Delaware 3845 94-3199149
(State or Other Jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
Incorporation or
Organization) Classification Code Number) Identification No.)
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967 N. Shoreline Blvd.
Mountain View, CA 94043
(650) 390-8500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Copies to:
Mark B. Weeks John W. White
Brooke Campbell CRAVATH, SWAINE & MOORE
Ughetta Manzone Worldwide Plaza
VENTURE LAW GROUP 825 Eighth Avenue
A Professional Corporation New York, New York 10019
2800 Sand Hill Road
Menlo Park, California 94025
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]
Calculation of Registration Fee
Proposed maximum
Title of each class of securities to aggregate offering Amount of
be registered price(1) registration fee
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Common Stock, $0.001 par value..... $50,830,000 $13,419.12
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+The information in this preliminary prospectus is not complete and may be + +changed. We may not sell these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +preliminary prospectus is not an offer to sell these securities and is not + +soliciting an offer to buy these securities in any state where the offer or + +sale is not permitted. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 3, 2000
PROSPECTUS
Shares
[RITA MEDICAL SYSTEMS, INC. LOGO]
Common Stock
We are selling shares of our common stock. We have granted the underwriters a 30-day option to purchase up to an additional shares of common stock to cover over-allotments.
This is the initial public offering of our common stock. We currently expect that the initial public offering price will be between $ and $ per share. We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol "RITA."
Investing in our common stock involves certain risks. See "Risk Factors" beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share Total
--------- ------
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to RITA Medical Systems, Inc. (before expenses) $ $
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The underwriters expect to deliver the shares to purchasers on or about , 2000.
Salomon Smith Barney Robertson Stephens
, 2000.
[INSIDE FRONT COVER]
Graphic 1: Pre-operative CT scan showing a liver tumor
Graphic 2: Post-operative CT scan. Ablation of liver tumor with our new StarBurst XL disposable device
Graphic 3: RITA StarBurst XL disposable device entering tissue (undeployed)
Graphic 4: StarBurst XL disposable device deployed to 5 cm
Graphic 5: 5 cm diameter ablation covering target tissue
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Information Regarding Forward-Looking Statements......................... 16
Use of Proceeds.......................................................... 17
Our Policy Regarding Dividends........................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 26
Management............................................................... 37
Relationships and Related Party Transactions............................. 46
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 56
United States Tax Consequences to Non-United States Holders.............. 58
Underwriting............................................................. 60
Legal Matters............................................................ 62
Experts.................................................................. 62
Where You Can Find Additional Information................................ 62
Index to Financial Statements............................................ F-1
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Until , 2000, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. Therefore, you should read this entire prospectus carefully, including the risks of purchasing our common stock discussed under the "Risk Factors" section and our financial statements and the related notes.
Our Company
We are a medical device company that develops, manufactures and markets innovative products to treat patients with solid cancerous or benign tumors. Our proprietary system uses radiofrequency energy to heat tissue to a high enough temperature to ablate it, or cause cell death. The RITA system includes radiofrequency generators and a family of disposable needle electrode devices which deliver controlled thermal energy to the targeted tissue. Our products are cleared for sale in major markets worldwide.
We currently sell the RITA system for the ablation of unresectable liver tumors or lesions. We believe our system offers a viable option to patients with this condition who previously had few or no effective alternatives. Since the launch of our system, we have sold more than 10,000 disposable devices.
We estimate that the market opportunity for the radiofrequency ablation of unresectable liver cancer is approximately $560 million annually. In addition to liver cancer, we believe that our minimally invasive technology may in the future be applied to the treatment of other types of cancerous or benign tumors, including tumors of the lung, bone, breast, prostate and kidney. We believe the market opportunity for these additional applications may exceed $2 billion annually.
The RITA system offers physicians and patients an effective minimally invasive treatment option with few side effects or complications. Our products can be used in an outpatient procedure that requires only local anesthesia, and patients are typically sent home the same day with a small bandage over the entry site. Patients can also be treated in a laparoscopic procedure and are generally sent home the next day.
We offer the only radiofrequency ablation products to our target market that provide tissue temperature feedback throughout the targeted tissue. We believe our system has the potential to provide a more effective ablation than competing technologies by providing this thermal feedback during the procedure.
The Opportunity
Cancer Market
Cancer afflicts millions of people worldwide every year. It is the second leading cause of death in the United States, exceeded only by heart disease. The National Cancer Institute estimates that the direct medical cost related to the treatment of cancer in the United States is approximately $37 billion annually.
Cancer can be categorized into two broad groups: solid tumor cancers, such as liver, lung, bone, breast, prostate and kidney cancers as well as hematologic or blood-borne cancers, such as lymphomas and leukemias. It is estimated that nearly ninety percent of all cancers are solid tumor cancers.
Liver Cancer Market
Liver cancer is one of the most prevalent and lethal forms of cancer in the world. There are two forms of liver cancer: primary and metastatic. Primary liver cancer originates in the liver and is estimated to afflict one million new patients worldwide each year. Metastatic liver cancer results from the spread of cancer from other places in the body and is estimated to have a similar worldwide incidence.
There are few effective treatment options currently available for patients with liver cancer. Therefore, the prognosis for these patients is poor. Approximately ninety-four percent of patients diagnosed with primary liver
cancer will die within five years. Surgery is generally considered the "gold standard" treatment option to address liver tumors; however, more than eighty percent of liver cancer patients are unresectable, which means they do not qualify for surgery. Alternative treatment options include chemotherapy, radiation therapy, cryosurgery, which involves freezing tumors, and percutaneous ethanol injection, which involves injecting tumors with alcohol. Unfortunately, many of these alternative therapies are ineffective and are generally associated with significant side effects, and some of them can cause death.
Benefits of Our Approach
The benefits of our system include:
. Viable Treatment Option. Our system offers patients who previously had few or no treatment options a viable alternative. Our system may in the future offer patients with other types of tumors a better treatment option.
. Minimally Invasive Procedure. Compared to existing alternatives, our procedure is minimally invasive, may be cost effective and can result in reduced hospital stays.
. Array Design Provides Predictable Results. Our array design enables the physician to predictably ablate large volumes of targeted tissue.
. Temperature Feedback Provides Procedural Control. Our dynamic, real-time temperature feedback allows physicians to know they have achieved target temperatures. Additionally, temperature feedback provides post-ablation confirmation that the necessary temperature has been reached for the destruction of tissue.
. Repeat Treatments Possible. Because of the minimally invasive nature of our procedure, patients treated with our system often can be retreated. Retreatment is frequently necessary because of the recurrent nature of cancer.
. Broadly Applicable Technology. Clinical experience in the treatment of liver tumors and feasibility studies in other organs indicate that our technology may in the future be applied to the ablative treatment of solid tumors in the lung, bone, breast, prostate and kidney.
We were incorporated in California in January 1994 under the name ZoMed Incorporated. We changed our name to RITA Medical Systems, Inc. in October 1996. Prior to the completion of this offering, we will reincorporate in Delaware. Our principal offices are located at 967 North Shoreline Boulevard, Mountain View, California 94043, and our telephone number is (650) 390-8500.
The Offering
Common stock offered.......................... shares
Common stock outstanding after this offering.. shares
Use of proceeds............................... To fund business development,
such as research and
development, clinical research
and sales and marketing, to
provide working capital and for
general corporate purposes.
Proposed Nasdaq National Market symbol........ "RITA"
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Unless otherwise indicated, all information in this prospectus:
. assumes no exercise of the underwriters' option to purchase up to additional shares of common stock to cover over-allotments;
. reflects a three-for-five reverse split of our stock that will be effected prior to completion of the offering;
. reflects the conversion of each outstanding share of convertible preferred stock into 8,934,628 shares of common stock concurrently with the completion of this offering;
. assumes our reincorporation into Delaware prior to completion of this offering; and
. assumes the filing of our amended and restated certificate of incorporation concurrently with the completion of this offering.
The number of shares of common stock to be outstanding immediately after the offering:
. is based upon 9,861,994 shares of common stock outstanding as of December 31, 1999 assuming conversion of all convertible preferred stock;
. does not take into account 1,461,779 shares of common stock issuable upon the exercise of options outstanding as of December 31, 1999, at a weighted average exercise price of $0.85 per share;
. does not take into account 253,042 shares of common stock issuable upon the exercise of warrants outstanding as of December 31, 1999 at a weighted average exercise price of $4.66 per share; and
. does not take into account 496,669 shares available for future issuance under our 1994 equity incentive plan, as of December 31, 1999.
RITA(R) and StarBurst(TM) are our trademarks.
SUMMARY FINANCIAL DATA
Years Ended December
31,
-------------------------
1997 1998 1999
------- ------- -------
(in thousands, except
per share data)
Statement of Operations Data:
Sales.............................................. $ 220 $ 1,137 $ 4,629
Cost of goods sold................................. 589 1,498 2,887
------- ------- -------
Gross profit (loss)............................... (369) (361) 1,742
------- ------- -------
Operating expenses:
Research and development.......................... 2,472 2,543 3,577
Selling, general and administrative............... 2,804 3,414 4,922
Stock-based compensation.......................... 39 403 991
------- ------- -------
Total operating expenses......................... 5,315 6,360 9,490
------- ------- -------
Loss from operations............................... (5,684) (6,721) (7,748)
Interest and other income (expense), net........... (176) (28) 238
------- ------- -------
Net loss........................................... $(5,860) $(6,749) $(7,510)
======= ======= =======
Net loss per share, basic and diluted.............. $(11.02) $(10.10) $ (9.33)
======= ======= =======
Shares used in computing net loss per share,
basic and diluted................................. 532 668 805
Pro forma net loss per share, basic and diluted.... $ (0.90)
=======
Shares used in computing pro forma net loss per
share, basic and diluted.......................... 8,355
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Pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of convertible preferred stock as of December 31, 1999 into 8,934,628 shares of common stock as if the stock had been converted immediately upon its issuance.
