and
which are not cured within a reasonable period after the Employee's receipt of
written notice thereof from the Company;
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<PAGE>
(ii) Any act or acts of personal dishonesty by the Employee and
intended to result in the personal enrichment of the Employee at the expense of
the Company;
(iii) Any willful and deliberate misconduct that is materially
and demonstrably injurious to the Company; or
(iv) Any criminal inditement, presentment, or conviction for a
felony, whether or not the Company is the victim of such offense.
(d) "Disability" shall mean any physical or mental condition which
causes the Employee to fail to render services to the Company over a period of
ninety (90) days during any one hundred eight (180) day period. The existence
or nonexistence of the Employee's disability will be determined in good faith by
the Board of Directors after notice in writing given to the Employee at least
thirty (30) thirty days period to such determination. During such (30) day
period, the Employee shall be permitted to make a presentation to the Board of
Directors for its
consideration.
(e) "Continuing Director" shall mean any person who is a member of
the Board of Directors of the Company, while such person is a member of the
Board of Directors, who is not an Acquiring Person (as defined herein) or an
Affiliate or Associate (as defined herein) of an Acquiring Person, or a
representative of an Acquiring Person or any such Affiliate or Associate, and
who:
(i) was a member of the Board of Directors on the date of this
Agreement as first written above; or
(ii) subsequently becomes a member of the Board of Directors,
if such person's initial nomination for election or initial election to the
Board of Directors is recommended or approved by a majority of the Continuing
Directors. For purposes of this section 3(e) "Acquiring Person" shall mean any
"person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act)
who or which, together with all Affiliates and Associates of such person, is the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding securities, but shall not include the Company, any subsidiary of the
Company, or any employee benefit plan of the Company, or of any subsidiary of
the Company, or any entity holding shares of common stock organized, appointed,
or established for, or pursuant to the terms of, any such plan; and "Affiliate"
and "Associate" shall have the respective meaning described to such terms in
Rule 12b-2 promulgated under the Exchange Act.
4
<PAGE>
4. BENEFITS UPON TERMINATION UNDER SECTION 2(b)(iii).
(a) Upon the termination (voluntary or involuntary) of the employment
of the Employee pursuant to section 2(b)(iii) hereof, the Company shall pay to
the Employee, in lieu of any further base salary or bonus payments to the
Employee for periods subsequent to the date that the termination of the
Employee's employment becomes effective, as severance pay, payments as follows:
(i) if the termination pursuant to section 2(b)(iii) hereof
following a Change in Control (as define in section 3(a) hereof) occurs during
the first six (6) months following the commencement of the Employee's
employment, payments equal to twelve (12) times the Employee's monthly base
salary;
(ii) if the termination pursuant to section 2(b)(iii) hereof
following a Change in Control (as defined in section 3(a) hereof) occurs during
the period beginning more than six (6) months and ending twelve (12) months
after the commencement of the Employee's employment, payments equal to nine (9)
times the Employee's monthly base salary;
(iii) if the termination pursuant to section 2(b)(iii) hereof
following a Change in Control (as defined in section 3(a) hereof) occurs during
the period beginning more than twelve (12) months and ending eighteen (18)
months after the commencement of the Employee's employment, payments equal to
six (6) times the Employee's monthly base salary.
(iv) if the termination pursuant to section 2(b)(iii) hereof
following a Change in Control (as defined in section 3(a) hereof) occurs more
than eighteen (18) months after the commencement of the Employee's employment,
the Employee will not be entitled to any payments pursuant to this section 4.
(b) For purposes of this section 4, "the Employee's monthly base
salary" shall mean the Employee's monthly base salary as in effect in the month
preceding the month in which the termination becomes effective or as in effect
in the month preceding the Change in Control whichever is higher.
(c) All payments to the Employee subject to this section 4 shall not
be paid in a lump sum, but, rather, shall be paid periodically in accordance
with the Company's normal payroll practices in effect from time-to-time. All
payments to the Employee subject to this section 4 shall be subject to any
applicable payroll or other taxes required by law to be withheld.
(d) The Employee shall be required to mitigate the amount of any
payment provided for in this section 4 by seeking other employment or otherwise.
The amount of any payment provided in this section 4 shall be reduced by any
compensation earned by the Employee as a result of any employment by an
employer.
5
<PAGE>
5. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect) by purchase, merger, consolidation, or otherwise to all or
substantially all of the business and/or of the assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
agreement and shall entitle the Employee the compensation from the Company in
the same amount and on the same terms as the Employee would be entitled
hereunder if the Employee terminated his employment after a Change in Control
for Good Reason, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the date
that the termination of the Employee's employment becomes effective. As used in
this Agreement, "Company" shall mean the Company and any successor to its
business and/or assets which executes and delivers the Agreement provided for in
section 5(a) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement is personal to the Employee, and the Employee may
not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding the
foregoing, this Agreement shall enure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
heirs, distributees, devicees, and legatees.
6. LIMITATION OF DAMAGES . If for any reason the Employee believes the
severance provisions of this Agreement have not been properly adhered to by the
Company, and if, pursuant to section 7 hereof, it is determined that the Company
has not, in fact, properly adhered to the severance provisions of this
Agreement, the sole and exclusive remedy to which the Employee is entitled is
the severance payment to which he is entitled under the provisions of this
Agreement.
7. DISPUTE RESOLUTION. Any controversy, claim, or dispute arising out of
or relating to the making, performance, breach, termination, expiration,
application, or meaning of this Agreement shall be resolved exclusively by
arbitration before the American Arbitration Association in Minneapolis,
Minnesota, pursuant to the American Arbitration Association's rules then in
effect.
(a) The decision of the arbitrator(s) shall be final and binding on
both parties. Judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. In the event of submission of
any dispute to arbitration, each party shall, not later than thirty (30) days
prior to the date set for hearing, provide to the other party and to the
arbitrator(s) a copy of all exhibits upon which the party intends to rely at the
hearing and a list of all persons whom the party intends to call as witnesses at
the hearing.
6
<PAGE>
(b) The arbitrator(c) shall strictly adhere to the sole and exclusive
remedy set forth in section 6 hereof and may not award or assess punitive
damages against either party.
(c) Each party shall bear its own costs and expenses of the
arbitration and one-half (1/2) of the fees and costs of the arbitrator(s).
8. MODIFICATION; WAIVER. No provisions of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by the Employee and such officer as may be
specifically designated by the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
9. NOTICE. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written
above (directed to the attention of the Board of Directors in the case of the
Company). Either party hereto may change its address for purposes of this
section 9 by giving fifteen (15) days' prior written notice to the other party
hereto.
10. SEVERABILITY. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be effected thereby and each term and
provision of this Agreement shall be valid and enforceable to fullest extent
permitted by law.
11. GOVERNING LAW. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity, and performance.
12. EFFECT OF AGREEMENT; ENTIRE AGREEMENT. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to the subject matter hereof and is not intended create any
obligation on the part of either party to continue employment. This Agreement
supersedes any and all other oral or written agreements or policies made
relating to the subject matter hereof and constitutes the entire agreement of
the parties relating to the subject matter hereof; provided that this Agreement
shall not supersede or limit in any way the Employee's rights under any benefit
plan, program, or arrangements in accordance with their terms.
7
<PAGE>
IN WITNESS WHEREOF,, the Company and the Employee have executed this Agreement
as of the date first written above.
ENDOCARDIAL SOLUTIONS, INC.
By
------------------------------------ ---------------------------------
James Bullock Dennis J. McFadden
Its President
8
<PAGE>
[Execution Copy]
--------------------------------------------------------------
INVESTMENT AGREEMENT
by and between
ENDOCARDIAL SOLUTIONS, INC.
and
MEDTRONIC ASSET MANAGEMENT, INC.
Dated as of April 26, 1996
------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Specific Definitions . . . . . . . . . . . . . . . . . 1
1.2 Definitional Provisions . . . . . . . . . . . . . . . 5
PURCHASE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . 6
2.1 Purchase and Sale of Shares . . . . . . . . . . . . . 6
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . 6
FIRST OFFER PURCHASE RIGHTS, BOARD DESIGNEE, AND
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 First Offer Purchase Rights . . . . . . . . . . . . . 6
3.2 Right to Designate Board Member . . . . . . . . . . . 8
3.3 Distribution Rights . . . . . . . . . . . . . . . . . 8
3.4 Termination . . . . . . . . . . . . . . . . . . . . . 9
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 10
4.1 Organization, Qualifications and Corporate Power . . . 10
4.2 Authorization of Agreement, Etc . . . . . . . . . . . 10
4.3 Validity . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Financial Statements . . . . . . . . . . . . . . . . . 11
4.5 Litigation; Compliance with Law . . . . . . . . . . . 11
4.6 Proprietary Information of Third Parties . . . . . . . 12
4.7 Title to Properties . . . . . . . . . . . . . . . . . 12
4.8 Leasehold Interests . . . . . . . . . . . . . . . . . 12
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 No Defaults . . . . . . . . . . . . . . . . . . . . . 12
4.11 Patents, Trademarks, Etc . . . . . . . . . . . . . . . 13
4.12 Brokers . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Transactions With Affiliates . . . . . . . . . . . . . 13
4.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . 13
REPRESENTATIONS AND WARRANTIES OF MEDTRONIC . . . . . . . . . . 14
5.1 Purchase of Shares . . . . . . . . . . . . . . . . . . 14
5.2 Corporate Authority . . . . . . . . . . . . . . . . . 14
COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 15
6.1 Financial Statements, Reports, Etc . . . . . . . . . . 15
6.2 Inspection, Consultation and Advice . . . . . . . . . 16
6.3 Transactions with Affiliates . . . . . . . . . . . . . 16
6.4 Board Meetings . . . . . . . . . . . . . . . . . . . . 16
6.5 Proprietary Information and Employee Inventions
Agreements . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Compliance with Laws . . . . . . . . . . . . . . . . . 16
6.7 Keeping of Records and Books of Account . . . . . . . 16
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<PAGE>
REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Restrictions on Transfer . . . . . . . . . . . . . . . 17
7.2 Demand Registration . . . . . . . . . . . . . . . . . 18
7.3 Piggyback Registrations . . . . . . . . . . . . . . . 19
7.4 Form S-3 Registration . . . . . . . . . . . . . . . . 20
7.5 Expenses of Registration . . . . . . . . . . . . . . . 21
7.6 Obligations of the Company . . . . . . . . . . . . . . 22
7.7 Termination of Registration Rights . . . . . . . . . . 23
7.8 Delay of Registration . . . . . . . . . . . . . . . . 23
7.9 Indemnification . . . . . . . . . . . . . . . . . . . 23
7.10 Assignment of Registration Rights . . . . . . . . . . 26
7.11 Amendment of Registration Rights . . . . . . . . . . . 27
7.12 Limitation on Subsequent Registration Rights . . . . . 27
7.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . 27
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 28
8.1 Indemnification of Medtronic . . . . . . . . . . . . . 28
8.2 Indemnification of the Company . . . . . . . . . . . . 28
8.3 Third-Party Claims . . . . . . . . . . . . . . . . . . 28
8.4 Cooperation as to Indemnified Liability . . . . . . . 29
OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Non-Disclosure . . . . . . . . . . . . . . . . . . . . 29
9.2 Further Assurances . . . . . . . . . . . . . . . . . . 29
9.3 Complete Agreement . . . . . . . . . . . . . . . . . . 29
9.4 Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . . 30
9.5 Waiver, Discharge, Amendment, Etc . . . . . . . . . . 30
9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . 30
9.7 Public Announcement . . . . . . . . . . . . . . . . . 31
9.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . 31
9.9 Governing Law . . . . . . . . . . . . . . . . . . . . 31
9.10 Titles and Headings; Construction . . . . . . . . . . 31
9.11 Benefit . . . . . . . . . . . . . . . . . . . . . . . 31
9.12 Counterparts . . . . . . . . . . . . . . . . . . . . . 31
9.13 Parties in Interest . . . . . . . . . . . . . . . . . 31
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<PAGE>
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made and entered into as of April 26, 1996 by
and between ENDOCARDIAL SOLUTIONS, INC. (the "Company"), a Delaware corporation,
and MEDTRONIC ASSET MANAGEMENT, INC. ("Medtronic"), a Minnesota corporation.
RECITALS
WHEREAS, the Company desires to issue and sell to Medtronic, and Medtronic
desires to purchase from the Company, upon the terms and subject to the
conditions set forth in this Agreement, shares of the Company's Series C
Preferred Stock, which, assuming the conversion of such shares of Series C
Preferred Stock and of all other issued and outstanding shares of the Company's
Preferred Stock into shares of the Company's Common Stock, and the exercise of
all issued and outstanding options or warrants to purchase shares of the
Company's Common Stock, shall equal fifteen percent (15%) of the Company's
Capital Stock; and
WHEREAS, as a further condition to Medtronic's investment described above,
the Company is willing to grant to Medtronic certain rights, including: (i) the
right to purchase its pro rata portion of any issuances of additional securities
of the Company, (ii) the right to designate a member or observer of the
Company's Board of Directors, (iii) the right to have the shares of Common Stock
issuable upon conversion of the Series C Preferred Stock registered under the
Securities Act, (iv) the right, under certain circumstances, to acquire the
stock or the assets of the Company, and (v) the right, under certain
circumstances, to obtain exclusive distribution rights for certain of the
Company's products in territories outside North America.
AGREEMENT
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1.
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth or as referenced below:
<PAGE>
"AFFILIATE" of a specified person (natural or juridical) means a person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. "Control"
shall mean ownership of more than 50% of the shares of stock entitled to vote
for the election of directors in the case of a corporation, and more than 50% of
the voting power in the case of a business entity other than a corporation.
"AGREEMENT" means this Agreement and all exhibits and schedules hereto.
"BOARD" means the Company's Board of Directors.
"CAPITAL STOCK" means the issued and outstanding shares of the Company,
including shares of Common Stock and Preferred Stock.
"COMMON STOCK" means the Company's common stock, $.01 par value per share.
"CONFIDENTIAL INFORMATION" means know-how, trade secrets, and unpublished
information disclosed (whether before or during the term of this Agreement) by
one of the parties (the "disclosing party") to the other party (the "receiving
party") or generated under this Agreement, excluding information which:
(i) was already in the possession of the receiving party prior to
its receipt from the disclosing party (provided that the receiving party is
able to provide the disclosing party with reasonable documentary proof
thereof);
(ii) is or becomes part of the public domain by reason of acts not
attributable to the receiving party;
(iii) is or becomes available to the receiving party from a source
other than the disclosing party which source, to the best of the receiving
party's knowledge, has rightfully obtained such information and has no
obligation of non-disclosure or confidentiality to the disclosure party
with respect thereto;
(iv) is made available by the disclosing party to a third party
unaffiliated with the disclosing party on an unrestricted basis;
(v) has been independently developed by the receiving party without
breach of this Agreement or use of any Confidential Information of the
other party; or
(vi) has been or must be publicly disclosed by reason of legal,
accounting or regulatory requirements beyond the reasonable control, and
despite the reasonable efforts of the receiving party.
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<PAGE>
All Confidential Information disclosed by one party to the other under this
Agreement shall be in writing and bear a legend "Company Proprietary," "Company
Confidential" or words of similar import or, if disclosed in any manner other
than writing, shall be preceded by an oral statement indicating that the
information is proprietary or confidential, and shall be followed by transmittal
of a reasonably detailed written summary of the information provided to the
receiving party with identification as Confidential Information designated as
above within thirty (30) days.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"FORM S-3" means such form under the Securities Act in effect on the date
hereof or any successor registration form under the Securities Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
"HOLDER" means Medtronic or any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 7.8 hereof.
"INITIAL OFFERING" means the initial public offering of the Company's
Common Stock registered under the Securities Act.
"INITIATING HOLDERS" means Holders of more than fifty percent (50%) of the
Registrable Securities then outstanding.
"INTELLECTUAL PROPERTY" means letters patent and patent applications;
trademarks, service marks and registrations thereof and applications therefor;
copyrights and copyright registrations and applications therefor; all
discoveries, ideas, technology, know-how, trade secrets, processes, formulas,
drawings and designs, computer programs or software; and all amendments,
modifications, and improvements to any of the foregoing.
"INVESTORS' RIGHTS AGREEMENT" means that certain Amended and Restated
Investors' Rights Agreement, dated as of January 31, 1995, as amended as of the
date hereof, between the Company and the purchasers of the Series A Preferred
Stock and Series B Preferred Stock identified on the signature pages thereto.
"KNOWLEDGE" means actual knowledge of a fact or the knowledge which such
person could reasonably be expected to have based on reasonable inquiry. The
knowledge of an entity shall include the knowledge of such entity's officers.
-3-
<PAGE>
"LIENS" means liens, mortgages, charges, security interests, claims, voting
trusts, pledges, encumbrances, options, assessments, restrictions, or
third-party or spousal interests of any nature.
"NORTH AMERICA" means the United States of America and Canada.
"PREFERRED STOCK" means the Company's preferred stock, $.01 par value per
share, in such series or classes as may be designated by the Board from time to
time, including without limitation the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock.
"PURCHASED SHARES" means the shares of Series C Preferred Stock purchased
by Medtronic pursuant to Section 2.1.
"REGISTER," "REGISTER," and "REGISTRATION" means a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement.
"REGISTRABLE SECURITIES" means (i) the shares of Common Stock of the
Company issues or issuable upon conversion of the Purchased Shares, the Series A
Preferred Stock and the Series B Preferred Stock, and (ii) any shares of Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 under the Securities Act
or sold in a private transaction in which the transferror's rights under Article
7 of this Agreement or Article III of the Investors' Rights Agreement are not
assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" means the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (i) are then issued and
outstanding and (ii) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES means all expenses incurred by the Company in
complying with Section 7.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Ten
Thousand Dollars ($10,000) of a single special counsel for the holders of
Registrable Securities, blue sky fees and expenses (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company); provided, however, that "Registration Expenses" shall not
include the expense of any special audits incident to or required by such
registration.
-4-
<PAGE>
"SEC" means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLING EXPENSES" means all underwriting discounts and commissions
applicable to a sale of Registrable Securities.
"SERIES A PREFERRED STOCK" means the Company's Series A Preferred Stock,
$.01 par value per share.
"SERIES B PREFERRED STOCK" means the Company's Series B Preferred Stock,
$.01 par value per share.
"SERIES C PREFERRED STOCK" means the Company's Series C Preferred Stock,
$.01 par value per share, having the terms set forth in the Certificate of
Designations attached hereto as Exhibit A.
1.2 DEFINITIONAL PROVISIONS.
(a) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to this Agreement
as a whole and not to any particular provisions of this Agreement.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice-versa.
(c) References to an "Exhibit" or to a "Schedule" are, unless
otherwise specified, to one of the Exhibits or Schedules attached to or
referenced in this Agreement, and references to an "Article" or a "Section"
are, unless otherwise specified, to one of the Articles or Sections of this
Agreement.
(d) The term "person" includes any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or
any department or agency thereof.
-5-
<PAGE>
2.
PURCHASE OF COMMON STOCK
2.1 PURCHASE AND SALE OF SHARES. On the date hereof, the Company hereby
agrees to issue and deliver to Medtronic, and Medtronic hereby agrees to
purchase from the Company, 1,953,700 shares of Series C Preferred Stock (the
"Purchased Shares"), which, assuming the conversion of such shares of Series C
Preferred Stock and of all other issued and outstanding shares of the Company's
Preferred Stock into shares of Common Stock and the exercise of all issued and
outstanding options or warrants to purchase shares of Common Stock, represent
fifteen percent (15%) of the Company's Capital Stock as of the date hereof.
2.2 PURCHASE PRICE. The purchase price for the Purchased Shares shall be
Ten Million Dollars ($10,000,000) payable by wire transfer of immediately
available funds to the Company's account designated by the Company to Medtronic.
3.
FIRST OFFER PURCHASE RIGHTS, BOARD DESIGNEE, AND DISTRIBUTION
3.1 FIRST OFFER PURCHASE RIGHTS. In the event that during the four-year
period immediately following the date of this Agreement, the Company receives a
Third Party Offer (as defined below), the Company shall promptly give notice (a
"Notice") to Medtronic of its receipt of such Third Party Offer, but shall be
under no obligation to disclose, in the Notice or otherwise, the terms of the
Third Party Offer. For purposes of this Agreement, "Third Party Offer" means
either (a) a bona fide offer from a third party that is not an Affiliate of the
Company to purchase all or substantially all of the issued and outstanding
Capital Stock of the Company or to license, purchase or otherwise acquire,
directly or indirectly, in one or more related transactions, all or a
substantial portion of the assets (including the Company's Intellectual
Property) then used by the Company, other than the sale of inventory or the
replacement of equipment in the ordinary course of business or (b) a bona fide
offer from a third party that is not an Affiliate of the Company and that is a
competitor of Medtronic to purchase, directly or indirectly, in one or more
related transactions a twenty percent (20%) or greater interest in the Capital
Stock of the Company, assuming the exercise of all issued and outstanding
options and warrants to purchase Common Stock of the Company. For purposes of
this Agreement, "Third Party Offeror" shall mean the person or entity making the
Third Party Offer.
The Company shall, promptly after deliver of the Notice of the Third Party
Offer to Medtronic, prepare and deliver to Medtronic a written proposal (the
"Company Proposal") setting forth the price and material terms pursuant to which
the Company would be prepared to structure a transaction with Medtronic;
provided, however, that such terms need not be identical to the Third Party
Offer
-6-
<PAGE>
and the Company shall be under no obligation to disclose the terms of the Third
Party Offer in the Company Proposal.
Any Company Proposal so delivered to Medtronic shall constitute an offer,
subject to the negotiation of definitive agreements, to Medtronic to enter into
the transactions proposed in the Company Proposal on the terms specified
therein. Medtronic shall have the exclusive right for a period of forty-five
(45) days from the date of its receipt of the Company Proposal to enter into
definitive agreements with the Company for the consummation of the transactions
proposed in the Company Proposal on the terms specified therein. During such
forty-five day period the Company agrees to promptly provide Medtronic with all
information regarding the Company that Medtronic may reasonably request for the
purpose of evaluating the Company Proposal; provided, however, that the
Company's delivery of any such information shall be subject to its receipt of a
written confidentiality agreement from Medtronic in form and substance
reasonably satisfactory to the Company. If during such forty-five day period,
the Company and Medtronic are unable to reach definitive agreement with respect
to the transactions proposed in the Company Proposal, the Company shall have 120
days to enter into an agreement with the Third Party Offeror on terms no less
favorable than the most favorable terms, if any, proposed by Medtronic during
such forty-five day period. If the Company and the Third Party Offeror are
unable to reach definitive agreement during such 120-day period with respect to
the Third Party Offer, Medtronic's rights with respect to Third Party Offers
described in the first paragraph of this Section 3.1 shall be reinstated and
apply to any subsequent Third Party Offers.
In the event that during the four-year period immediately following the
date of this Agreement, the Company proposes to sell, assign, transfer or
otherwise dispose of all or a substantial portion of the Company's assets or its
Capital Stock (other than in the case of a public offering), the Company shall,
prior to contacting any other third party with respect to such proposed sale,
assignment, transfer or disposition, give Medtronic the exclusive right for a
period of forty-five (45) days to enter into definitive agreements with the
Company for the purchase of all of the outstanding Capital Stock of the Company
or all or substantially all of the assets of the Company. During such forty-
five day period the Company agrees to promptly provide Medtronic with all
information regarding the Company that Medtronic may reasonably request for the
purpose of evaluating the Company and negotiating definitive agreements;
provided, however, that the Company's delivery of any such information shall be
subject to its receipt of a written confidentiality agreement from Medtronic in
form and substance reasonably satisfactory to the Company. If during such
forty-five day period, the Company and Medtronic are unable to reach definitive
agreement with respect to such a purchase, the Company shall have 180 days to
enter into an agreement with a third party with respect to a sale, assignment,
transfer or disposition of all or a substantial portion of the Company's assets
or its Capital Stock on terms no less favorable than the most favorable terms,
if any,
-7-
<PAGE>
proposed by Medtronic during such forty-five day period. If the Company and a
third party are unable to reach definitive agreement during such 180-day period
with respect to such a sale, assignment, transfer or disposition, Medtronic's
rights with respect to any such transactions proposed by the Company and
described in the this paragraph shall be reinstated and apply to any subsequent
such proposed transactions.
3.2 RIGHT TO DESIGNATE BOARD MEMBER.
(a) So long as Medtronic owns at least five percent (5%) of the
issued and outstanding shares of Capital Stock of the Company (subject to
adjustment for any stock splits, stock dividends or other recapitalization
of the Capital Stock), the Company shall permit Medtronic to designate one
representative to be a non-voting, observer of the Company's Board of
Directors (the "Board"). Such designee may be removed or replaced at any
time by Medtronic as deemed reasonably necessary or appropriate by
Medtronic. Medtronic's designee shall receive all notices, documents, and
other information at the same time and in the same manner as such
information is supplied to members of the Board. The Company shall make
reasonable efforts to permit Medtronic's designee to participate or observe
Board meetings by telephone if such designee is unable to attend in person.