December 31, 1999
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Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
Balance Sheet Data: (in thousands)
Cash, cash equivalents and marketable
securities..................................... $ 12,153 $12,153 $
Working capital................................. 12,437 12,437
Total assets.................................... 15,705 15,705
Long-term obligations, net of current portion... 1,854 1,854
Convertible preferred stock..................... 38,516 --
Total stockholders' equity (deficit)............ (26,991) 11,525
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The pro forma balance sheet reflects the automatic conversion of outstanding shares of convertible preferred stock as of December 31, 1999 into 8,934,628 shares of common stock. The pro forma as adjusted balance sheet reflects the sale of shares of common stock offered hereby at an assumed initial public offering price of $ after deducting estimated underwriting discounts, commissions and offering expenses.
RISK FACTORS
An investment in our common stock involves significant risks. You should carefully consider the following risks described below and the other information in this prospectus including our financial statements and related notes before you decide to buy our common stock. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment.
Due to our dependence on the RITA system, failure to achieve market acceptance in a timely manner could harm our business
Because all of our revenue comes from the sale of the RITA system, our financial performance will depend upon physician adoption and patient awareness of this system. We may fail to achieve necessary market acceptance of our product as a result of:
. our failure to create physician demand for our products through education and training and patient demand through marketing and awareness programs;
. a lack of the continued publication of favorable independent clinical data to support the use of our products; and
. our failure to build and manage a dedicated domestic sales team and manage international distributors.
If we are unable to convince physicians to use the RITA system, we may not be able to generate revenues because we do not have alternative products.
We have a history of losses, anticipate significant increases in our operating expenses over the next several years and may never achieve profitability
We anticipate that our operating expenses will increase substantially in absolute dollars for the foreseeable future as we expand our sales and marketing, manufacturing, clinical research and product development efforts. To become profitable, we must continue to increase our sales. If sales do not continue to grow, we may not be able to achieve or maintain profitability in the future. In particular, we incurred net losses of $6.7 million in 1998 and $7.5 million in 1999. As of December 31, 1999, we had an accumulated deficit of approximately $28.6 million.
We are currently involved in a patent interference action and if we do not prevail in this action, our business could suffer
In July 1999, the United States Patent and Trademark Office declared an interference involving us which was provoked by RadioTherapeutics Corporation, a competitor of ours, in which the validity of a patent claim previously issued to us is being called into question. If we do not prevail in this proceeding and if we need and are unable to negotiate a license on satisfactory terms, our business could be harmed. The claim being questioned is one of a number of issued patent claims that covers the curvature of the array at the tip of our disposable devices. We believe that the inventor named in our patent was the first to invent this subject matter. RadioTherapeutics believes they invented this curvature array first. A final decision by the USPTO is not expected in this interference proceeding for several years.
Patent issues involve complex legal and factual issues. In the event we do not prevail in the interference action, we could be prevented from selling the RITA system unless we could obtain a license, if necessary, from RadioTherapeutics to use the relevant patent or were able to modify our product. We may not be able to modify the RITA system successfully, and we cannot be certain that any modified system would achieve market acceptance or regulatory approval. If we were unable to sell our system and unable to develop a commercially successful alternative or obtain a license, if necessary, to the relevant patent or patents on commercially reasonable terms, our business could be materially harmed.
We currently lack long-term data regarding the safety and efficacy of our products and may find that long-term data does not support our short-term clinical results
Our products are supported by an average clinical follow-up of between five and 14 months in published clinical reports. If longer-term studies fail to confirm the effectiveness of our products, our sales could decline. If longer- term patient follow-up or clinical studies indicate that our procedures cause unexpected, serious complications or other unforeseen negative effects, we could be subject to significant liability. Further, because some of our data has been produced in studies that were not randomized and/or included small patient populations, our clinical data may not be reproduced in wider patient populations.
We expect our quarterly results to fluctuate which could cause our stock price to be volatile and could result in a decline in the value of your investment
Our operating results may fluctuate significantly from quarter to quarter due to many factors, including the following:
. publication of favorable or unfavorable clinical research about radiofrequency ablation or competing treatment alternatives;
. our or our competitors' introduction of new radiofrequency or other alternative product lines;
. increased or decreased penetration in existing applications;
. returns of radiofrequency generators and electrodes;
. a disruption in the manufacturing of our disposable devices or supply disruptions of our generators;
. timing of our sales and marketing and research and development expenditures;
. receipt or denial of regulatory clearances or approvals by us or our competitors;
. timing of the receipt of orders and product shipments;
. disputes concerning patent rights; and
. any seasonal fluctuations of our revenues.
Future fluctuations of quarterly results could result in significant volatility of our stock price.
You may have a difficult time evaluating our company as an investment because we have a limited operating history
You can only evaluate our business based on a limited operating history because we began selling the RITA system in 1997. This short history may not be adequate to enable you to fully assess our ability to achieve market acceptance of our products and respond to competition.
Because we face significant competition from companies with greater resources than we have, we may be unable to compete effectively
The market for our products is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants.
We compete directly with two companies: RadioTherapeutics Corporation, a privately held company, and Radionics, Inc., a division of Tyco International, a publicly traded company with substantial resources. Both RadioTherapeutics and Radionics sell products that use radiofrequency energy to ablate soft tissue. RadioTherapeutics has entered into a distribution arrangement with Boston Scientific Corporation, a publicly traded company with substantially greater resources than we have.
Alternative therapies could prove to be superior to the RITA system, and physician adoption could be negatively affected
In addition to competing against other companies offering products which use radiofrequency energy to ablate soft tissue, we also compete against companies developing, manufacturing and marketing alternative therapies that address both cancerous and benign tumors. If these alternative therapies prove to offer treatment options that are superior to our system, physician adoption of our products could be negatively affected and our revenues could decline.
Patents and other proprietary rights provide uncertain protections, and we may be unable to protect our intellectual property
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products, and yet we may be unable to do so. A number of companies in our market, as well as universities and research institutions, have issued patents and have filed patent applications which relate to the use of radiofrequency energy to ablate soft tissue. Our pending United States and foreign patent applications may not issue or may issue and be subsequently successfully challenged by others and invalidated. For example, in March 2000, RadioTherapeutics filed an opposition to our European Patent No. 0777445 that covers technology used in our disposable devices. In this opposition, the validity of our issued patent is being questioned. In the event that we do not prevail, our patent protection in Europe could be weakened. In addition, our pending patent applications include claims to material aspects of our products that are not currently protected by issued patents. Both the patent application process and the process of managing patent disputes can be time-consuming and expensive.
Competitors may be able to design around our patents or develop products which provide outcomes which are comparable to ours. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. In the event a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be difficult and time consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be extensive and time consuming and could divert our management's attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against a challenge.
In addition, confidentiality agreements executed by our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure.
Because the medical device industry is characterized by competing intellectual property, we may be sued for violating the intellectual property rights of others
The medical device industry is characterized by a substantial amount of litigation over patent and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of patent litigation actions is often uncertain. Our competitors may assert that our products and the methods we employ in the use of our products are covered by United States or foreign patents held by them. However, we do not believe that we infringe any valid patent rights held by others. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which may later result in issued patents which our products may infringe. There could also be existing patents that one or more of our products may inadvertently be infringing of which we are unaware. As the number of competitors in the market for less invasive cancer treatment alternatives grows, and as the number of patents issued in this area grows, the possibility of a patent infringement claim against us increases.
To address patent infringement or other intellectual property claims, we may have to enter into licensing agreements or agree to pay royalties at a substantial cost to our business. We may be unable to obtain necessary licenses. A valid claim against us, and our failure to license the technology at issue, could prevent us from selling our products.
Our dependence on international revenues, which accounted for a significant portion of our 1999 revenues, could harm our business
Because our future profitability will depend in part on our ability to grow product sales in international markets, we are exposed to risks specific to business operations outside the United States. These risks include:
. obtaining reimbursement for procedures using our devices in some foreign markets;
. the burden of complying with complex and changing foreign regulatory requirements;
. longer accounts receivable collection time;
. reduced protection of intellectual property rights in some foreign countries; and
. contractual provisions governed by foreign laws.
We are substantially dependent on two distributors in our international markets, and if we lose either distributor or are unable to attract additional distributors, our international and total revenues could decline
We are substantially dependent on a limited number of significant distributors in our international markets, and if we lose these distributors and fail to attract additional distributors, our international revenues could decline. Nissho Iwai Corporation, which is our primary distributor in Asia, accounted for forty-one percent of our international revenues in fiscal 1999. M.D.H.s.r.l. Forniture Ospedaliere, which is our distributor in Italy, accounted for forty-one percent of our revenues in fiscal 1998 and fourteen percent of our revenues for fiscal 1999. Because international revenues accounted for sixty-four percent of our total revenues for fiscal 1999 and these two distributors represented eighty-five percent of that total, the loss of either distributor could cause revenues to decline substantially. If we are unable to attract additional international distributors, our international revenues may not grow.
Our relationships with third-party distributors could negatively affect our sales
We sell our products in international markets through third-party distributors over whom we have limited control, and, if they fail to adequately support our products, our sales could decline. If we or our distributors terminate our existing agreements, finding companies to replace them could be an expensive and time-consuming process and sales could decrease during any transition period.