(b) At the request of Medtronic, the Company agrees to use its best
efforts, subject to any required shareholder approvals, (i) to expand the
number of members of the Board and appoint Medtronic's designee to the
Board as a director of the Company with full voting privileges, and (ii) in
connection with each meeting, or each written consent in lieu of a meeting,
of the Company's shareholders at which the Board is elected, to nominate
Medtronic's designee for election to the Board and to use its best efforts
to cause Medtronic's designee to be so elected.
3.3 DISTRIBUTION RIGHTS.
(a) The parties agree that, with regard to Company's "Ensite"
catheters and "Focus 2000" workstation and software, and all future models
or replacements thereof (collectively, the "EP Products"), the Company will
retain and maintain exclusive distribution rights for the EP Products in
North America.
(b) In the event that any time after the date of this Agreement the
Company proposes to undertake distribution of EP Products in any territory
outside of North America (a "Distribution Proposal"), the Company shall
provide written notice of such Distribution Proposal to Medtronic. During
the forty-five (45) day period following the Company's delivery of such
notice,
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Medtronic shall have the right to enter into a distribution arrangement
with the Company for exclusive distribution rights for the EP Products in
the territory subject to the Distribution Proposal and on terms specified
in such Distribution Proposal or, if no such terms are specified, on terms
to be mutually agreed between the Company and Medtronic. During such
forty-five day period the Company agrees to promptly provide Medtronic with
all information regarding the Company that Medtronic may reasonably request
for the purpose of evaluating the Company and negotiating definitive
agreements; provided, however, that the Company's delivery of any such
information shall be subject to its receipt of a written confidentiality
agreement from Medtronic in form and substance reasonably satisfactory to
the Company. If during such forty-five day period, the Company and
Medtronic are unable to reach definitive agreement with respect to the
exclusive distribution rights for the EP Products in the territory subject
to the Distribution Proposal, the Company shall have 180 days to enter into
an agreement with a third party with respect to such distribution rights on
terms no more favorable to such third party than terms last offered to
Medtronic during such forty-five day period. If the Company and a third
party are unable to reach definitive agreement during such 180-day period
with respect to such distribution rights, Medtronic's rights with respect
to any distribution of the EP Products in the territory subject to the
Distribution Proposal and described in the this paragraph shall be
reinstated and apply to any subsequent such Distribution Proposal.
(c) The parties agree that any distribution agreement entered into
with respect to the EP Products shall be mutually agreed by the parties and
will include mutually agreeable sales and performance objectives. The
parties further agree that the transfer prices of EP Products under such
agreement shall be negotiated and agreed by the parties taking into account
(i) the average price EP Products are sold to Company's "preferred
customers" (defined as "end users" (not distributors)), and (ii) Company's
"fully allocated manufacturing costs" the definition of which shall be
agreed by the parties in any distribution agreement.
3.4 TERMINATION. Medtronic's rights under Section 3.1 shall terminate on
the earlier occurrence of any of the following events:
(a) the four (4) year anniversary of this Agreement; or
(b) the Company's filing of a registration statement on either Form S-1 or
Form SB-2 under the Securities Act for an Initial Offering with
respect to which the gross proceeds to the Company will be not less
than Twenty Million Dollars ($20,000,000) and such registration
statement is declared effective by the SEC; or
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(c) the Company has complied with the provisions of Section 3.1 and there
has been a change of control of Company such that more than fifty
percent (50%) of the outstanding Capital Stock or assets of the
Company have been purchased by a third party not an Affiliate of the
Company in a single transaction or series of transactions (a "CHANGE
IN CONTROL").
Medtronic's rights under Section 3.2 shall terminate upon the earlier
occurrence of an Initial Offering described in Section 3.4(b) above or a Change
in Control, and Medtronic's rights under Section 3.3 shall terminate upon a
Change in Control.
4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Medtronic as follows:
4.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification and
where the failure to be so licensed or qualified could have material adverse
effect upon the Company or its business. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform this
Agreement, and to issue, sell and deliver the Purchased Shares. The Company has
no subsidiaries.
4.2 AUTHORIZATION OF AGREEMENT, ETC.
(a) The execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations hereunder, and the issuance,
sale and delivery of the Purchased Shares have been duly authorized by all
requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Certificate of
Incorporation or the By-laws of the Company, in each case as amended, or
any provision of any material indenture, agreement or other instrument to
which the Company or any of its properties or assets is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time
or both) a default under any such material indenture, agreement or other
instrument, or result in the creation or imposition of any material Lien
upon any of the properties or assets of the Company.
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(b) The Purchased Shares have been duly authorized and validly
issued, and upon receipt of payment therefor in accordance with Article 2
of this Agreement will be fully paid and nonassessable. The Purchased
Shares are free and clear of all Liens imposed by or through the Company.
4.3 VALIDITY. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject, as to the enforcement of
remedies, to the discretion of the courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally.
4.4 FINANCIAL STATEMENTS. The Company has furnished to Medtronic the
audited balance sheet of the Company as of March 31, 1996 (the "Balance Sheet")
and the related statements of income, stockholders' equity and cash flows of the
Company for the year then ended. All such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied, and fairly present the financial position of the Company
as of the dates thereof and the results of its operations for the periods then
ended. Since the date of the Balance Sheet, there has been no change in the
assets, liabilities or financial condition of the Company from that reflected in
the Balance Sheet except for changes in the ordinary course of business which in
the aggregate have not been materially adverse.
4.5 LITIGATION; COMPLIANCE WITH LAW. There is no (a) action, suit, claim,
proceeding or investigation pending or, to the best of the Company's knowledge,
threatened against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (b) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise, or (c) governmental inquiry pending or, to the best of
the Company's knowledge, threatened against or affecting the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and there is no basis for any of the foregoing.
The Company has complied with all laws, rules, regulations and orders applicable
to its business, operations, properties, assets, products and services and
possesses all necessary permits, licenses and other authorizations required to
conduct its business as conducted except where the failure so to comply or so to
possess would not have a material adverse affect on the Company.
4.6 PROPRIETARY INFORMATION OF THIRD PARTIES. To the best of the Company's
knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with the Company has (a) violated or may be violating
any of the terms or conditions of his employment, non-competition or
nondisclosure
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agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party, or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees.
4.7 TITLE TO PROPERTIES. The Company has good and marketable title to its
properties and assets reflected on the Balance Sheet or acquired by it since the
date of the Balance Sheet (other than properties and assets disposed of in the
ordinary course of business since the date of the Balance Sheet), and all such
properties and assets are free and clear of all Liens, except for liens for or
current taxes not yet due and payable and minor imperfections of title, if any,
not material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations or
proposed operations of the Company.
4.8 LEASEHOLD INTERESTS. Each lease or agreement to which the Company is
a party under which it is a lessee of any property, real or personal, is a valid
agreement in full force and effect.
4.9 TAXES. The Company has filed all tax returns, federal, state, county
and local, required to be filed by it, and the Company has paid all taxes shown
to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable, including without
limitation all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. All such taxes with respect to
which the Company has become obligated pursuant to elections made by the Company
in accordance with generally accepted practice have been paid and adequate
reserves have been established for all taxes accrued but not yet payable. The
federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency assessment with respect to or proposed
adjustment of the Company's federal, state, county or local taxes is pending or,
to the best of the Company's knowledge, threatened.
4.10 NO DEFAULTS. The Company, and to the best of the Company's knowledge,
each other party thereto, has in all material respects performed all the
obligations required to be performed by them to date, have received no notice of
default and are not in default (with due notice or lapse of time or both) under
any lease, agreement or contract now in effect to which the Company is a party
or by which it or its property may be bound except for such defaults that would
not have a material adverse affect on the Company. The Company has no present
expectation or intention of not fully performing all its obligations under each
such lease, contract or other agreement, and the Company has no knowledge of any
breach or anticipated breach by the other party to any contract or commitment to
which the
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Company is a party. The Company is not in violation of its Certificate of
Incorporation and By-laws.
4.11 PATENTS, TRADEMARKS, ETC. To the best of the Company's knowledge,
the Company owns or possesses licenses or other rights to use all of the
Company's Intellectual Property necessary or desirable to the conduct of its
business as conducted and as proposed to be conducted, and no claim is
pending or threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under
any such Intellectual Property, and there is no basis for any such claim. No
claim is pending or threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and there is no
basis for any such claim (whether or not pending or threatened). To the best
of the Company's knowledge, all technical information developed by and
belonging to the Company which has not been patented has been kept
confidential.
4.12 BROKERS. The Company has no contract, arrangement or understanding
with any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
4.13 TRANSACTIONS WITH AFFILIATES. No director, officer, employee or
stockholder of the Company, or member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or any
member of the family of any such person, has a substantial interest or is an
officer, director, trustee, partner or holder of more than 5% of the outstanding
Capital Stock thereof, is a party to any transaction with the Company, including
any contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm.
4.14 DISCLOSURE. Neither this Agreement, nor any other statements,
documents, certificates or other items prepared or supplied by the Company with
respect to the transactions contemplated hereby contains an untrue statement of
a material fact or omits a material fact necessary to make the statements
contained therein not misleading.
5.
REPRESENTATIONS AND WARRANTIES OF MEDTRONIC
Medtronic represents and warrants to the Company as follows:
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5.1 PURCHASE OF SHARES. Medtronic is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Purchased Shares. Medtronic has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of Medtronic's investment in the Company and Medtronic is able
financially to bear the risks thereof. Medtronic has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management. The Purchased Shares are being acquired for Medtronic's
own account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof. Medtronic understands that (i) the
Purchased Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Purchased Shares must be held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration, (iii) the Purchased Shares will bear a
legend to such effect and (iv) the Company will make a notation on its transfer
books to such effect.
5.2 CORPORATE AUTHORITY. The execution, delivery and performance by
Medtronic of this Agreement and the transactions contemplated hereby has been
duly and validly authorized and approved by all requisite corporate action on
the part of Medtronic, and the execution and the delivery of this Agreement and
consummation of the transactions contemplated hereby and compliance with and
fulfillment of the terms and provisions hereof will not (i) conflict with or
result in a breach of the terms, conditions or provisions of or constitute a
default under the Articles of Incorporation or Bylaws of Medtronic, or (ii)
require any affirmative approval, consent, authorization or other order or
action of any court, governmental authority, regulatory body, creditor or any
other person. Medtronic has all requisite power and authority to do and perform
all acts and things required to be done by it under this Agreement and the
agreements contemplated hereby. This Agreement constitutes the valid and
binding obligation of Medtronic enforceable in accordance with their terms
except as may be limited by laws affecting creditors' rights generally or by
judicial limitations on the right to specific performance.
6.
COVENANTS OF THE COMPANY
6.1 FINANCIAL STATEMENTS, REPORTS, ETC. So long as (i) Medtronic is the
legal or beneficial owner of at least five percent (5%) of the issued and
outstanding shares of Capital Stock of the Company (adjusted for any stock
splits, stock dividends or
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other recapitalization of the Capital Stock) and (ii) there has been no Initial
Offering or Change in Control, the Company shall furnish to Medtronic:
(a) within ninety (90) days after the end of each fiscal year of the
Company, a balance sheet of the Company as of the end of such fiscal year
and the related consolidated statements of income, stockholders' equity and
cash flows for the fiscal year then ended, prepared in accordance with
generally accepted accounting principles and certified by a firm of
independent public accountants selected by the Board of Directors of the
Company;
(b) within forty-five (45) days after the end of each fiscal quarter
in each fiscal year (other than the last fiscal quarter in each fiscal
year) a balance sheet of the Company and its subsidiaries and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the chief financial officer or controller of
the Company, such consolidated balance sheet to be as of the end of such
fiscal quarter and such consolidated statements of income, stockholders'
equity and cash flows to be for such fiscal quarter and for the period from
the beginning of the fiscal year to the end of such fiscal quarter, in each
case with comparative statements for the corresponding period in the prior
fiscal year;
(c) at the time of delivery of each quarterly statement pursuant to
Section 6.1(b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in
staffing, marketing, sales and operations;
(d) within thirty (30) days prior to the start of each fiscal year,
consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in
respect of such fiscal year, all itemized in reasonable detail, and,
promptly after preparation, any significant revisions to any of the
foregoing;
(e) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that could
materially adversely affect the Company;
(f) promptly, from time to time, such other information regarding the
business, financial condition, operations, property or affairs of the
Company and any subsidiaries as such Medtronic reasonably may request.
6.2 INSPECTION, CONSULTATION AND ADVICE. The Company shall permit and
cause any Affiliates of the Company to permit Medtronic and such persons as it
may designate, at such Medtronic's expense, to visit and inspect any of the
properties of
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the Company and its Affiliates, examine their books and take copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company and its
Affiliates with their officers, employees and public accountants (and the
Company hereby authorizes said accountants to discuss with Medtronic and such
designees such affairs, finances and accounts), and consult with and advise the
management of the Company and its Affiliates as to their affairs, finances and
accounts, all at reasonable times and upon reasonable notice. All such
information shall be subject to Section 9.1 hereof.
6.3 TRANSACTIONS WITH AFFILIATES. Except for transactions contemplated by
this Agreement or as otherwise approved by the Board, neither the Company nor
any of its subsidiaries shall enter into any transaction with any director,
officer, employee or holder of more than 5% of the outstanding Capital Stock of
the Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person, is a director, officer, trustee, partner or holder of
more than 5% of the outstanding Capital Stock thereof, except for transactions
on customary terms related to such person's employment.
6.4 BOARD MEETINGS. The Company shall use its best efforts to ensure that
meetings of its Board are held at least four (4) times each year and at least
once each quarter.
6.5 PROPRIETARY INFORMATION AND EMPLOYEE INVENTIONS AGREEMENTS. The
Company shall use its best efforts to obtain confidentiality and assignment of
inventions agreements from all officers, key employees and other employees,
consultants or independent contractors who will have access to confidential
information of the Company.
6.6 COMPLIANCE WITH LAWS. The Company shall comply, and cause each
Affiliates to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect its business or
condition, financial or otherwise.
6.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall keep, and
cause each Affiliate to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
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7.
REGISTRATION RIGHTS
7.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Purchased Shares (or the Common Stock issuable upon the
conversion thereof) unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Article 7, provided and
to the extent this Article is then applicable and:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (B) if requested by the Company, such Holder 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 Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of clauses (i) and (ii)
above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its
partners in accordance with partnership interests, or (B) to the
Holder's family member or trust for the benefit of an individual
Holder, provided the transferee will be subject to the terms of this
Section 7.1 to the same extent as if he were an original Holder
hereunder.
(b) Each certificate representing Purchased Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under
applicable state securities laws or as provided elsewhere in the
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE
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OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of
without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
7.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 7.2, if the Company
shall receive at any time after the date hereof, a written request from
Initiating Holders that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities having
an aggregate offering price to the public in excess of $5,000,000, then the
Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of
Section 7.2(b), effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered.
(b) If the 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 7.2 and the Company shall include such information in the written
notice referred to in Section 7.2(a). 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 enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or underwriters shall
be reasonably acceptable to the
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Company). Notwithstanding any other provision of this Section 7.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares that may be included in the underwriting
shall be allocated to the Holders of such Registrable Securities on a pro
rata basis based on the number of Registrable Securities held by all
Holders participating in the related registration (including the Initiating
Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(c) The Company shall not be obligated to effect more than two (2)
registrations pursuant to this Section 7.2.
(d) The Company shall not be required to effect a registration
pursuant to this Section 7.2 during the period starting with the date of
filing of, and ending on the date one hundred eighty (180) days following
the effective date of, the registration statement pertaining to the Initial
Offering, provided that the Company is making reasonable and good faith
efforts to cause such registration statement to become effective. In
addition, the Company shall not be required to effect a registration
pursuant to this Section 7.2 if within thirty (30) days of a receipt of a
written request from Initiating Holders pursuant to Section 7.2(a), the
Company gives notice to the Holders of the Company's intention to file a
registration statement for its Initial Offering within one hundred twenty
(120) days.
7.3 PIGGYBACK REGISTRATIONS.
(a) The Company shall notify all Holders of Registrable Securities in
writing at least thirty (30) days prior to the filing of any registration
statement under the Securities Act for purposes of a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company,
but excluding registration statements relating to employee benefit plans
and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the
Registrable Securities held by it shall, within twenty (20) days after
receipt of the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by such Holder. If a Holder of
Registrable Securities decides not to include all of its Registrable
Securities in any registration statement thereafter filed by the Company,
such Holder shall
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nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration
statements as may be filed by the Company with respect to offerings of its
securities, all upon the terms and conditions set forth herein.
(b) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 7.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder to be included in
a registration pursuant to this Section 7.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provisions of this Agreement, if
the underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by such Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No
such reduction shall reduce the securities being offered by the Company for
its own account to be included in the registration and underwriting, except
that in no event shall the amount of securities of the selling Holders
included in he registration be reduced below twenty-five percent (25%) of
the total amount of securities included in such registration, unless such
offering is the Initial Offering and such registration does not include
shares of any other selling shareholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with
the immediately preceding sentence. In no event will shares of any other
selling shareholder be included in such registration which would reduce the
number of shares which may be included by Holders without the written
consent of such Holders of not less than seventy percent (70%) of the
Registrable Securities proposed to be sold in the offering.
7.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect the registration under the Securities Act, and any related
qualification or compliance with respect to, all or a part of the Registrable
Securities owned by such Holder or Holders by the filing with the SEC of a
registration statement on Form S-3 covering such Registrable Securities, the
Company will:
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(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of
Registrable Securities; 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 fifteen (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 7.4: (i) if Form S-3 under the
Securities Act is not available for such offering by the Holders, (ii) 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 of less than $500,000, (iii) if the Company shall
furnish to the Holders a certificate signed by the Chairman of the Board
stating that in the good faith judgment of the Board, it would be seriously
detrimental to the Company and its shareholders for such 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 one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 7.4, (iv) if the Company has already
effected two (2) registrations for the Holders pursuant to this Section
7.4, or (v) 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 a Form S-3
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
7.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 7.2 or any registration under Section 7.3 or Section 7.4 shall be borne
by the Company. All Selling Expenses incurred in connection with any such
registration shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered. The Company shall not,
however, be required to pay for expenses of any registration proceeding begun
pursuant to Section 7.2 or Section 7.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information
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concerning the Company of which the Company was aware but the Initiating Holders
were not aware at the time of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 7.2 or Section 7.4 (in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
Section 7.5, then the Holders shall not forfeit their rights pursuant to Section
7.2 or Section 7.4 to a demand registration.
7.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect on Form S-3 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
ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by
them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
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Holder participating is such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities
are being sold through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
7.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Article 7 shall terminate and be of no further force and effect five
(5) years after the date following the Company's Initial Offering.
7.8 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 Article 7.
7.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 7.2; 7.3 or 7.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each
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Holder and each person, if any, who controls such Holder within the meaning
of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
Company: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement; and the Company will
reimburse each such Holder, partner, officer or director, or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement
contained in this Section 7.9(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 such Holder,
partner, officer, director, or controlling person of such Holder.
(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, each person, if any, who controls the Company within the meaning
of the Securities Act, and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses,
claims, damages or liabilities (joint or several) to which the Company or
any such director, officer, controlling person, or other such Holder, or
partner, director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished by such Holder and stated to be
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specifically for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person, underwriter
or other Holder, or partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such
loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 7.9(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 further that in no event shall
any indemnity under this Section 7.9(b) exceed the gross proceeds from the
offering received by such Holder unless the Violation is the result of
fraud on the part of such Holder.
(c) Promptly after receipt by an indemnified party under this Section
7.9 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 7.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party provided however,
that if there is more than one indemnified party, the indemnifying party
shall pay for the fees and expenses of one counsel for any and all
indemnified parties to be mutually agreed upon by such indemnified parties,
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 7.9, 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 7.9.
(d) If the indemnification provided for in this Section 7.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred
to herein, the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law
contribute to the
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amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) The foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the SEC at the time the registration statement in
question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any person if a copy of the
Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at
or prior to the time such action is required by the Securities Act.
(f) The obligations of the Company and Holders under this Section 7.9
shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.
7.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Article 7 may be assigned by
a Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under this Article 7 hereof unless it acquires at least fifty thousand
(50,000) shares of Registrable Securities (as adjusted for stock splits and
combinations) and the Company shall, within twenty (20) days after such
transfer, be 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; provided, however, that a Holder's
failure to provide such notice to the Company shall not in any way impair a
Holder's right to make an assignment under this Section 7.10, but until such
notice is provided the Company may continue to treat the original Holder (and
not the Holder's assignee) as the Holder of the registration rights.
Notwithstanding the foregoing, rights to cause the Company to register
securities may be assigned to any person or entity who is a subsidiary, parent,
general partner or limited partner of a Holder regardless of the number of
shares transferred to such person or entity.
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7.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article 7
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least seventy percent (70%)
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 7.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article 7, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
7.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least a majority of the outstanding Registrable Securities,
enter into any agreement with any person or persons providing for the granting
to such holder of registration rights pari passu or senior to those granted to
Holders pursuant to this Article 7, or of registration rights which might cause
a reduction in the number of shares includable by the Holders in any offering
pursuant to Section 7.2 or in any offering subject to Section 7.3.
7.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, a Holder
holding more than one percent (1%) of the Company's voting securities shall not
sell or otherwise transfer or dispose of any Capital Stock (or other securities)
of the Company held by such Holder (other than those included in the
registration) for a period specified by the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(a) such agreement shall be for a period not to exceed ninety (90)
days for all public offerings after the Company's Initial Offering; and
(b) all officers and directors of the Company and holders of at least
one percent (1%) of the Company's voting securities enter into similar
agreements.
The obligations described in this Section 7.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-l or Form S-8 or similar
forms that may be promulgated in the future, or a registration on Form S-4 or
similar form that may be available in the future for a transaction falling under
Rule 145 of the Securities Act. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the
restriction set forth in this Section 7.11 until the end of said one hundred
eighty (180) day (or shorter) period.
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8.
INDEMNIFICATION
8.1 INDEMNIFICATION OF MEDTRONIC. The Company shall indemnify, defend and
hold harmless Medtronic and each of its subsidiaries, officers, directors and
stockholders (Medtronic and such other indemnitees referred to in this Article 8
as "Medtronic") from and against and in respect of any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, interest
and penalties, costs and expenses (including, without limitation, reasonable
legal fees and disbursements incurred in connection therewith and in seeking
indemnification therefor, and any amounts or expenses required to be paid or
incurred in connection with any action, suit, proceeding, claim, appeal, demand,
assessment or judgment) ("Indemnifiable Losses"), resulting from, arising out
of, or imposed upon or incurred by any person to be indemnified hereunder by
reason of any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement or any agreement, certificate or
document executed and delivered by the Company pursuant hereto or in connection
with any of the transactions contemplated by this Agreement.
8.2 INDEMNIFICATION OF THE COMPANY. Medtronic shall indemnify, defend and
hold harmless the Company and each of its subsidiaries, officers, directors and
stockholders (the Company and such other indemnitees referred to in this Article
8 as the "Company") from and against and in respect of any and all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
interest and penalties, costs and expenses (including, without limitation,
reasonable legal fees and disbursements incurred in connection therewith and in
seeking indemnification therefor, and any amounts or expenses required to be
paid or incurred in connection with any action, suit, proceeding, claim, appeal,
demand, assessment or judgment), resulting from, arising out of, or imposed upon
or incurred by any person to be indemnified hereunder by reason of any breach of
any representation, warranty, covenant or agreement of Medtronic contained in
this Agreement or any agreement, certificate or document executed and delivered
by Medtronic pursuant hereto or in connection with the transactions contemplated
by this Agreement.
8.3 THIRD-PARTY CLAIMS. If a claim by a third party is made against an
indemnified party and if the indemnified party intends to seek indemnity with
respect thereto under this Article 8, such indemnified party shall promptly
notify the indemnifying party of such claim; provided, however, that failure to
give timely notice shall not affect the rights of the indemnified party so long
as the failure to give timely notice does not adversely affect the indemnifying
party's ability to defend such claim against a third party. The indemnified
party shall not settle such claim without the consent of the indemnifying party,
which consent shall not be
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unreasonably withheld or delayed. If the indemnifying party acknowledges in
writing its indemnity obligations for Indemnifiable Losses resulting therefrom,
the indemnifying party may participate at its own cost and expense in the
settlement or defense of any claim for which indemnification is sought; PROVIDED
THAT such settlement or defense shall be controlled by the indemnified party.
8.4 COOPERATION AS TO INDEMNIFIED LIABILITY. Each party hereto shall
cooperate fully with the other parties with respect to access to books, records,
or other documentation within such party's control, if deemed reasonably
necessary or appropriate by any party in the defense of any claim which may give
rise to indemnification hereunder.
9.