Any failure to build and manage our direct sales organization may negatively affect our revenues
We are currently building a direct sales force in the United States and if we do not expand our sales force substantially over the next twelve months, we may not achieve our revenue growth goals. There is intense competition for skilled sales and marketing employees, especially for people who have experience selling disposable devices and generators to the physicians in our target market, and we may be unable to hire skilled individuals to sell our products. Any inability to build our direct sales force could negatively impact our growth.
We depend on key employees in a competitive market for skilled personnel and without additional employees, we cannot grow or achieve profitability
We are highly dependent on the principal members of our management, operations and research and development staff. Our future success will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional personnel, including sales and marketing staff. The market for qualified management personnel in Northern California, where our offices are located, is extremely competitive and is expected to continue to be highly competitive. Because the environment for good personnel is so competitive, costs related to compensation may increase significantly. If we are unable to attract and retain the personnel we need to support and grow our business, our business will suffer.
If third-party payors do not reimburse health care providers for use of the RITA system, purchases could be delayed and our revenues could decline
Physicians, hospitals and other health care providers may be reluctant to purchase our products if they do not receive substantial reimbursement for the cost of the procedures using our products from third-party payors, such as Medicare, Medicaid and private health insurance plans. Procedures using our products are currently reimbursed based on established general reimbursement codes. Because there is no specific reimbursement code for procedures using the RITA system, physicians need to submit a patient case history and data supporting the applicability of our system to the patient's condition in order to obtain reimbursement. Each payor then determines whether and to what extent to reimburse for a medical procedure or product. If a payor refuses to reimburse the cost of our procedure under existing reimbursement codes, we could be required to establish new specific codes. This process is time consuming and costly and requires us to provide extensive supporting scientific, clinical and cost-effectiveness data for our products to the American Medical Association. Even if we were successful in establishing a new code, a payor still may not reimburse for the procedure or product. In addition, we believe the advent of fixed payment schedules has made it difficult to receive reimbursement for disposable products, even if the use of these products improves clinical outcomes.
We may be subject to costly and time-consuming product liability actions
We manufacture medical devices that are used on patients in both minimally invasive and open surgical procedures and as a result, we may be subject to product liability lawsuits. To date, we have not been subject to a product liability claim; however, any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the future. In addition, we could have to pay any amount awarded by a court in excess of policy limits. Our insurance policies have various exclusions, and we may be subject to a product liability claim for which we have no insurance coverage, in which case we may have to pay the entire amount of any award. Finally, even a meritless or unsuccessful product liability claim could be time consuming and expensive to defend and could result in the diversion of management's attention from managing our core business.
Any failure in our physician training efforts could result in lower than expected product sales
It is critical to our sales effort to train a sufficient number of physicians and to instruct them properly in the procedures which utilize our products. We plan to establish formal physician training programs and will rely on physicians to devote adequate time to understanding how our products should be used. If physicians are not properly trained, they may misuse or ineffectively use our products. This may result in unsatisfactory patient outcomes, patient injury and related liability or negative publicity which could have an adverse effect on our product sales.
If we fail to support our anticipated growth in operations, our business could suffer
If we fail to execute our sales strategy and develop further our products, our business could suffer. To manage anticipated growth in operations, we must increase our quality assurance staff for both our generators and our disposable devices and expand our manufacturing staff and facility for our disposable devices. Our systems, procedures and controls may not be adequate to support our expected growth in operations.
We have limited experience manufacturing our disposable devices in substantial quantities, and if we are unable to meet customer demand our business could suffer
To be successful, we must manufacture our products in substantial quantities in compliance with regulatory requirements at acceptable costs. If we do not succeed in manufacturing quantities of our disposable devices which meet customer demand, we could lose customers and our business could suffer. At the present time, we have limited manufacturing experience. Our manufacturing operations are currently focused on the in-house assembly of our disposable devices. As we increase our manufacturing volume and the number of product designs for our disposable devices, the complexity of our manufacturing processes will increase. If we are unable to meet customer demand for our products, our business could suffer.
We are dependent on key suppliers for the materials we use in our disposable devices, and any disruption in the supply of component materials could negatively affect our revenues
If one of our several single-source suppliers for some of our product components, including one sole- sourced component that we include in almost all of our disposable devices, fails to deliver those components, our business could suffer. If the supply of materials from single- or sole-source suppliers were interrupted, replacement or alternative sources might not be readily obtainable. In addition, a new or supplemental filing with applicable regulatory authorities may require clearance prior to our marketing a product containing new materials. This clearance process may take a substantial period of time, and we may be unable to obtain necessary regulatory approvals for any new material to be used in our products on a timely basis, if at all. This could create supply disruptions that could negatively affect our business.
We are dependent on third-party contractors for the supply of our generators, and any failure to deliver generators to us could result in lower than expected revenues
One of the generators we sell is currently manufactured according to our specifications by a single-source third-party supplier. There is only one other third-party contractor who we have used who could possibly assume this manufacturing function. Our second-generation generator is produced by two third-party suppliers. Any delay in shipments of generators to us could result in our failure to ship generators to customers and could negatively affect revenues.
Complying with the FDA and other domestic and international regulatory authorities is an expensive and time-consuming process, and any failure to comply could result in substantial penalties
We are subject to a host of federal, state, local and international regulations regarding the manufacture and marketing of our products. In particular, our failure to comply with FDA regulations could result in, among other things, seizures or recalls of our products, an injunction, substantial fines and/or criminal charges against us and our employees. The FDA's medical device reporting regulations require us to report any incident in which our products may have contributed to a death or serious injury, or in which our products malfunctioned in a way that would be likely to cause or contribute to a death or serious injury if the malfunction recurred. As of March 31, 2000, we had filed seven medical device reports with the FDA related to skin burns caused by a ground pad, primarily due to placement, one report related to an arterial bleed caused by improper needle placement and one report related to an abscess which resulted from the large volume of ablated tissue. We believe that none of these incidents were attributed to a device malfunction. None of these incidents resulted in permanent injury or death.
Sales of our products outside the United States are subject to foreign regulatory requirements that vary from country to country. The time required to obtain approvals from foreign countries may be longer than that required for FDA approval or clearance, and requirements for foreign licensing may differ from FDA requirements.
Product introductions or modifications may be delayed or canceled as a result of the FDA regulatory process which could cause our revenues to be below expectations
Unless we are exempt, before we can sell a new medical device in the United States, we must obtain the appropriate FDA approval or clearance which can be a lengthy and time-consuming process. To date, all of our products have received clearances from the FDA through premarket notification under Section 510(k) of the Federal Food, Drug and Cosmetic Act. However, if the FDA requires us to submit a new premarket notification under Section 510(k) for modifications to our existing products, or if the FDA requires us to go through a lengthier, more rigorous examination than we had expected, our product introductions or modifications could be delayed or canceled which could cause our revenues to be below expectations. The FDA may determine that future products will require the more costly, lengthy and uncertain premarket approval process. In addition, modifications to medical device products cleared via the 510(k) process may require a new 510(k) submission. We have modified some of our products, and we believe these modifications do not require us to file new 510(k) submissions. If the FDA disagrees with our determinations, we may not be able to sell the modified products until the FDA has cleared new 510(k) submissions for these modifications.
In addition, we intend to request additional label indications, such as approvals or clearances for the ablation of tumors in additional organs, including lung, bone and breast, for our current products. The FDA may either deny these requests outright, require additional extensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of approval or clearance. Therefore, obtaining necessary approvals or clearances for these additional applications could be an expensive and lengthy process.
If third parties terminate our licenses, we could experience delays in the sale of our products
We license and may continue to license some of our technology from third parties, and termination of our licenses could force us to delay or discontinue some of our development and commercialization programs until we could develop independently replacement technology or license substitute technology. Any inability to sell our products could significantly harm our business. Developing replacement technology could be expensive. In addition, licensing substitute technology may require us to enter agreements on unfavorable terms and conditions and may also expose us to higher costs.
If the public market fails to support our valuation, your investment in our common stock could decline in value
After this offering, an active trading market in our stock might not develop or continue. If you purchase shares of our common stock in this offering, you will pay a price that was not established in a competitive market. Instead, you will pay a price that we negotiated with our underwriters based upon an assessment of the valuation of our stock. The public market may not agree with or accept this valuation, in which case you may not be able to sell your shares at or above the initial public offering price. The market price of our stock may fluctuate for a number of reasons which are beyond our control. In addition, the stock market in general has experienced extreme price and volume fluctuations. The market prices of the common stock of companies in our sector has been particularly volatile. These extreme fluctuations in the broader public market for common stock could negatively affect our stock price.
We may incur significant costs related to a class action lawsuit due to the likely volatility of our stock
Our stock price may fluctuate for a number of reasons including:
. our ability to successfully commercialize our products;
. announcements of technological or competitive developments;
. announcements regarding patent litigation or the issuance of patents to us or our competitors;
. regulatory developments regarding us or our competitors;
. acquisitions or strategic alliances by us or our competitors;
. quarterly fluctuations in our results of operations;
. changes in estimates of our financial performance or changes in recommendations by securities analysts; and
. general market conditions, particularly for companies with small market capitalizations.
Securities class action litigation is often brought against a company after a period of volatility in the market price of its stock. If our future quarterly operating results are below the expectations of securities analysts or investors, the price of our common stock would likely decline. Stock price fluctuations may be exaggerated if the trading volume of our common stock is low. Any securities litigation claims brought against us could result in substantial expense and divert management's attention from our core business.
We may need to raise additional capital in the future
While we believe the proceeds from this offering will provide us with adequate capital to fund operations for the next eighteen months, we may need to raise additional funds prior to that time. We may seek to sell additional equity or debt securities or to obtain an additional credit facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have certain rights senior to holders of common stock, and could contain covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us, if at all.