OTHER PROVISIONS
9.1 NON-DISCLOSURE. Each party agrees not to disclose or use (except as
permitted or required for performance by the party receiving such Confidential
Information of its rights or duties hereunder) any Confidential Information of
the other party obtained during the during the term of this Agreement until the
expiration of three (3) years after the date of this Agreement. Each party
further agrees to take appropriate measures to prevent any such prohibited
disclosure by its present and future employees, officers, agents, subsidiaries,
or consultants during such period.
9.2 FURTHER ASSURANCES. At such time and from time to time on and after
the date hereof upon request by Medtronic, the Company will execute, acknowledge
and deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, certificates and assurances that may be required for the
better conveying, transferring, assigning, delivering, assuring and confirming
to Medtronic, or to its respective successors and assigns, all of the Purchased
Shares or to otherwise carry out the purposes of this Agreement.
9.3 COMPLETE AGREEMENT. The schedules and exhibits to this Agreement
shall be construed as an integral part of this Agreement to the same extent as
if they had been set forth verbatim herein. This Agreement and the schedules
and exhibits hereto constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
whether written or oral relating hereto.
9.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties, covenants and agreements contained herein shall
survive the purchase of the Purchased Shares and remain in full force and
effect. No independent investigation of the Company by Medtronic, its counsel,
or any of
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its agents or employees shall in any way limit or restrict the scope of the
representations and warranties made by the Company in this Agreement.
9.5 WAIVER, DISCHARGE, AMENDMENT, ETC. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall not, absent an
express written waiver signed by the party making such waiver specifying the
provision being waived, be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or any part thereof or the
right of the party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any other
or subsequent breach. This Agreement may be amended by the Company and
Medtronic, by mutual action approved by their respective Boards of Directors or
their respective officers authorized by such Board of Directors, at any time
prior to the Closing Date. Any amendment to this Agreement shall be in writing
and signed by the Company and Medtronic.
9.6 NOTICES. All notices or other communications to a party required or
permitted hereunder shall be in writing and shall be delivered personally or by
telecopy (receipt confirmed) to such party (or, in the case of an entity, to an
executive officer of such party) or shall be sent by a reputable express
delivery service or by certified mail, postage prepaid with return receipt
requested, addressed as follows:
if to Medtronic to:
Medtronic Asset Management, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Attention: Michael D. Ellwein,
Vice President Corporate Development
and Associate General Counsel
FAX (612) 572-5404
if to the Company to:
Endocardial Solutions, Inc.
1350 Energy Lane, Suite 110
St. Paul, Minnesota 55108-5254
Attention: James W. Bullock, President and
Chief Executive Officer
FAX (612) 644-7897
Any party may change the above-specified recipient and/or mailing
address by notice to all other parties given in the manner herein prescribed.
All notices shall be deemed given on the day when actually delivered as provided
above (if
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delivered personally or by telecopy) or on the day shown on the return receipt
(if delivered by mail or delivery service).
9.7 PUBLIC ANNOUNCEMENT. In the event any party proposes to issue
any press release or public announcement concerning any provisions of this
Agreement or the transactions contemplated hereby, such party shall so advise
the other parties hereto, and the parties shall thereafter use their best
efforts to cause a mutually agreeable release or announcement to be issued.
Neither party will publicly disclose or divulge any provisions of this Agreement
or the transactions contemplated hereby without the other parties' written
consent, except as may be required by applicable law or stock exchange
regulation, and except for communications to employees.
9.8 EXPENSES. The Company and Medtronic shall each pay their own
expenses incident to this Agreement and the preparation for, and consummation
of, the transactions provided for herein.
9.9 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Minnesota, including all
matters of construction, validity, performance and enforcement, without giving
effect to principles of conflict of laws.
9.10 TITLES AND HEADINGS; CONSTRUCTION. The titles and headings to
the Articles and Sections herein are inserted for the convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. This Agreement shall be construed without
regard to any presumption or other rule requiring construction hereof against
the party causing this Agreement to be drafted.
9.11 BENEFIT. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.
9.13 PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
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IN WITNESS WHEREOF, each of the parties has caused this Investment
Agreement to be executed as of the date first written above.
ENDOCARDIAL SOLUTIONS, INC.
By /s/ James W. Bullock
Name: James W. Bullock
Title: President and Chief
Executive Officer
MEDTRONIC ASSET MANAGMENT, INC.
By
--------------------------------
Name:
Title:
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EXHIBIT 10.13
ENDOCARDIAL SOLUTIONS, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
I. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
1.1 Amendment of Prior Agreement . . . . . . . . . . . . . . . . . . . 2.
II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
III. REGISTRATION: RESTRICTIONS OF TRANSFER . . . . . . . . . . . . . . . . 3.
3.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . 3.
3.2 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . 4.
3.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . 5.
3.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . 6.
3.5 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . 7.
3.6 Obligations of the Company . . . . . . . . . . . . . . . . . . . . 7.
3.7 Termination of Registration Rights . . . . . . . . . . . . . . . . 8.
3.8 Delay of Registration. . . . . . . . . . . . . . . . . . . . . . . 9.
3.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 9.
3.10 Assignment of Registration Rights. . . . . . . . . . . . . . . . .11.
3.11 Amendment of Registration Rights . . . . . . . . . . . . . . . . .11.
3.12 Limitation on Subsequent Registration Rights . . . . . . . . . . .11.
3.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . .12.
IV. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . .12.
4.1 Basic Financial Information and Reporting. . . . . . . . . . . . .12.
4.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . .13.
4.3 Confidentiality of Records . . . . . . . . . . . . . . . . . . . .13.
4.4 Reservation of Common Stock. . . . . . . . . . . . . . . . . . . .14.
4.5 Limitation on Future Issuances . . . . . . . . . . . . . . . . . .14.
4.6 Stock Vesting . . . . . . . . . . . . . . . . . . . . . . . . . .14.
4.7 Proprietary Information and Inventions Agreement . . . . . . . . .14.
4.8 Real Property Holding Corporation . . . . . . . . . . . . . . . .14.
4.9 Termination of Covenants . . . . . . . . . . . . . . . . . . . . .14.
V. RIGHTS OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . .15.
5.1 Subsequent Offerings . . . . . . . . . . . . . . . . . . . . . . .15.
5.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . .15.
5.3 Issuance of Equity Securities to Other Persons . . . . . . . . . .15.
5.4 Termination of Rights of First Refusal . . . . . . . . . . . . . .15.
5.5 Transfer of Rights of First Refusal. . . . . . . . . . . . . . . .16.
5.6 Excluded Securities. . . . . . . . . . . . . . . . . . . . . . . .16.
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VI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.
6.1 Certain Additional Restrictions. . . . . . . . . . . . . . . . . .17.
6.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .18.
6.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18.
6.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .18.
6.5 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . .18.
6.6 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . .19.
6.7 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . .19.
6.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19.
6.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . .19.
6.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .19.
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<PAGE>
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the "Agreement")
is entered into as of January 31, 1995, by and among Endocardial Solutions,
Inc., a Delaware corporation (the "Company"), and the other undersigned
parties for the purpose of amending certain rights previously granted to the
holders of the Company's outstanding shares of Series A Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), and to the holders of
the Company's outstanding shares of Series B Preferred Stock, par value $.01
per share (the "Series B Preferred Stock"), and to grant similar rights to
additional purchasers of the Company's Series B Preferred Stock (such holders
of Series A and Series B Preferred Stock and purchasers of Series B Preferred
Stock pursuant to the Purchase Agreement (as defined below) are listed on
Exhibit A hereto and shall be referred to collectively as the "Purchasers"
and each individually as a "Purchaser") as more fully set forth below.
RECITALS
A. The Company is the surviving corporation of a merger (the "Merger")
with Endocardial Solutions, Inc., a Minnesota corporation (the
"Predecessor"), pursuant to the terms of a Merger Agreement dated as of
January 30, 1995 (the "Merger Agreement");
B. The Predecessor has granted certain holders of its Series A
Preferred Stock and certain holders of its Series B Preferred Stock
(collectively, the "Existing Holders") registration and other rights under
that certain Amended and Restated Investors' Rights Agreement dated as of
December 22, 1993 (the "Prior Agreement").
C. Upon consummation of the Merger, the Company assumed the
obligations of the Predecessor pursuant to the Prior Agreement and the
registration and other rights thereby became applicable to and for the
benefit of the Existing Holders with respect to the shares of the Company's
Series A Preferred Stock and Series B Preferred Stock issued to such holders
in the Merger.
D. The Company proposes to sell and issue up to 3,676,471 additional
shares of its Series B Preferred Stock pursuant to that certain Series B
Preferred Stock Purchase Agreement dated of even date herewith (the "Purchase
Agreement").
E. As a condition to entering into the Purchase Agreement, the
prospective purchasers have requested that the Company extend registration
and other rights to them with respect to the Series B Preferred Stock of the
Company as set forth below, and the Company has requested and the Existing
Holders who are signatories to this Agreement are willing to amend the rights
given to them pursuant to the Prior Agreement by replacing such rights in
their entirety with the rights set forth in this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as
follows:
I. GENERAL
1.1 AMENDMENT OF PRIOR AGREEMENT. The undersigned parties, who
constitute the requisite parties necessary to amend the Prior Agreement,
hereby agree that effective upon the date hereof, the Prior Agreement is null
and void and superseded by the rights and obligations set forth in this
Agreement, and any application of the right of first refusal set forth in
Article V of the Prior Agreement or of this Agreement as to the issuance of
Series B Preferred Stock under the Purchase Agreement is waived.
II. DEFINITIONS
2.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"Holder" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 3.10 hereof.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued or
issuable upon conversion of the Shares; and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article III of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
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"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 3.2, 3.3 and 3.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements
not to exceed Ten Thousand Dollars ($ 10,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company); provided however, that in the case of registrations
pursuant to Section 3.2, "Registration Expenses" shall not include the
expense of any special audits incident to or required by any such
registrations except for the first such registration under Section 3.2 and
that in the case of registrations pursuant to Section 3.4, "Registration
Expenses" shall not include the expense of any special audits incident to or
required by such registrations under Section 3.4.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Company's Series A and Series B Preferred Stock.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
III. REGISTRATION: RESTRICTIONS ON TRANSFER
3.1 RESTRICTIONS ON TRANSFER.
3.1.1 Each Holder agrees not to make any disposition of all or
any portion of the Registrable Securities (or the Common Stock issuable upon
the conversion thereof) unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Section 3.1, provided and
to the extent such Sections are then applicable and:
3.1.1.1 There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
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<PAGE>
3.1.1.2 (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with
a detailed statement of the circumstances surrounding the proposed
disposition, and (B) if requested by the Company, such Holder 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 Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to RuLe 144 except
in unusual circumstances.
3.1.1.3 Notwithstanding the provisions of
paragraphs 3.1.1.1 and 3.1.1.2 above, no such registration statement or
opinion of counsel shall be necessary for a transfer by a Holder which is (A)
a partnership to its partners in accordance with partnership interests, or
(B) to the Holder's family member or trust for the benefit of an individual
Holder, provided the transferee will be subject to the terms of this Section
3.1 to the same extent as if he were an original Holder hereunder.
3.1.2 Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER
WRITTEN EVIDENCE IN FORM Al SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
3.1.3 The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to
the Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
3.1.4 Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
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3.2 DEMAND REGISTRATION.
3.2.1 Subject to the conditions of this Section 3.2, if the
Company shall receive at any time after the earlier of the Company's Initial
Offering (as defined in Section 3.2.4 below) or March 15, 1996, a written
request from the Holders of more than fifty percent (50%) of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file
a registration statement under the Securities Act covering the registration
of Registrable Securities having an aggregate offering price to the public in
excess of $5,000,000, then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders, and
subject to the limitations of Section 3.2.2, effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities that
the Holders request to be registered.
3.2.2 If the 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 3.2 and the Company shall include such information in the
written notice referred to in Section 3.2.1. 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
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by a majority in interest of
the Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this
Section 3.2, if the underwriter advises the Company in writing that marketing
factors require a limitation of the number of securities to be underwritten
(including Registrable Securities) then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities
on a pro rata basis based on the number of Registrable Securities held by all
Participating Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawal from such underwriting shall be withdrawn
from the registration.
3.2.3 The Company shall not be obligated to effect more than
two (9) registrations pursuant to this Section 3.2.
3.2.4 The Company shall not be required to effect a
registration pursuant to this Section 3.2 during the period starting with the
date of filing of, and ending on the date one hundred eighty (180) days
following the effective date of, the
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<PAGE>
registration statement pertaining to the initial public offering of the
Company's Common Stock (the "Initial Offering"), provided that the Company is
making reasonable and good faith efforts to cause such registration statement
to become effective. In addition, the Company shall not be required to effect
a registration pursuant to this Section 3.9 if within thirty (30) days of
receipt of a written request from Initiating Holders pursuant to Section
3.2.1, the Company gives notice to the Holders of the Company's intention to
file a registration statement for its Initial Offering within one hundred
twenty (120) days.