Our executive officers and directors own a large percentage of our voting stock and could exert significant influence over matters requiring stockholder approval after this offering
Immediately after this offering, our executive officers and directors, and their respective affiliates, will own approximately thirty-three percent of our outstanding common stock. Accordingly, these stockholders may, as a practical matter, be able to exert significant influence over matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combinations. This concentration of voting stock could have the effect of delaying or preventing a change in control.
Our certificate of incorporation and bylaws and Delaware law contain provisions that could discourage a takeover
Our amended and restated certificate of incorporation and bylaws will contain provisions that could delay or prevent a change in control of our company. Some of these provisions:
. authorize the issuance of preferred stock which can be created and issued by the board of directors without prior stockholder approval, commonly referred to as "blank check" preferred stock, with rights senior to those of common stock;
. provide for a classified board of directors; and
. prohibit stockholder action by written consent.
In addition, we are governed by the provisions of Section 203 of Delaware General Corporate Law. These provisions may prohibit large stockholders, in particular those owning fifteen percent or more of our outstanding voting stock, from merging or combining with us. These and other provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward- looking statements. Forward-looking statements include, but are not limited to, statements about:
. our estimates for future revenue and profitability;
. the progress of our research and development programs, including our clinical research programs;
. the receipt of regulatory clearances and approvals;
. the mix of revenues between domestic and international sales;
. the mix of revenues between sales of our disposable products and generators;
. our estimates regarding our capital requirements and our need for additional financing; and
. the benefits to be derived from relationships with other companies, including distributors.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading "Risk Factors." Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus.
You should read this prospectus and the documents that we reference in this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward- looking statements by these cautionary statements.
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information provided by this prospectus is accurate as of any date other than the date on the front of this prospectus.
USE OF PROCEEDS
We expect that we will receive net proceeds of approximately $ from the sale of the shares of common stock we are offering, based on an assumed initial public offering price of $ per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over- allotment option in full, we will receive net proceeds of approximately $ . We currently intend to use the net proceeds of this offering as follows:
. to fund business development, including our research and development, clinical research and sales and marketing efforts;
. to provide working capital; and
. for general corporate purposes.
In addition, we also may use a portion of the net proceeds of this offering for the acquisition of complementary businesses, products or technologies. While we evaluate these types of opportunities from time to time, there are currently no agreements or negotiations with respect to any specific transaction.
We have not yet determined all of our expected expenditures, and we cannot estimate the amounts to be used for each purpose set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. Pending use of the net proceeds as described above, we intend to invest the net proceeds of this offering in short-term, interest- bearing, investment-grade securities.
OUR POLICY REGARDING DIVIDENDS
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Our board of directors will determine future dividends, if any.
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the automatic conversion of all outstanding shares of convertible preferred stock into 8,934,628 shares of common stock; and
. on a pro forma as adjusted basis to reflect the sale of common stock offered by us at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts, commissions and offering expenses.
You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
Long-term obligations, net of current portion.. $ 1,854 $ 1,854 $
-------- -------- ----
Convertible preferred stock and warrants,
$0.001 par value: 15,165,774 shares
authorized, actual and pro forma; none
authorized, pro forma as adjusted; 8,579,581
shares issued and outstanding, actual; none
issued and outstanding pro forma and pro forma
as adjusted................................... 38,516 -- --
-------- -------- ----
Stockholders' equity (deficit):
Preferred stock, $0.001 par value: no shares
authorized, actual or pro forma; 2,000,000
authorized, pro forma as adjusted; none
issued and outstanding, actual, pro forma and
pro forma as adjusted........................ -- -- --
Common stock, $0.001 par value: 30,000,000
shares authorized, actual and pro forma;
100,000,000 shares authorized, pro forma as
adjusted; 927,366 shares issued and
outstanding, actual; 9,861,994 shares issued
and outstanding, pro forma; shares
issued and outstanding, pro forma as
adjusted..................................... 1 10
Additional paid-in capital.................... 2,862 41,369
Deferred stock-based compensation............. (1,146) (1,146)
Stockholder note receivable................... (73) (73)
Accumulated other comprehensive loss.......... (7) (7)
Accumulated deficit........................... (28,628) (28,628)
-------- -------- ----
Total stockholders' equity (deficit).......... (26,991) 11,525
-------- -------- ----
Total capitalization......................... $ 13,379 $ 13,379 $
======== ======== ====
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The actual, pro forma and pro forma as adjusted information set forth in the table excludes:
. shares of common stock issuable upon the exercise of the underwriters' over-allotment option;
. 1,461,779 shares of common stock issuable upon the exercise of stock options outstanding, as of December 31, 1999, at a weighted average exercise price of $0.85 per share;
. 253,042 shares of common stock issuable upon the exercise of warrants outstanding, as of December 31, 1999, at a weighted average exercise price of $4.66 per share; and
. 496,669 shares of common stock reserved for issuance under our 1994 equity incentive plan, as of December 31, 1999.
DILUTION
Our net tangible book value as of December 31, 1999 was approximately $11.5 million, or $1.17 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding assuming the conversion of all shares of convertible preferred stock outstanding as of December 31, 1999 into 8,934,628 shares of common stock. Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering on a pro forma as adjusted basis. After giving effect to the sale of the shares of common stock by us at an assumed initial public offering price of $ per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 1999 would have been $ , or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share of common stock to existing common stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price........................... $
Net tangible book value per share before this offering........ $1.17
Increase in net tangible book value per share attributable to
this offering................................................
-----
Pro forma net tangible book value per share after this
offering.......................................................
----
Dilution per share to new investors............................. $
====
|
The following table summarizes, on a pro forma basis as of December 31, 1999, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing and new investors purchasing shares of common stock in this offering, before deducting underwriting discounts and commissions and offering expenses payable by us.
Shares Purchased Total Consideration
----------------- ------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- -------------
Existing stockholders... 9,507,000 % $38,542,000 % $4.05
New investors...........
--------- ----- ----------- -----
Total................. 100.0% $ 100.0%
========= ===== =========== =====
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The tables and calculations above assume no exercise of the underwriters' over-allotment option to purchase up to an additional shares of common stock. If the underwriters' overallotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to % of the total number of shares of common stock outstanding after this offering and the number of shares of common stock held by new investors will be increased to , or % of the total number of shares of common stock outstanding after this offering.
The information also assumes no exercise of any outstanding stock options or warrants. As of December 31, 1999, there were 1,461,779 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $0.85 per share and 253,042 shares of common stock reserved for issuance upon the exercise of outstanding warrants at a weighted average price of $4.66 per share. To the extent that any of these options or warrants are exercised, there will be further dilution to new investors.
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. We have derived our statement of operations for the years ended December 31, 1997, 1998 and 1999, and our balance sheet data at December 31, 1998 and 1999 from our financial statements that have been audited by PricewaterhouseCoopers LLP, independent accountants, and which we include elsewhere in this prospectus. We have derived our statement of operations data for the years ended December 31, 1996 and the balance sheet data at December 31, 1996 and 1997 from our audited financial statements which we do not include in this prospectus. The statement of operations data and balance sheet data as of and for the year ended December 31, 1995 are derived from our unaudited financial statements which are not included in this prospectus. We have presented pro forma net income per share information to give effect to the assumed conversion of all outstanding shares of our convertible preferred stock into a total of 8,934,628 shares of common stock as of their original dates of issuance. See the notes to our financial statements for a detailed explanation of this determination of the shares used to compute actual and pro forma basic and diluted net loss per share. Our historical results are not necessarily indicative of results to be expected for future periods.
Years Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Sales.......................... $ $ -- $ 220 $ 1,137 $ 4,629
Cost of goods sold............. -- 589 1,498 2,887
------- ------- -------- -------- --------
Gross profit (loss)........... -- (369) (361) 1,742
------- ------- -------- -------- --------
Operating expenses:
Research and development...... 2,254 2,214 2,472 2,543 3,577
Selling, general and
administrative............... 884 1,732 2,804 3,414 4,922
Stock-based compensation...... -- -- 39 403 991
------- ------- -------- -------- --------
Total operating expenses.... 3,138 3,946 5,315 6,360 9,490
------- ------- -------- -------- --------
Loss from operations........... (3,138) (3,946) (5,684) (6,721) (7,748)
Interest and other income
(expense), net................ 76 (24) (176) (28) 238
------- ------- -------- -------- --------
Net loss....................... $(3,062) $(3,970) $ (5,860) $ (6,749) $ (7,510)
======= ======= ======== ======== ========
Net loss per share, basic and
diluted....................... $ (5.98) $ (7.74) $ (11.02) $ (10.10) $ (9.33)
======= ======= ======== ======== ========
Shares used in computing net
loss per share,
basic and diluted............. 512 513 532 668 805
Pro forma net loss per share,
basic and diluted............. $ (0.90)
======= ======= ======== ======== ========
Shares used in computing pro
forma net loss per share,
basic and diluted............. 8,355
December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and
marketable securities......... $ 1,307 $ 3,791 $ 147 $ 7,644 $ 12,153
Working capital................ 683 3,329 (2,276) 7,560 12,437
Total assets................... 1,989 4,592 1,082 9,009 15,705
Long-term obligations, net of
current portion............... 61 40 17 -- 1,854
Convertible preferred stock.... 5,783 12,331 12,492 28,337 38,516
Total stockholders' deficit.... (4,530) (8,501) (14,275) (20,510) (26,991)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with "Selected Financial Data" and our financial statements and the related notes included elsewhere in this prospectus.
Overview
We develop, manufacture and market innovative products that use radiofrequency energy to treat patients with solid cancerous or benign tumors. From inception in 1994 through 1996, our operations consisted primarily of various start-up activities, including development of technologies central to our business, recruiting personnel and raising capital. In 1997, we began commercial shipment of our products.
All of our revenues are generated from the sale of our disposable devices and radiofrequency generators. For the year ended December 31, 1999, 36% of our total sales were sold through our direct sales force in the United States and 64% were sold internationally through distributors. In the near term, we intend to continue building our direct sales force in the United States and selling through third-party distribution partners internationally. In the future, we expect that a significant portion of our revenue will continue to come from international operations because of the high incidence of primary liver cancer in Asian and European markets.
In the year ended December 31, 1999, 64% of our sales were derived from our disposable devices and 36% were derived from the sale of our generators. Placement of generators at hospitals is necessary to drive recurring sales of disposable devices, and we have adopted flexible customer programs to facilitate generator placements. In the future, we expect that an increasing proportion of our sales will be derived from the sale of our higher-margin disposable devices. However, we expect the current product mix to continue in the near term as we establish an installed base of generators and, in the current fiscal year, as we upgrade current customers to our new higher-power generator.
We recognize revenue upon receipt of a purchase order and shipment of products to customers. Our return policy allows customers to return products received in damaged or non-working condition up to 60 days after receipt of the product. To date, returns have been insignificant.
Our manufacturing costs consist of raw materials, including generators produced for us by a third-party supplier, labor to produce our disposable devices and to inspect incoming, in-process and finished goods, sterilization performed by an outside service provider and general overhead expenses.
In the year ended December 31, 1999, 38% of our operating expenses were related to research and development activities, while 52% of our operating expenses were related to selling, general and administrative activities. In the future, we expect to continue to devote a large portion of our resources to product development and clinical research programs. However, we expect to devote a growing proportion of our operating expenses to selling, general and administrative activities, particularly to our sales and marketing efforts. These efforts include increasing the size of our domestic sales force and our international distribution support activities as well as establishing formal physician and patient awareness and education programs.
We incurred net losses of approximately $7.5 million in 1999. As of December 31, 1999, we had an accumulated deficit of $28.6 million. Due to the high costs associated with continued research and development programs, expanded clinical research programs and increased sales and marketing efforts, we expect to continue to incur net losses in the near future.
Our product sales have mainly been to a group of early adopting surgeons, laparoscopists and interventional radiologists who treat patients with cancerous tumors or lesions of the liver. Our opportunity for further market penetration and increased revenues will depend on additional sales efforts, longer-term supporting clinical data and physician awareness and education programs.
Our future growth depends on expanding product usage in our current market and finding new large markets in which we can leverage our core technologies of applying radiofrequency energy to treat cancerous and benign tumors. To the extent our current or any additional markets do not materialize in accordance with our expectations, our sales could be lower than expected.
We are currently involved in patent proceedings and may become a party to additional patent or product liability proceedings. The costs of such lawsuits or proceedings may be material and could affect our earnings and financial position. An adverse outcome in a patent lawsuit could require us to cease sales of affected products or to pay royalties and/or license fees, which could harm our results of operations.
Results of Operations
Years Ended December 31, 1999 and 1998
Sales for the year ended December 31, 1999 were $4.6 million as compared to $1.1 million in 1998. The increase in sales was due to higher unit shipments of generators and disposable devices to United States hospitals and international distributors. Higher unit shipments resulted from increased physician awareness of our technology, product improvements, expansion of our domestic sales force and increased geographical coverage through new international distributors. A substantial portion of our international revenues are attributable to two of our distributors. In the year ended December 31, 1999 one distributor accounted for 41% of our revenues and a second distributor accounted for 14% of our revenues.
Cost of goods sold for the year ended December 31, 1999 were $2.9 million as compared to $1.5 million for the corresponding period in 1998. The growth in cost of goods sold was attributable primarily to the expansion of our manufacturing operations, increased quality assurance programs and higher material, labor and overhead costs associated with increased unit shipments.
Research and development expenses for the year ended December 31, 1999 were $3.6 million as compared to $2.5 million for the corresponding period in 1998. The expense increase was attributable primarily to the hiring of additional personnel, expenses associated with the development of our second-generation disposable devices and generators and increased patent expenses. We include expenses related to prosecution or defense of our patent portfolio in our research and development expenses. We expect to continue to make substantial investments in research and development and clinical studies as well as to expand and protect our patent portfolio, and we anticipate that these expenses will continue to grow in the future.
Selling, general and administrative expenses for the year ended December 31, 1999 were $4.9 million as compared to $3.4 million in the corresponding period in 1998. The increase in selling expenses resulted primarily from the addition of domestic field sales and clinical support personnel as well as sales management personnel to support international distribution efforts. In addition, in 1999 we placed generators at no cost in a group of cancer treatment centers that agreed to act as our reference accounts, and selling expenses for 1999 included depreciation charges related to the generators placed at these hospital centers. General and administrative expenses increased due to the addition of personnel to support our growth in operations. We expect selling and marketing expenses to grow as we continue to increase the size of our direct sales force, expand our international distribution network and engage in activities to further promote product sales. We expect general and administrative expenses to increase as we add personnel and incur reporting and investor-related expenses as a public company.
In connection with the grant of stock options to employees and nonemployees, we recorded deferred stock-based compensation of approximately $1.2 million in the year ended December 31, 1999 as compared to $1.3 million in the corresponding period of 1998. These amounts were recorded as a component of stockholders' equity and are being amortized as charges to operations over the vesting periods of the options. We recorded amortization of deferred stock compensation of approximately $991,000 for the year ended December 31, 1999 as compared to approximately $403,000 for the year ended December 31, 1998. For options granted through May 1, 2000, we expect to record additional amortization expense for deferred compensation as follows: $3.1 million in 2000, $2.2 million in 2001, $1.1 million in 2002 and $427,000 in 2003. See Note 7 of Notes to Financial Statements.
Interest income for the year ended December 31, 1999 was $446,000 as compared to $342,000 for the corresponding period in 1998. The increase was due to an increase in interest earned on higher average cash balances due to the timing of our private placement financings. Interest expense for the year ended December 31, 1999 was $212,000 as compared to $359,000 for the corresponding period in 1998. Interest expense for 1998 included interest and warrant amortization associated with the bridge loans obtained in 1997 and 1998. Interest
expense for 1999 included interest and warrant amortization associated with the loan and security agreement entered into in June 1999.
Years Ended December 31, 1998 and 1997
Sales for the year ended December 31, 1998 were $1.1 million as compared to $0.2 million for the corresponding period in 1997. Sales in 1997 consisted mainly of product sales to our distributor in Italy and the sale of evaluation quantities of product to a few United States hospitals. During 1998, sales to our distributor in Italy increased, and we began shipping commercial quantities of product to select United States hospitals.
Cost of goods sold for the year ended December 31, 1998 was $1.5 million as compared to $0.6 million for the corresponding period in 1997. The growth in cost of sales was attributable primarily to the significant expansion of our manufacturing operations and higher material, labor and overhead costs associated with increased unit shipments.
Research and development expenses for both of the years ended December 31, 1998 and 1997 were $2.5 million. Research and development activities in 1997 were focused on pre-production pilot runs, clinical studies and product development. Research and development activities in 1998 were focused on continued product development and clinical studies as well as regulatory affairs.
Selling, general and administrative expenses for the year ended December 31, 1998 were $3.4 million as compared to $2.8 million for the corresponding period in 1997. The increase was due to the building of a small direct sales force in the United States as well as additional general and administrative personnel to support our growth in operations.
We recorded amortization of deferred stock compensation of approximately $403,000 for the year ended December 31, 1998 as compared to $39,000 in the corresponding period of 1997.
Interest income for the year ended December 31, 1998 was $342,000 as compared to $40,000 for the corresponding period in 1997. The increase was due to an increase in interest earned on higher average cash balances due to the timing of our private placement financings. Interest expense for the year ended December 31, 1998 was $359,000 as compared to $138,000 for the corresponding period in 1997. Interest expense for 1998 included interest and warrant amortization associated with the bridge loans obtained in 1997 and 1998.
Quarterly Results of Operations
The following tables set forth our statement of operations data for each of the four quarters ended December 31, 1999. This data has been derived from unaudited financial statements that, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with our annual audited financial statements and notes thereto appearing elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of results for any future period.
Quarter Ended
----------------------------------
Mar. June Sept. Dec.
31, 30, 30, 31,
1999 1999 1999 1999
------- ------- ------- -------
(in thousands)
Sales...................................... $ 837 $ 1,062 $ 1,197 $ 1,533
Cost of goods sold......................... 665 588 765 869
------- ------- ------- -------
Gross profit.............................. 172 474 432 664
Operating expenses:
Research and development.................. 657 731 875 1,314
Selling, general and administrative....... 1,223 1,210 1,067 1,421
Stock-based compensation.................. 220 236 205 330
------- ------- ------- -------
Total operating expenses................. 2,100 2,177 2,147 3,066
------- ------- ------- -------
Loss from operations....................... (1,928) (1,703) (1,715) (2,402)
Interest and other income (expense), net... 70 40 38 90
------- ------- ------- -------
Net loss................................... $(1,858) $(1,663) $(1,677) $(2,312)
======= ======= ======= =======
|
We believe that period-to-period comparisons of our operating results are not necessarily meaningful, and you should not rely on them to predict future performance. The amount and timing of our sales and operating expenses may fluctuate significantly in the future as a result of a variety of factors. We face a number of risks and uncertainties encountered by early stage companies, particularly those in rapidly evolving markets such as the medical device industry. In addition, although we have experienced revenue growth recently, such revenue growth may not continue, and we may not achieve or maintain profitability in the future.