3.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding registration statements relating to employee
benefit plans and corporate reorganizations) and will afford each such Holder
an opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the Registrable
Securities held by it shall, within twenty (90) days after receipt of the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
3.3.1 UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 3.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities.
In such event, the right of any such Holder to be included in a registration
pursuant to this Section 3.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of the Agreement if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company;
second, to the Holders on a pro rata basis based on the total number of
Registrable Securities held by the Holders; and third, to any shareholder of
the Company (other than a Holder) on a pro rata basis. No such reduction
shall reduce the securities being offered by the
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<PAGE>
Company for its own account to be included in the registration and
underwriting, except that in no event shall the amount of securities of the
selling Holders included in the registration be reduced below twenty-five
percent (25%) of the total amount of securities included in such
registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling shareholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling shareholder be included in such registration
which would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than seventy percent (70%)
of the Registrable Securities proposed to be sold in the offering.
3.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities 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:
3.4.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders of Registrable Securities; and
3.4.2 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 fifteen (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 3.1: (i) if Form So is not available for such offering by the
Holders, (ii) 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 of less than $500,000, (iii) if the Company
shall furnish to the Holders a certificate signed by the Chairman of the
Board of Directors of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be
effected at such time, in 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 one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 3.4, (iv) if the Company has already
effected two (2) registrations on Form S-3 for the Holders pursuant to this
Section 3.4, or (v) in any particular jurisdiction in which the Company would
be required to qualify to do
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<PAGE>
business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.
3.4.3 Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders.
3.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 3.2 or any registration under Section 3.3 or Section 3.4 herein shall
be borne by the Company. All Selling Expenses incurred in connection with
any registrations hereunder shall be borne by the holders of the securities
so registered pro rata on the basis of the number of shares so registered.
The Company shall not, however, be required to pay for expenses of any
registration proceeding begun pursuant to Section 3.2 or 3.4, the request of
which has been subsequently withdrawn by the Initiating Holders unless (a)
the withdrawal is based upon material adverse information concerning the
Company of which the Company was aware but the Initiating Holders were not
aware at the time of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 3.2 or Section 3.4 in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested. If
the Company is required to pay the Registration Expenses of a withdrawn
offering pursuant to Section 3.5(a), then the Holders shall not forfeit their
rights pursuant to Section 3.2 or Section 3.4 to a demand registration.
3.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
3.6.1 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 ninety (90) days.
3.6.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
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3.6.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3.6.4 Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
3.6.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
3.6.6 Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
3.6.7 Furnish, at the request of a majority of the Holders
participating in the registrations on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a majority
in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii? a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering and reasonable
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
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3.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Article III shall terminate and be of no further force and
effect five (5) years after the date following the Company's Initial Offering.
3.8 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 Article III.
3.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 3.2, 3.3 or 3.4:
3.9.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of
1934, as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading,
or (iii) any violation or alleged violation by the Company of the Securities
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the 1934 Act or any state securities
law in connection with the offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 3.9.1 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 such Holder,
partner, officer, director, underwriter or controlling person of such Holder.
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3.9.2 To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or
other such Holder, or partner, director, officer or controlling person of
such other Holder may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner,
officer, director or controlling person of such other Holder in connection
with investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there was such a Violation;
provided, however, that the indemnity agreement contained in this Section 3.9.2
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 further that in no event shall any indemnity under this Section 3.9
exceed the gross proceeds from the offering received by such Holder unless
the Violation is the result of fraud on the part of such Holder.
3.9.3 Promptly after receipt by an indemnified party under this
Section 3.9 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 3.9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party provided however, that
if there is more than one indemnified party, the indemnifying party shall pay
for the fees and expenses of one counsel for any and all indemnified parties
to be mutually agreed upon by such indemnified parties, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such
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action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party
under this Section 3.9, 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 3.9.
3.9.4 if the indemnification provided for in this Section 3.9
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
violation(s) that resulted in such loss, claim, damage or liability, as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a
court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
3.9.5 The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration
statement in question becomes effective or the amended prospectus filed with
the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any person if a copy of the Final
Prospectus was furnished to the indemnified party and was not furnished to
the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
3.9.6 The obligations of the Company and Holders under this
Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
3.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the-
Company to register Registrable Securities pursuant to this Article III may
be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Sections 3.2, 3.3 or 3.4 hereof unless
it acquires at least fifty thousand (50,000) shares of Registrable Securities
(as adjusted for stock splits and combinations) and the Company shall, within
twenty (20) days after such transfer, be furnished with
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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,
provided, however, that a Holder's failure to provide such notice to the
Company shall not in any way impair a Holder's right to make an assignment
under this Section 3.10, but until such notice is provided the Company may
continue to treat the original Holder (and not the Holder's assignee) as the
Holder of the registration rights. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any person or
entity who is a subsidiary, parent, general partner or limited partner of a
Holder regardless of the number of shares transferred to such person or
entity.
3.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article III
may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least seventy
percent (70%) of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 3.11 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article III,
Holders of Registrable Securities hereby agree to be bound by the provisions
hereunder.
3.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the outstanding Registrable
Securities, enter into any agreement with any person or persons providing for
the granting to such holder of registration rights pari passu or senior to
those granted to Holders pursuant to this Section a, or of registration
rights which might cause a reduction in the number of shares includable by
the Holders in any offering pursuant to Section 3.9 or in any offering
subject to Section 3.3.
3.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, a Purchaser
holding more than one percent (1%) of the Company's voting securities shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Purchaser (other than those included
in the registration) for a period specified by the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
3.13.1 such agreement shall be for a period not to exceed ninety
(90) days for all public offerings after the Company's Initial Offering; and
3.13.2 all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into
similar agreements.
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The obligations described in this Section 3.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred eighty (180)
day (or shorter) period.
IV. COVENANTS OF THE COMPANY.
4.1 BASIC FINANCIAL INFORMATION AND REPORTING
4.1.1 The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered
in accordance with generally accepted accounting principles consistently
applied, and will set aside on its books all such proper accruals and
reserves as shall be required under generally accepted accounting principles
consistently applied.
4.1.2 As soon as practicable after the end of each fiscal year
of the Company, and in any event within 90 days thereafter, the Company will
furnish to each Purchaser a consolidated balance sheet of the Company, as at
the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all
prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative Arm the figures for the previous
fiscal year, all in reasonable detail. Such financial statements shall be
accompanied by a report and opinion thereon by independent public accountants
of national standing selected by the Company's Board of Directors.
4.1.3 The Company will furnish to each Purchaser, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within thirty
(30) days thereafter, a consolidated balance sheet of the Company as of the
end of each such quarterly period, and a consolidated statement of income and
a consolidated statement of cash flows of the Company for such period and for
the current fiscal year to date, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
4.1.4 So long as a Purchaser (with its affiliates) shall own
not less than two hundred thousand (200,000) shares of the Company's Series B
Preferred Stock or one hundred thousand (100,000) shares of the Company's
Series A Preferred Stock (a "Major Purchaser"), the Company will furnish each
such Major Purchaser (i) at least
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thirty (30) days prior to the beginning of each fiscal year an annual budget
and operating plans for such fiscal year; (ii) within thirty (30) days after
the end of each month, an unaudited balance sheet and statements of income
and cash flows, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made, but such
statement shall set forth applicable budget figures and variances from
budget; and (iii) such other information as such Major Purchaser may
reasonably request.
4.1.5 So long as a Purchaser remains a Major Purchaser, such
Purchaser shall be entitled to receive notice of and attend as an observer
all meetings of the Board of Directors and any committees thereof. Such
Purchaser shall also be entitled to receive any advance materials, including
meeting agendas, sent to directors by the Company with respect to such
meetings; provided, however, that the Company reserves the right to exclude
such Purchaser from access to any material or meeting or portion thereof if
the Board of Directors believes upon advice of counsel that such exclusion is
reasonably necessary to preserve attorney-client privilege, to protect highly
confidential proprietary information or for other similar reasons.
4.2 INSPECTION RIGHTS. Each Major Purchaser shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, all at such reasonable
times and as often as may be reasonably requested; provided, however, that
the Company shall not be obligated under this Section 4.2 with respect to a
competitor of the Company or with respect to information which the Board of
Directors believes upon advice of counsel should be excluded to preserve
attorney-client privilege, to protect highly confidential proprietary
information or for other similar reasons.
4.3 CONFIDENTIALITY OF RECORDS. Each Purchaser agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Purchaser uses to protect its own-confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Purchaser may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Purchaser for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 4.3.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of
the Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
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4.5 LIMITATION ORE FUTURE ISSUANCES. The Company shall not issue
shares of its Common Stock or grant options to purchase shares of its Common
Stock to any employees, consultants, advisors or directors if the sum of (a) the
number of shares issued to employees, consultants, advisors or directors
after March 25, 1993 (including shares issued by the Predecessor) and (b) the
number of shares issuable upon the exercise of options or warrants granted
after March 25, 1993 (including options granted by the Predecessor) exceeds
1,487,750 without the consent of the Holders of at least seventy percent
(70%) of the Registrable Securities.
4.6 STOCK VESTING. Unless otherwise approved by the Board of
Directors, all stock and stock equivalents issued after the date of this
Agreement to employees, directors and consultants will be subject to
five-year vesting with no vesting until the end of the first year and monthly
vesting thereafter. The repurchase option, to which all unvested shares of
stock shall be subject, shall provide that upon termination of the employment
of the shareholder, with or without cause, the Company or its assignee (to
the extent permissible under applicable securities laws) retains the option
to repurchase at cost any unvested shares held by such shareholder.
4.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all employees to execute and deliver a Proprietary Information
and Inventions Agreement substantially in the form attached to the Purchase
Agreement as Exhibit H.
4.8 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it
will operate in a manner such that it will not become a "United States real
property holding corporation" (a "USRPHC") as that term is defined in
Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder ("FIRPTA"). The Company agrees to make determinations
as to its status as a USRPHC, and will file statements concerning those
determinations with the Internal Revenue Service, in the manner and at the
times required under Reg. Section 1.897-2(h), or any supplementary or
successor provision thereto. Within 30 days of a request from an Purchaser
or any of its partners, the Company will inform the requesting party, in the
manner set forth in Reg. Section 1.897-2(h)(1)(iv) or any supplementary or
successor provision thereto, whether that party's interest in the Company
constitutes a United States real property interest (within the meaning of
Internal Revenue Code Section 897(c)(1) and the regulations thereunder) and
whether the Company has provided to the Internal Revenue Service all required
notices as to its USRPHC status.
4.9 TERMINATION OF COVENANTS. All covenants of the Company contained
in Article IV of this Agreement shall expire and terminate as to each
Purchaser after
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the time of the closing of the Company's first firm commitment underwritten
public offering registered under the Securities Act.
V. RIGHTS OF FIRST REFUSAL.
5.1 SUBSEQUENT OFFERINGS. Each Major Purchaser shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 5.6 hereof. Each Major Purchaser's pro rata share is
equal to the ratio of the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of
the Shares) of which such Major Purchaser is deemed to be a holder
immediately prior to the issuance of such Equity Securities to the total
number of shares of the Company's outstanding Common Stock (including all
shares of Common Stock issuable upon conversion of the Shares) held by all
Major Purchasers. The term "Equity Securities" shall mean (i) any stock or
similar security of the Company, (ii) any security convertible, with or
without consideration, into any stock or similar security (including any
option to purchase such a convertible security), (iii) any security carrying
any warrant or right to subscribe to or purchase any stock or similar
security or (iv) any such warrant or right.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Major Purchaser written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Purchaser shall have fifteen (15) days from the giving of such notice to
agree to purchase its pro rata share of the Equity Securities for the price
and upon the terms and conditions specified in the notice by giving written
notice to the Company and stating therein the quantity of Equity Securities
to be purchased. Notwithstanding the foregoing, the Company shall not be
required to offer or sell such Equity Securities to any Major Purchaser who
would cause the Company to be in violation of applicable federal securities
laws by virtue of such offer or sale.
5.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the
Major Purchasers elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Major
Purchasers who do so elect and shall offer such Major Purchasers the right to
acquire such unsubscribed shares ("Subscription Notice"). The Major
Purchasers shall have five (5) days after receipt of the Subscription Notice
to notify the Company of its election to purchase all or a portion of the
unsubscribed shares. If the Major Purchasers fail to exercise in full the
rights of first refusal, the Company shall have sixty (60) days thereafter to
sell the Equity Securities in respect of which the Major Purchasers' rights
were not exercised, at a price and upon terms and conditions no more
favorable to the purchasers thereof than specified in the Company's notice to
the Major Purchasers pursuant to
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Section 5.2 hereof. If the Company has not sold such Equity Securities
within such sixty (60) days, the Company shall not thereafter issue or sell
any Equity Securities, without first offering such securities to the Major
Purchasers in the manner provided above.