Liquidity and Capital Resources
We have financed our operations since inception principally through private placements of equity securities, net of expenses, of $38.5 million of convertible preferred stock. To a lesser extent, we also financed our operations through equipment financing and other loans, which totaled $2.3 million in principal outstanding at December 31, 1999. As of December 31, 1999, we had $7.1 million of cash and cash equivalents, $5.1 million of marketable securities and $12.4 million of working capital.
For the year ended December 31, 1999, net cash used in operating activities was $6.9 million principally due to our net loss and increases in accounts receivable and inventory resulting from higher revenues and increased unit shipments. These increases in use of cash for operating activities were partially offset by an increase in accounts payable and accrued liabilities resulting from the upward trend in business activities. Our investing activities for the year ended December 31, 1999 were limited to the purchase of property and equipment in the amount of $441,000 and net purchases or sales of short-term investments. For the year ended December 31, 1999, net cash provided by financing activities was $11.9 million attributable to proceeds from the issuance of stock and debt obligations.
In June 1999, we entered into a loan and security agreement for a loan facility of up to $5.0 million. The facility consists of two term loans of $1.5 million each and a revolving credit note of up to $2.0 million. As of December 31, 1999, we had drawn down the initial term loan of $1.5 million and $532,000 of the revolving credit note.
Our capital requirements depend on numerous factors including our research and development expenditures, expenses related to selling and marketing, and working capital to support business growth. Although it is difficult for us to predict future liquidity requirements with certainty, we believe that the net proceeds from this offering, together with our existing liquidity sources and anticipated funds from operations, will satisfy our cash requirements for at least the next 18 months. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. There can be no assurance that additional financing will be available to us or that, if available, such financing will be available on terms favorable to the company and our stockholders.
Income Taxes
As of December 31, 1999, we had federal net operating loss carryforwards of approximately $24.6 million and state net operating loss carryforwards of approximately $16.0 million, available to offset future regular taxable income. The federal net operating loss carryforwards will expire between 2010 and 2019 and the state net operating loss carryforwards will expire between 2001 and 2004, if not utilized. The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of the company, and our utilization of our carryforwards could be restricted.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to interest rate risk at December 31, 1999 is related to our investment portfolio and our borrowings. Fixed rate investments and borrowings may have their fair market value adversely impacted from changes in interest rates. Floating rate investments may produce less income than expected if interest rates fall, and floating rate borrowings will lead to additional interest expense if interest rates increase. Due in part to these factors, our future investment income may fall short of expectations, and our interest expense may be above our expectations. Further, we may suffer losses in investment principal if we are forced to sell securities that have declined in market value due to changes in interest rates.
We invest our excess cash in debt instruments of the United States government and its agencies and in high quality corporate issuers. The average contractual duration of our investments in 1999 was less than one year. Due to the short-term nature of these investments, we believe that there is no material exposure to interest rate risk arising from our investments.
At December 31, 1999, we had a term loan of $1.5 million outstanding which bears interest at 13.36% and a revolving credit facility of $532,000 outstanding which bears interest at 2% above the prime rate.
All of our revenue is realized in United States dollars. Therefore, we do not believe that we currently have any significant direct foreign currency exchange rate risk.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. SFAS No. 133 will be effective for fiscal years beginning after June 15, 2000. We do not believe that the implementation of SFAS No. 133 will have any significant impact on our financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," which is an interpretation of Accounting Principal Board No. 25. This interpretation clarifies:
. the definition of employee for purposes of applying Opinion 25, which deals with stock compensation issues;
. the criteria for determining whether a plan qualifies as a noncompensatory plan;
. the accounting consequence of various modifications to the terms of a previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a business combination.
This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on our financial statements.
BUSINESS
Overview
We are a medical device company that develops, manufactures and markets innovative products to treat patients with solid cancerous or benign tumors. Our proprietary system uses radiofrequency energy to heat tissue to a high enough temperature to ablate it, or cause cell death. The RITA system includes radiofrequency generators and a family of disposable needle electrode devices which deliver controlled thermal energy to the targeted tissue. Our products are cleared for sale in major markets worldwide.
We currently sell the RITA system for the ablation of unresectable liver tumors or lesions. We believe our system offers a viable option to patients with this condition who previously had few or no effective alternatives. Since the launch of our system, we have sold more than 10,000 disposable devices.
We offer the only radiofrequency ablation products to our target market that provide tissue temperature feedback throughout the treated tissue. We believe our system has the potential to provide a more effective ablation than competing technologies by providing this thermal feedback during the procedure.
As of March 31, 2000, we had 28 issued patents, four notices of allowance and 45 United States and foreign patent applications pending. The issued and allowed patents cover, among other things, deployable multi-array electrode technology and temperature feedback technology.
Our Business Strategy
Our goal is to be the leading provider of minimally invasive devices for the treatment of solid cancerous or benign tumors. To achieve this goal, we plan to do the following:
. Increase Our Penetration of the Liver Cancer Market. We believe we can capitalize on the opportunity to increase our penetration of the market for the radiofrequency ablation of unresectable liver tumors or lesions, which is currently estimated to be $560 million annually. We intend to execute this strategy by doing the following:
- increase awareness among key referring oncologists through sales and marketing programs;
- publish additional clinical research to provide data supporting the expanded use of our products;
- drive patient awareness with marketing efforts focused on educating patients on the benefits of the RITA system; and
- broaden our market coverage by expanding our domestic direct sales force and international distribution channels.
. Expand the Application of Our Proprietary Technology to Markets Beyond Liver Cancer. We believe our minimally invasive proprietary technology can be broadly applied to the treatment of other types of cancerous and benign tumors, including tumors in the lung, bone, breast, prostate and kidney. We plan to build on our extensive clinical experience in liver tumors as well as feasibility studies in additional organs to support the extension of our technology to additional applications in the future. We estimate that the market for these additional applications may exceed $2 billion annually.
. Continue to Advance Technology. We intend to aggressively pursue ongoing research and development of additional products and technologies. We plan to continue to expand and improve our product offerings to better serve patients with solid cancerous or benign tumors whose needs are not met by existing treatments. Examples of these efforts include:
- further enhancements of ablation technologies; and
- technologies for the improved visualization of tissue during the ablation process.
. Capitalize on the Significant Opportunity in International Markets. Liver cancer is one of the leading causes of death in a number of international markets. We plan to devote substantial attention to providing clinical and marketing support to existing international distributors while continuing to identify new distributors in additional markets.
Market Opportunity
Cancer Market
Cancer afflicts millions of people worldwide every year. It is the second leading cause of death in the United States, exceeded only by heart disease. The National Cancer Institute estimates that the direct medical cost related to the treatment of cancer in the United States is approximately $37 billion annually.
Cancer can be categorized into two broad groups: solid tumor cancers, such as liver, lung, bone, breast, prostate and kidney cancers as well as hematologic or blood-borne cancers, such as lymphomas and leukemias. It is estimated that nearly ninety percent of all cancers are solid tumor cancers.
Liver Cancer Market
Liver cancer is one of the most prevalent and lethal forms of cancer throughout the world. There are two forms of liver cancer: primary and metastatic. Primary liver cancer originates in the liver. Secondary, or metastatic, liver cancer results from the spread of cancer from other places in the body to the liver. A significant number of patients treated for primary and metastatic liver cancer will experience a recurrence of their disease.
The worldwide incidence of primary liver cancer is estimated to be one million new patients each year. The vast majority of primary liver cancer patients are located outside the United States, particularly in Asia and Southern Europe. Approximately ninety-four percent of patients diagnosed with primary liver cancer will die within five years. Due to a rise in the number of worldwide cases of Hepatitis B and C, both of which are correlated to the development of primary liver cancer, we believe that the incidence of primary liver cancer may increase in the future.
It is estimated that there are almost as many cases of metastatic liver cancer worldwide as there are cases of primary liver cancer and approximately 250,000 annual cases in the United States alone. The liver is one of the three most common sites for the spread of cancer. For example, one of the most common forms of primary cancer is colorectal cancer, and sixty percent of these patients will develop metastatic liver tumors. Due to numerous factors, including the absence of viable treatment options, metastatic liver cancer often causes death.
Treatment Options for Liver Cancer
The prognosis for primary and secondary liver cancers is poor. Although limited treatment options are currently available for liver cancer, they are typically ineffective, are generally associated with significant side effects and can even cause death. Traditional treatment options include surgery, chemotherapy, cryosurgery, percutaneous ethanol injection and radiation.
Surgery
While surgery is considered the "gold standard" treatment option to address liver tumors, more than eighty percent of liver cancer patients are unresectable, which means they do not qualify for surgery. This is most often due to the following:
. Operative risk: limited liver function or poor patient health threatens survival as a result of the surgery; or
. Technical feasibility: the proximity of a cancerous tumor to a critical organ or artery, or the size, location on the liver or number of tumors makes surgery infeasible.
For the few patients who qualify for surgery, there are significant complications related to the procedure and the operative mortality rate is two percent. Recurrence of tumors is common and in that event, surgery typically cannot be repeated.
Chemotherapy
Chemotherapy uses drugs to kill cancer cells. Chemotherapy can be used systemically or regionally. In systemic chemotherapy, drugs are delivered throughout the body. In local chemotherapy, drugs are delivered directly to the liver tumor. Systemic chemotherapy is not considered an effective means of treating liver cancer. In some cases, treatment regimens using localized chemotherapy in addition to systemic treatment have been reported to increase the efficacy of these alternatives to a limited extent.
Chemotherapy causes significant side effects in the majority of patients, including loss of appetite, nausea and vomiting, hair loss and ulcerations of the mouth. In addition, chemotherapy can damage the blood-producing cells of the bone marrow, leading to a low blood cell count. As a result, chemotherapy patients have an increased chance of infection, bleeding or bruising after minor cuts or injuries, and fatigue or shortness of breath.
Cryosurgery
Cryosurgery is the destruction of cancer cells using sub-zero temperatures in an open surgical procedure. During cryosurgery, multiple stainless steel probes are placed into the center of the tumor and liquid nitrogen is circulated through the end of the device, creating an iceball. Cryosurgery involves a cycle of treatments in which the tumor is frozen, allowed to thaw and then refrozen.
While cryosurgery is considered to be relatively effective, we believe adoption of this procedure has been limited by the following factors:
. it is not an option for patients who cannot tolerate an open surgical procedure;
. it involves significant complications which are similar to other open surgical procedures, as well as liver fracture and hemorrhaging caused by the cycle of freezing and thawing;
. it is associated with mortality rates estimated to be between one and five percent; and
. it is expensive compared to other alternatives.
Percutaneous Ethanol Injection
Percutaneous ethanol injection, or PEI, involves the injection of alcohol into the center of the tumor. The alcohol causes cells to dry out and cellular proteins to disintegrate, ultimately leading to tumor cell death.
While PEI can be successful in treating some patients with primary liver cancer, it is generally considered ineffective on large tumors as well as metastatic tumors. Patients are required to receive multiple treatments making this option unattractive for many patients. Complications include pain and alcohol introduction to bile ducts and major blood vessels. In addition, this procedure can cause cancer cells to be deposited along the needle tract when the needle is withdrawn.
Radiation Therapy
Radiation therapy uses high dose x-rays to kill cancer cells. Radiation therapy is not considered an effective means of treating liver cancer and is rarely used for this purpose.
The RITA Solution
Our Procedure
Our proprietary system is designed to use radiofrequency energy to provide a minimally invasive approach to ablating solid cancerous or benign tumors. Our system delivers radiofrequency energy to raise the temperature of cells above 45 to 50(degrees)C, causing cellular death.
The physician inserts the RITA disposable needle electrode device into the target body tissue, typically under ultrasound guidance. Once the device is inserted, pushing on the handle of the device causes a group of curved wires to be deployed from the tip of the electrode. When the power is turned on, these wires act to spread the delivery of radiofrequency energy throughout the tumor. In addition, temperature sensors on the tips of the wires measure tissue temperature throughout the procedure. During the procedure, our system automatically adjusts the amount of energy delivered in order to maintain the temperature necessary to ablate the targeted tissue. For a typical three centimeter ablation, the ablation process takes approximately ten minutes. When the ablation is complete, pulling back on the handle of the device causes the curved wire array to be retracted into the device so it can be removed from the body.
Benefits of the RITA System
The benefits of our system include:
. Viable Treatment Option. We believe that our system provides a viable treatment option to liver cancer patients who previously had few or no options available to effectively address their unresectable liver tumors. In the future, our system may offer patients with other types of tumors a viable treatment option.
. Minimally Invasive Procedure. The RITA system offers physicians an effective minimally invasive treatment option with few side effects or complications. Our products can be used in an outpatient procedure which requires only local anesthesia, and patients are typically sent home the same day with a small bandage over the entry site. Alternatively, patients can be treated laparoscopically and are generally sent home the next day. Compared to existing alternatives, we believe our minimally invasive procedure can be cost effective and can result in reduced hospital stays.
. Proprietary Array Design and Temperature Feedback Provide Procedural Control. Our array design enables the physician to predictably ablate large volumes of targeted tissue. In addition, our temperature feedback feature allows physicians to ensure that the temperature is high enough throughout the tissue to achieve cell death.
. Repeat Treatments Possible. Liver cancer is a recurrent disease. Due to the invasive nature of existing treatment options, the majority of patients who undergo traditional therapies cannot be retreated in the event that new tumors appear on their livers. Because of the minimally invasive nature of our procedure, patients treated with our system can often be retreated.
. Broadly Applicable Technology. Our extensive clinical experience with liver tumors and feasibility studies in other organs indicates that our technology may in the future be broadly applied to the ablative treatment of solid tumors in the lung, bone, breast, prostate and kidney. We believe clinical studies will support the applicability of our technology to a number of types of cancerous or benign tumors.
Our Technology and Products
Technology
All of our products are based on our proprietary radiofrequency ablation technology which is used to ablate tissue in a controlled manner. A radiofrequency generator supplies energy through our disposable devices placed within the targeted tissue. These devices contain curved, space-filling arrays of wires which are deployed from the tip to allow the radiofrequency energy to be dispersed throughout the tumor.
Radiofrequency energy supplied by the generator produces ionic agitation, or cellular friction, in the tissue closely surrounding the electrode. This friction produces heat which can be used to predictably ablate volumes of tissue. To effectively ablate tissue, it must be heated to an approximate temperature of 45 to 50(degrees)C, or 113 to 122(degrees)F.
The key steps of the ablation process are depicted below:
[Graphic description of the steps involved in the ablation process].
Our system is designed to permit the physician to set the desired treatment time and temperature at the beginning of the procedure. Once that temperature is reached, our proprietary temperature control technology automatically adjusts the energy supplied from the generator to maintain the optimal temperature within the tissue during the course of the procedure. We believe our system has the potential to provide a more effective ablation than competing technologies by providing critical tissue temperature feedback during the procedure.
Products
The RITA system consists of a generator that supplies radiofrequency energy as well as a family of disposable devices. The following chart summarizes our product offerings.
Product Name Description Status
----------------------------------------------------------------------------
Disposable Model 30 Designed to create a Commercially available
Devices: three centimeter since 1997
ablation. Compatible
with the Model 500
generator.
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Model 70 Designed to create a Commercially available
scalable two to three since mid-1999
centimeter ablation.
Compatible with the
Model 500 generator.
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StarBurst Designed to create a Planned availability in
scalable two to three 2000
centimeter ablation.
Compatible with the
Model 1500 generator.
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StarBurst XL Designed to create a Limited launch in the
scalable three to five first quarter of 2000
centimeter ablation.
Compatible with the
Model 1500 generator.
----------------------------------------------------------------------------
Generators: Model 500 50 Watt generator. Commercially available
since 1997
----------------------------------------------------------------------
Model 1500 150 Watt generator. Limited launch in the
first quarter of 2000
|
Disposable Devices
Our disposable devices all consist of needle shaped electrodes containing curved wire arrays which can be deployed into the target body tissue once the device has been inserted into the body. Each device contains several thermocouples, or temperature sensors, which provide feedback to the physician of the tissue temperature during the ablation and which allow the generator to automatically adjust the amount of radiofrequency energy so that the desired tissue temperature can be achieved.
Our disposable devices are available in different array sizes to allow the physician to create a spherical ablation volume of anywhere from two to three or from three to five centimeters. Three centimeters is slightly smaller than a ping pong ball. Five centimeters is approximately the size of a billiard ball. In addition, each of the devices is available in 15 or 25 centimeter lengths to allow physicians to access tumors which are located more or less deeply within the body. Each disposable device is supplied with one or more ground pads to allow a return path for the flow of radiofrequency energy from the patient back to the generator.
Model 30. This device creates an ablation which is approximately three centimeters in diameter. It uses our first generation umbrella-shaped array consisting of four curved wires. It is compatible with the Model 500 generator. In the United States, the device has a list price of $1,100.
Model 70. This device has the ability to create a variable size ablation which can be chosen to be anywhere between two to three centimeters in diameter. It uses our second generation, space-filling, starburst-shaped curved seven wire array, which has the potential to provide energy dispersion more evenly throughout the tissue to be ablated. It is compatible with the Model 500 generator. In the United States, this device has a list price of $1,100.
StarBurst. This device is the same in all key respects as the Model 70, except that it is designed to be marketed with the Model 1500 generator only. In the United States, the device is expected to have a list price of $1,100.
StarBurst XL. This electrode device has the ability to create a variable size ablation which can be chosen to be anywhere between three to five centimeters in diameter. We believe the ability to create a five centimeter ablation is considered by many physicians to be a major advance in the radiofrequency ablation field. This electrode device also uses our second generation, space-filling, starburst-shaped curved nine wire array. It is compatible with the Model 1500 generator only. In the United States, the device has a list price of $1,440.
Generators
All of our generators employ an internal computer to assist the physician to safely and effectively control the delivery of radiofrequency during the ablation. In addition, each generator has a display to convey information to the physician while using the system.
Model 500. This generator is based on our first generation technology and is capable of delivering up to 50 Watts of power. It provides the user with a display of temperature, impedance and energy as well as automatic control of power based on temperature. In the United States, the device has a list price of $30,000.
Model 1500. This generator is our newest generation technology and is capable of delivering up to 150 Watts of power. It provides the same capabilities as the Model 500, but with greatly increased energy capability, more temperature displays and an improved user interface. In addition, it has the ability, using optional software running on a laptop computer, to display real-time, color-coded graphs of power, temperature and impedance to aid the user in controlling the system. In the United States, the device has a list price of $37,500.
Clinical Research
To date, clinical studies using our products conducted both by physicians affiliated with us as advisors as well as by unaffiliated physicians have been reported on in 19 published reports in peer reviewed journals. In addition, over 35 abstracts have been presented at medical conferences. Some studies using our products have been reported in multiple publications or presentations. These published and presented reports include approximately 409 patients. The majority of the clinical studies which have been conducted using the RITA system were on patients with unresectable liver cancer. However, clinicians have investigated or are currently investigating the feasibility of using the RITA system to address other types of cancer, including breast, prostate and kidney cancer. These studies demonstrated that liver and potentially other cancerous tumors can be ablated safely and effectively using the RITA system.