5.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Article V shall terminate upon the closing of an
underwritten public offering of Common Stock of the Company made pursuant to
an effective registration statement under the Securities Act.
5.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
of each Major Purchaser under this Article V may be transferred to any
constituent partner or affiliate of such Major Purchaser, to any successor in
interest to all or substantially all the assets of such Major Purchaser, or
to a transferee who acquires two hundred thousand (200,000) shares of
Registrable Securities.
5.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Article V shall have no application to any of the following Equity
Securities:
5.6.1 shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights) issued or to be issued to employees,
officers or directors of, or consultants or advisors to the Company or the
Predecessor or any subsidiary of either of the foregoing, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board, up to an aggregate amount of One Million Four Hundred Eighty Seven
Thousand Seven Hundred Fifty (1,487,750) shares of Common Stock;
5.6.2 stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants
outstanding as of the date of this Agreement; and stock issued pursuant to
any such rights or agreements granted after the date of this Agreement,
provided that the rights of first refusal established by this Article V
applied with respect to the initial sale or grant by the Company of such
rights or agreements;
5.6.3 up to 93,213 shares of Series B Preferred Stock issued
upon exercise of the warrant to be issued as described in Exhibit F to the
Purchase Agreement, the exercise price of which shall be not less than $1.70
per share;
5.6.4 any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
5.6.5 any Equity Securities that are issued by the Company as
part of an underwritten public offering referred to in Section 5.4 hereof;
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5.6.6 shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
5.6.7 shares of Common Stock issued upon conversion of the
Preferred Stock; and
5.6.8 any Equity Securities issued pursuant to any equipment
leasing arrangement, or bank financing.
VI. MISCELLANEOUS.
6.1 CERTAIN ADDITIONAL RESTRICTIONS.
6.1.1 The Company will not, without the prior written consent
of holders of at least seventy (70%) of the outstanding shares of Series B
Preferred Stock, hereafter authorize, designate or issue any shares of Series B
Preferred Stock. This Section 6.1.1 may not be amended without the prior
written consent of the holders of at least seventy percent (70%) of the
outstanding shares of Series B Preferred Stock.
6.1.2 For so long as the aggregate number of outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, collectively,
exceeds 500,000 (as adjusted for stock splits, stock dividends, combinations
of shares and similar events), in addition to any other vote or consent
required pursuant to the Company's certificate of incorporation or bylaws or
required by law, the vote or written consent of the holders of at least
seventy percent (70%) of the outstanding shares of Series A Preferred Stock
and Series B Preferred Stock, voting together as a single class (with each
holder of shares of such preferred stock entitled to such number of votes as
shall be equal to the whole number of shares of Common Stock into which such
holder's aggregate number of shares of such preferred stock are convertible
pursuant to the Company certificate of incorporation immediately after the
close of business on, as applicable, the record date fixed for the meeting at
which such vote is held or the effective date of the written consent of
stockholders) (the "Majority Preferred Holders") shall be necessary for
effecting or validating the following actions:
6.1.2.1 Any amendment, alteration, or repeal of any
provision of the Company's certificate of incorporation or the Company's
bylaws (including any filing of a certificate of designation pursuant to
Section 151 of the Delaware Corporation Law), that affects adversely the voting
powers, preferences, or other special rights or privileges, qualifications,
limitations, or restrictions of the Series A Preferred Stock or the Series B
Preferred Stock;
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6.1.2.2 Any increase or decrease (other than by redemption
or conversion) in the authorized number of shares of the Company's Common
Stock or Preferred Stock;
6.1.2.3 Any authorization or designation of any class of
shares or series of equity securities of the Company ranking on a parity with
or senior to either Series A Preferred Stock or Series B Preferred Stock in
right of redemption, liquidation preference, voting or dividends, or for any
action by the Company which has the effect of increasing the authorized or
designated amount of such shares, whether by reclassification or otherwise.
6.1.2.4 Any redemption, repurchase, payment of dividends or
other distributions with respect to any stock of the Company other than the
Series A Preferred Stock or the Series B Preferred Stock (except for
acquisitions of Common Stock by the Company pursuant to agreements which
permit the Company to repurchase such shares upon termination of services or
in exercise of the Company's right of first refusal upon a proposed transfer);
6.1.2.5 Any agreement to sell, lease or otherwise dispose
of all or substantially all of the assets, property or business of the
Company, or to merge or consolidate the Company with any person, or permit
any other person to merge into it, or any other reorganization except for
mergers, consolidations or reorganizations in which the Company is the
surviving corporation and, after giving effect to the merger, consolidation,
or reorganization, the holders of the Company's outstanding capital stock
immediately preceding such merger own at least fifty percent (50%) of the
outstanding capital stock of the surviving corporation;
6.1.2.6 Any increase or decrease in the authorized number
of members of the Company's Board of Directors;
6.1.2.7 Any action that results in the payment or declaration
of any dividend on any shares of Common Stock or Preferred Stock; or
6.1.2.8 Any voluntary dissolution or liquidation of the
Company.
This Section 6.1.2 may not be amended without the prior written consent
of the Majority Preferred Holders.
6.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.3 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of
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the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
6.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat X
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
6.5 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
6.6 AMENDMENT AND WAIVER.
6.6.1 Except as otherwise expressly provided, this Agreement
may be amended or modified only upon the written consent of the Company and
the holders of at least seventy percent (70%) of the Registrable Securities.
6.6.2 Except as otherwise expressly provided, the obligations
of the Company and the rights of the Holders under this Agreement may be
waived only with the written consent of the holders of at least seventy
percent (70%) of the Registrable Securities.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the
Agreement or any waiver on such Holder's part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under
this Agreement, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.
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6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the address as set forth on the
signature pages hereof or at such other address as such party may designate
by ten (10) days advance written notice to the other parties hereto.
6.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth n the first paragraph hereof
COMPANY:
ENDOCARDIAL SOLUTIONS, INC.
1350 Energy Lane
Suite 110
St. Paul, MN 55108
By______________________________
James W. Bullock
Resident and Chief Executive Officer
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NEW ENTERPRISE ASSOCIATES V, LIMITED PARTNERSHIP
By: NEA Partners V, Limited Partnership
Its General Partner
By:_____________________________
General Partner
CATALYST VENTURES
By: New Enterprise Associates IV, Limited Partnership
Its General Partner
By: NEA Partners IV, Limited Partnership
Its General Partner
By:_____________________________
General Partner
ONSET ENTERPRISE ASSOCIATES, L.P.
By: NEA Management, L.P.
Its General Partner
By:_____________________________
General Partner
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CHEMICALS & MATERIALS ENTERPRISE ASSOCIATES,
LIMITED PARTNERSHIP
By: NEA Chemicals and Materials Partners, Limited Partnership,
A General Partner
By:_____________________________
General Partner
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation,
Its Managing General Partner
By:_____________________________
Attorney-In-Fact
DLJ CAPITAL CORPORATION
By:_____________________________
Attorney-In-Fact
MARQUETTE VENTURE PARTNERS II, L.P.
By: Marquette General II,
Its General Partner
By: JED, Limited Partnership,
or LDR, Limited Partnership,
or JP, Limited Partnership,
Its Partners
By:_______________________________________
a General Partner of one of the above
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M.V.P. II AFFILIATES FUND, L.P.
By: Marquette General II,
Its General Partner
By: JED, Limited Partnership, or
LDR, Limited Partnership, or
JP, Limited Partnership,
Its Partners
By:_______________________________________
a General Partner of one of the above
WA & H PARTNERS INVESTMENT, LIMITED PARTNERSHIP
By:_____________________________
WA & H INVESTMENTS, L.L.C.
By:_____________________________
THE COMPANION FUND
By:_____________________________
Its Managing Partner
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PIPER JAFFRAY HEALTHCARE CAPITAL,
LIMITED PARTNERSHIP (SBIC)
By: Piper Ventures Management IV Limited Partnership,
Its General Partner
By: Be Benson, Managing Director of Piper Ventures Capital, Inc.,
Its General Partner
CORAL PARTNERS IV, L.P.
By: Coral Management Parkers IV, L.P.
Its General Partner
By:_____________________________
General Partner
______________________________
Neil Sandler
______________________________
John Glynn
______________________________
Alexander D. Cross
______________________________
Carol D Winslow
______________________________
Robert Carey
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______________________________
Neil Sandier
______________________________
John Glynn
______________________________
Alexander D. Cross
______________________________
Deborah C. Smook
PSF HEALTH CARE FUND, L.P.
By:____________________________
Edson W. Spencer, Jr.
Managing Partner
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AMENDMENT NO. 1
TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
DATED
JANUARY 31, 1995
This Amendment No. 1 to Amended and Restated Investors' Rights Agreement
dated March 1, 1995, is entered into by and among Endocardial Solutions,
Inc., a Delaware corporation (the "Company") and the other undersigned parties
who are holders of the Company's Series A Preferred Stock, $.01 par value per
share (the "Series A Preferred Stock") and Series B Preferred Stock, $.01 par
value per share (the "Series B Preferred Stock") (together, the "Holders").
WHEREAS, the Company and the holders of the Company's Series A Preferred
Stock and Series B Preferred Stock (the "Purchasers") have entered into that
certain Amended and Restated Investors' Rights Agreement dated January 31,
1995 (the "Investors' Rights Agreement") pursuant to which the Company grated
certain registration rights and other rights to Purchasers; and
WHEREAS, the Investors' Rights Agreement grants certain additional
rights to holders of 200,000 or more shares of Series B Preferred Stock; and
WHEREAS, the Company wishes to grant such additional rights to holders
of 58,823 or more shares of Series B Preferred Stock; and
WHEREAS, the Investors' Rights Agreement may be amended by the written
consent of the holders of at least 70% of the Registrable Securities (as that
term is defined in the Investors' Rights Agreement); and
WHEREAS, the undersigned Holders hold at least 70% of the Registrable
Securities.
NOW, THEREFORE, in consideration of the above and the mutual covenants
set forth in this Agreement, the parties agree as follows:
1. The definition of a "Major Purchaser" contained in Section 4.1.4 of
the Investors' Rights Agreement is hereby amended to provide that a Purchaser
shall be a Major Purchaser so long as such a Purchaser (with its affiliates)
shall own not less than fifty eight thousand eight hundred twenty three
(58,823) shares of the Company's Series B Preferred Stock or one hundred
thousand (100,000) shares of the Company's Series A Preferred Stock.
2. The first sentence of Section 4.1.5 of the Investors' Rights
Agreement shall be amended to read in its entirety as follows:
<PAGE>
So long as a Purchaser remains a Major Purchaser and such Major
Purchaser owns not less than two hundred thousand (200,000)
shares of the Company's Series B Preferred Stock or one hundred
thousand (100,000) shares of the Company's Series A Preferred
Stock, such Purchaser shall be entitled to receive notice of and
attend as an observer all meetings of the Board of Directors and
any committees thereof.
3. All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Investors' Rights Agreement.
4. This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph.
ENDOCARDIAL SOLUTIONS, INC.
1350 Energy Lane
Suite 110
St. Paul, MN 55108
By: /s/ James W. Bullock
-----------------------------
James W. Bullock
President and Chief Executive Officer
2
<PAGE>
HOLDERS:
ENTERPRISE ASSOCIATES V, LIMITED PARTNERSHIP
By: NEA Partners V, Limited Partnership
Its General Partner
By:
-------------------------------
General Partner
CATALYST VENTURES
By: New Enterprise Associates IV, Limited Partnership
Its General Partner
By: NEA Partners IV, Limited Partnership
Its General Partner
By:
-------------------------------
General Partner
ONSET ENTERPRISE ASSOCIATES, L.P.
By: OEA Management, L.P.
Its General Partner
By:
-------------------------------
General Partner
3
<PAGE>
CHEMICALS & MATERIALS ENTERPRISE ASSOCIATES,
LIMITED PARTNERSHIP
By: NEA Chemicals and Materials Partners, Limited Partnership,
A General Partner
By:
-------------------------------
General Partner
SPROUT CAPITAL VI, L.P.
BY: DLJ Capital Corporation,
Its Managing General Partner
By:
-------------------------------
Attorney-In-Fact
DLJ CAPITAL CORPORATION
By:
-------------------------------
Attorney-In-Fact
MARQUETTE VENTURE PARTNERS II, L.P.
By: Marquette General II
Its General Partner
By: JED, Limited Partnership, or
LDR, Limited Partnership, or
JP, Limited Partnership,
Its Partners
By:
-------------------------------
4
<PAGE>
a General Partner of one of the above
5
<PAGE>
M.V.P. II AFFILIATES FUND, L.P.
By: Marquette General II,
Its General Partner
By: JED, Limited Partnership, or
LDR, Limited Partnership, or
JP, Limited Partnership,
Its Partners
By:
-------------------------------
a General Partner of one of the above
WA & H PARTNERS INVESTMENT, LIMITED PARTNERSHIP
By:
-------------------------------
WA & H INVESTMENTS, L.L.C.
By:
-------------------------------
THE COMPANION FUND
By:
-------------------------------
Its Managing Partner
6
<PAGE>
PIPER JAFFRAY HEALTHCARE CAPITAL,
LIMITED PARTNERSHIP (SBIC)
By: Piper Ventures Management IV Limited Partnership,
its General Partner
By:
-------------------------------
Buzz Benson, Managing Director of
Piper Ventures Capital, Inc.,
its General Partner
CORAL PARTNERS IV, L.P.
By: Coral Management Partners IV, L.P.
Its General Partner
By:
-------------------------------
General Partner
- ------------------------------------
Neil Sandler
- ------------------------------------
John Glynn
- -------------------------------------
Alexander D. Cross
7
<PAGE>
- -------------------------------------
Carol D. Winslow
- -------------------------------------
Robert Carey
- -------------------------------------
Deborah C. Smook
PSF HEALTH CARE FUND, I.P.
By:
-------------------------------
Edison W. Spencer, Jr.
Managing Partner
8
<PAGE>
[Execution Copy]
____________________________________________
ENDOCARDIAL SOLUTIONS, INC.
AMENDMENT
TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
Dated April 26, 1996
____________________________________________
<PAGE>
AMENDMENT
TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amendment to the Amended and Restated Investors' Rights Agreement
is entered into as of April 26, 1996, by and among Endocardial Solutions, Inc.,
a Delaware corporation (the "Company"), and the other undersigned parties (the
"Holders") for the purpose of amending that certain Amended and Restated
Investors' Rights Agreement, dated as of January 31, 1995 (the "Investors'
Rights Agreement"), between the Company and the Holders. All capitalized terms
used herein but not otherwise defined herein have the meanings assigned to such
terms in the Investor's Rights Agreement.
RECITALS
A. The Company, pursuant to the Investors' Rights Agreement, has
granted to the Holders of the Company's Series A Preferred Stock and Series B
Preferred Stock certain rights with respect to the registration under the
Securities Act of shares of Common Stock issuable upon conversion or in
respect of such Series A Preferred Stock and Series B Preferred Stock (the
"Series A and Series B Registration Rights").
B. The Company proposes to sell to Medtronic Asset Management, Inc., a
Minnesota corporation ("Medtronic"), pursuant to an Investment Agreement (the
"Investment Agreement") to be entered into between the Company and Medtronic
shares of its Series C Preferred Stock, par value $.01 per share (the "Series
C Preferred Stock").
C. As a condition to entering into the Investment Agreement, Medtronic
has requested that the Company grant to Medtronic certain rights with respect
to the registration under the Securities Act of shares of Common Stock
issuable upon conversion or in respect of the Series C Preferred Stock (the
"Series C Registration Rights") that are PARI PASSU with the Series A and
Series B Registration Rights.
D. The Company has requested that the Holders who are party to the
Investors' Rights Agreement consent to the granting of the Series C
Registration Rights and to the amendment of the Investors' Rights Agreement
to grant the shares of Series C Preferred Stock registration rights that are
PARI PASSU with the Series A and Series B Registration Rights.
E. The Holders are willing to consent to such granting of the Series C
Registration Rights and to such amendment.
NOW, THEREFORE, in consideration of the covenants and agreements made
herein, the Investors' Rights Agreement is hereby amended as follows.
<PAGE>
I. AMENDMENT
1.1 DEFINITIONS OF "SERIES C PREFERRED STOCK" AND "SERIES C INVESTMENT
AGREEMENT". Section 2.1 of the Investors' Rights Agreement is hereby amended
to add to the terms defined in such section the following terms:
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock,
$.01 par value per share, of the Company.
"SERIES C INVESTMENT AGREEMENT" means the Investment Agreement,
dated April 26, 1996, between the Company and Medtronic Asset
Management, Inc.
1.2 "DEFINITION OF "REGISTRABLE SECURITIES". The term "Registrable
Securities" set forth in Section 2.1 of the Agreement is hereby amended to
read in its entirety as follows:
"REGISTRABLE SECURITIES" means (i) the shares of Common Stock
of the Company issued or issuable upon conversion of the Shares and the
Series C Preferred Stock, and (ii) any shares of Common Stock of the
Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person
to the public either pursuant to a registration statement or Rule 144
under the Securities Act or sold in a private transaction in which the
transferror's rights under Article III of this Agreement or Article 7 of
the Series C Investment Agreement are not assigned.
II. CONSENT
The Holders hereby consent to the issuance of the Series C
Preferred Stock to Medtronic pursuant to the Investment Agreement and to
the granting of the Series C Registration Rights to the holders of
Series C Preferred Stock pursuant to such Investment Agreement.
III. MISCELLANEOUS
3.1 INVESTORS' RIGHTS AGREEMENT AMENDED. This Amendment shall be
deemed to be an amendment to the Investors' Rights Agreement, and the
Investors' Rights Agreement, as amended hereby, is hereby ratified,
approved and confirmed in all respects. This Amendment shall be limited
to the matters expressly set forth herein and shall not be deemed to
amend or modify any other term or condition of the Investors' Rights
Agreement or any other document incident thereto or to
-2-
<PAGE>
waive any right of any party thereunder. All references to the
Investors' Rights Agreement in any other document, instrument, agreement
or writing hereafter shall be deemed to refer to the Investors' Rights
Agreement as amended hereby.
3.2 SUCCESSORS AND ASSIGNS ON TRANSFERABILITY. This Amendment
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
3.3 GOVERNING LAW. This Amendment and the rights and duties of
the parties under this Amendment shall be governed by, and construed and
interpreted in accordance with, the law of the State of Minnesota,
without regard to principles of conflicts of law.
3.4 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date and year first above written.
COMPANY:
ENDOCARDIAL SOLUTIONS, INC.
1350 Energy Lane
Suite 110
St. Paul, MN 55108
By:
---------------------------------------
James W. Bullock
President and Chief Executive Officer
-3-
<PAGE>
HOLDERS:
ENTERPRISE ASSOCIATES V, LIMITED PARTNERSHIP
By: NEA Partners V, Limited Partnership
Its General Partner
By:
--------------------------------------
General Partner
CATALYST VENTURES
By: New Enterprise Associates IV, Limited Partnership
Its General Partner
By: NEA Partners IV, Limited Partnership
Its General Partner
By:
--------------------------------------
General Partner
ONSET ENTERPRISE ASSOCIATES, L.P.
By: OEA Management, L.P.
Its General Partner
By:
--------------------------------------
General Partner
-4-
<PAGE>
CHEMICALS & MATERIALS ENTERPRISE ASSOCIATES,
LIMITED PARTNERSHIP
By: NEA Chemicals and Materials Partners, Limited Partnership,
A General Partner
By:
--------------------------------------
General Partner
SPROUT CAPITAL VI, L.P.
BY: DLJ Capital Corporation,
Its Managing General Partner
By:
--------------------------------------
Attorney-In-Fact
DLJ CAPITAL CORPORATION
By:
--------------------------------------
Attorney-In-Fact
MARQUETTE VENTURE PARTNERS II, L.P.
By: Marquette General II
Its General Partner
By: JED, Limited Partnership, or
LDR, Limited Partnership, or
JP, Limited Partnership,
Its Partners
By:
--------------------------------------
a General Partner of one of the above
-5-
<PAGE>
M.V.P. II AFFILIATES FUND, L.P.
By: Marquette General II,
Its General Partner
By: JED, Limited Partnership, or
LDR, Limited Partnership, or
JP, Limited Partnership,
Its Partners
By:
--------------------------------------
a General Partner of one of the above
WA & H PARTNERS INVESTMENT, LIMITED PARTNERSHIP
By:
--------------------------------------
WA & H INVESTMENTS, L.L.C.
By:
--------------------------------------
THE COMPANION FUND
By:
--------------------------------------
Its Managing Partner
-6-
<PAGE>
PIPER JAFFRAY HEALTHCARE CAPITAL,
LIMITED PARTNERSHIP (SBIC)
By: Piper Ventures Management IV Limited Partnership,
its General Partner
By:
--------------------------------------
Buzz Benson, Managing Director of
Piper Ventures Capital, Inc.,
its General Partner
CORAL PARTNERS IV, L.P.
By: Coral Management Partners IV, L.P.
Its General Partner
By:
--------------------------------------
General Partner
- -----------------------------------------
Neil Sandler
- -----------------------------------------
John Glynn
- -----------------------------------------
Alexander D. Cross
-7-
<PAGE>
- -----------------------------------------
Carol D. Winslow
- -----------------------------------------
Robert Carey
- -----------------------------------------
Deborah C. Smook
PSF HEALTH CARE FUND, I.P.
By:
--------------------------------------
Edison W. Spencer, Jr.
Managing Partner
-8-
<PAGE>
Exhibit 11.1
Endocardial Solutions, Inc.
Statement Re: Computation of Net Loss Per Share
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Period from
May 21, 1992
Year ended December 31, (inception to)
------------------------------------ December 31,
1994 1995 1996 1996
Primary Net Loss Per Share: ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Average shares outstanding 1,011 1,023 1,029 994
SAB No. 83 shares -- shares convertible
into common stock and stock options
and warrants granted at exercise prices
less than the initial public offering price
during the 12 months preceding the
initial public offering using the treasury
method 400 400 400 400
---------- ---------- ---------- --------------
Total 1,411 1,423 1,429 1,394
---------- ---------- ---------- --------------
---------- ---------- ---------- --------------
Net loss $ (4,408) $ (4,734) $ (6,481) $ (16,700)
---------- ---------- ---------- --------------
---------- ---------- ---------- --------------
Net loss per share $ (3.12) $ (3.33) $ (4.53) $ (11.98)
---------- ---------- ---------- --------------
---------- ---------- ---------- --------------
Fully Diluted Net Loss Per Share:
Average shares outstanding 1,011 1,023 1,029 994
SAB No. 83 shares -- shares covertible
into common stock and stock options
and warrants granted at exercise prices
less than the initial public offering price
during the 12 months preceding the initial
public offering using the treasury method 400 400 400 400
Assumed conversion of all series of
convertible preferred stock 1,524 3,120 4,380 3,351
---------- ---------- ---------- --------------
Total 2,935 4,543 5,809 4,745
---------- ---------- ---------- --------------
---------- ---------- ---------- --------------
Net loss $ (4,408) $ (4,734) $ (6,481) $ (16,700)
---------- ---------- ---------- --------------
---------- ---------- ---------- --------------
Pro forma net loss per share * * $ (1.12) *
----------
----------
</TABLE>
* Pro forma net loss per share are not shown on the face of the financial
statements in accordance with Securities and Exchange Commission staff's
position on recapitalizations in connection with an intial public offering.
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 9, 1997, in the Registration Statement (Form S-1
No. 333-_________) and related Prospectus of Endocardial Solutions, Inc. for the
registration of 3,000,000 shares of its common stock.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 27, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of James W. Bullock and Dennis J. McFadden,
with full power to each to act without the other, his true and lawful attorney-
in-fact and agent with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign the Registration Statement
on Form S-1 of Endocardial Solutions, Inc. (the "Company") relating to an
aggregate of 3,450,000 shares of Company Common Stock that may be sold by the
Company and any or all amendments or post-effective amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and to file the same
with such state commissions and other agencies as necessary, granting unto each
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each such attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this
___ day of January 1997, by the following persons:
/s/ Graydon E. Beatty
/s/ James W. Bullock
/s/ James E. Daverman
/s/ Robert G. Hauser
/s/ Ronald H. Kase
/s/ Steve R. LaPorte
/s/ Peter H. McNerney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,157,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,233,000
<PP&E> 1,496,000
<DEPRECIATION> 657,000
<TOTAL-ASSETS> 7,200,000
<CURRENT-LIABILITIES> 684,000
<BONDS> 0
0
22,135,000
<COMMON> 2,361,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,200,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,709,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,481,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,709,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,481,000)
<EPS-PRIMARY> (4.53)
<EPS-DILUTED> (4.53)
</TABLE>