In the area of unresectable liver cancer, there have been 15 published reports on the use of the RITA system of which seven included follow-up data on local tumor recurrence rates. These recurrence rates averaged approximately fourteen percent with mean follow-up times of between five and 14 months. Serious complications were rare, with overall complication rates of less than one percent.
Several studies are underway or are being planned in the use of our products for unresectable liver patients in conjunction with local or systemic chemotherapy. We hope to show that the combination of the use of the RITA system plus these more conventional therapies will produce clinical results which are even better than the use of either chemotherapy or the RITA system alone.
Clinicians have used the RITA system to evaluate the feasibility of ablating tumors or lesions of the kidney, prostate and breast. Feasibility studies and additional clinical research programs are underway or are being planned in the use of our products in these areas as well as lung and bone. For those studies already underway, the early results appear to be promising.
Product Development
We believe that we have a strong base of proprietary design, development and manufacturing capabilities. We have particular expertise in the core research and development areas relevant to the production of new disposable electrode devices for use in conjunction with our current radiofrequency generators. We are working on a number of enhancements to our existing products including improved visualization technologies to further assist the physician in the process of ablating tumors. In addition, we are working on technology improvements which we believe will allow physicians to create larger volumes of ablated tissue in shorter times.
Sales and Marketing
Our customer base is fairly evenly divided between the United States, European and Asian markets. In the United States, we market our products through our direct sales force to leading cancer institutes and prominent medical centers. In international markets, we sell our products through distribution companies. Our customers include surgical oncologists, hepatobiliary surgeons, liver transplant surgeons, laparoscopists and interventional radiologists. We also target referral sources, including colorectal surgeons and medical oncologists.
Our products are marketed domestically by eight direct sales employees and three clinical specialists who provide support to our direct sales force in the training of physicians. We have entered into agreements with distributors in 16 countries including major countries in Europe and Asia. Three RITA employees, who are responsible for sales in our European, Asian and other international markets, monitor and direct our international distributors' activities. We have plans in place to expand our United States direct sales force and our network of international distributors by the end of 2000.
Our marketing and sales efforts are directed at placing generators at key cancer centers and other leading medical centers worldwide and then working with those centers' physicians to increase their usage of our disposable devices. We recognize that our predominant source of recurring revenue will be from our disposable devices, which can only be used once a generator is placed. To facilitate generator placement at medical centers, we have established a variety of programs, including deferred purchase, long- or short-term loan, preferred customer discount, upgrade and leasing programs.
We have established relationships with leading physicians at prominent cancer and other leading medical centers, many of whom we believe are now strong advocates of our products. We plan to drive physician adoption by increasing awareness of the RITA system among potential users. To achieve this objective, we plan to involve both these institutions and physicians in formal courses as well as informal hands-on training programs which we will sponsor. We also plan to target referring clinical oncologists and colorectal surgeons with information regarding the benefits of the RITA system. In addition, since cancer treatment options are often affected by patient choice, we plan to expand public awareness of our products using both marketing materials and our website.
Competition
The medical device industry is subject to intense competition. Accordingly, our future success will depend on our ability to meet the clinical needs of physicians, improve patient outcomes and remain cost-effective for payors.
There are a limited number of alternatives available to patients with liver cancer to address their lesions. The traditional treatment options include surgery, chemotherapy, radiation, cryosurgery and percutaneous ethanol injections. We do not believe any of these treatments are directly competitive with our products, as none are intended to use heat to ablate liver lesions. Further, these treatments generally have limited efficacy and/or applicability.
RadioTherapeutics Corporation, a privately held company, and Radionics, a division of Tyco International, are the two companies in our market whose products compete directly with ours. Both companies offer systems which include a generator and disposable electrodes and use radiofrequency energy to ablate soft tissue. However, neither system is designed to provide physicians with the tissue temperature feedback throughout the tissue that we believe is important to help ensure successful tissue ablation.
We believe that the principal competitive factors in our markets are:
. improved patient outcomes;
. the publication of favorable peer-reviewed clinical studies;
. acceptance by leading physicians;
. ease of use of our generators and electrode devices;
. sales and marketing capability;
. regulatory approvals;
. timing and acceptance of product innovation;
. patent protection;
. product quality and reliability; and
. cost effectiveness.
Patents and Proprietary Technology
We believe that a key element of our competitive advantage depends on our ability to develop and maintain the proprietary aspects of our technology. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws to protect our proprietary technology. We file patent applications to protect the technology, inventions and improvements that we believe are significant to the growth of our business. As of March 31, 2000, we had 28 issued patents, four notices of allowance and 45 United States and foreign patent applications pending. The issued and allowed patents cover, among other things, deployable multi-array electrode technology and temperature feedback technology.
We require our employees, consultants and advisors to execute confidentiality agreements in connection with their employment, consulting or advisory relationships with us. We also require our employees, consultants and certain advisors to agree to disclose and assign to us all inventions conceived during the RITA work day, using RITA property or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries may not protect our proprietary rights as fully as do the laws of the United States. Thus, the measures we are taking to protect our proprietary rights in the United States and abroad may not be adequate. Finally, our competitors may independently develop similar technologies.
The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We are currently involved in a patent interference action declared by the United States Patent and Trademark Office which involves us and RadioTherapeutics Corporation, a competitor of ours. In this proceeding the validity of a patent claim previously issued to us is being called into question. We are also involved in an opposition proceeding in Europe with RadioTherapeutics. In this proceeding, RadioTherapeutics is opposing our issued European patent on grounds that it is not valid as currently issued.
As the number of entrants into our market increases, the possibility of an infringement claim against us grows. For example, we may be inadvertently infringing a valid patent claim of which we are unaware. In addition, because patent applications can take many years to issue, there may be a patent application now pending of which we are unaware that will cause us to be infringing when it issues in the future. To address such patent infringement claims, we may have to enter into royalty or licensing agreements on disadvantageous commercial terms. A successful claim of product infringement against us, and our failure to license the infringed or similar technology, if necessary, would harm our business. In addition, any infringement claims, with or without merit, would be time-consuming and expensive to litigate or settle and would divert management attention from our core business.
Third-Party Reimbursement
Establishing reimbursement for any new technology is a challenge in the current environment of cost containment and managed care. Currently procedures using our products are reimbursed based on established general reimbursement codes. Physicians submit a patient case history and data supporting the applicability of our system to the patient's condition in order to obtain reimbursement. To date, we believe most of our physician and hospital customers in the United States have been successful in obtaining substantial reimbursement from third-party payors of the costs related to our procedure. Outside the United States, reimbursement procedures and policies are country- specific. We and our distributors are pursuing strategies to address reimbursement issues in international markets. In order to ensure continued success in this area, we intend to employ dedicated resources to monitor and direct reimbursement strategy. We may also provide administrative support to physicians seeking reimbursement for the use of our products.
Manufacturing
Our manufacturing operations are focused on the manufacture of disposable electrodes and radiofrequency generators. The manufacturing process for electrodes includes the inspection, assembly, testing, packaging and external sterilization of finished products. Our generators are manufactured to our specifications by outside contractors. We inspect each lot of electrodes and generators prior to distribution to ensure they comply with our specifications.
We devote significant attention to quality control while manufacturing our products. We have established quality systems in conformance with the Quality System Regulation as mandated by the FDA. Our Mountain View, California facility received ISO 9001/EN 46001 re-certification in January 2000 and is in conformance with the European Medical Device Directive for sale of products in Europe. We inspect incoming components prior to assembly, and we inspect and test internally manufactured products both during and after the manufacturing process. We also inspect packaged products and validate the external sterilization process to ensure compliance with our specifications.
Most purchased components and services are available from more than one supplier. Our generators are supplied from two-third party contractors. We have supply agreements with both contractors. One of the third-party suppliers is the single source of our 50 Watt generator. Both contractors supply our 150 Watt generator. For certain components there are relatively few alternate sources of supply, and establishment of additional or replacement suppliers for such components may not be accomplished quickly. Any supply interruption of a single-sourced component could have a material adverse effect on our ability to supply our products.
Government Regulation
Our products are regulated in the United States as medical devices by the FDA under the Federal Food, Drug, and Cosmetic Act, or FDC Act, and require clearance of a premarket notification under Section 510(k) of the FDC Act or approval of a premarket application under Section 515 of the FDC Act by the FDA prior to commercialization. Material changes or modifications to medical devices, including changes to product labeling, are also subject to FDA review and clearance or approval. Under the FDC Act, the FDA regulates, among other things, the research, clinical testing, manufacturing, safety, effectiveness, labeling, storage, record keeping, advertising, distribution, sale and promotion of medical devices in the United States. Non-compliance with applicable requirements can result in, among other actions, warning letters, fines, injunctions, civil and criminal penalties against us, our officers, and our employees, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket approval or clearance for devices, withdrawal of marketing approvals, and recommendation that we not be permitted to enter into government contracts.
Before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a 510(k) premarket notification submission or FDA approval of a premarket approval application. It generally takes three to twelve months from the date of the submission to obtain clearance of a 510(k) submission, but it may take longer. The FDA is increasingly requiring a more rigorous demonstration of substantial equivalence, including clinical trials for some devices.
To date, all of our products have received 510(k) clearances or are exempt from the 510(k) clearance process. Our initial clearances in the United States were general in nature and allow our products to be marketed for the ablation of soft tissue. In March 2000, we received a specific 510(k) clearance from the FDA to promote our products for the partial or complete ablation of nonresectable liver lesions. While we have been successful to date in obtaining regulatory clearance of our products through the 510(k) notification process, if the FDA concludes that any product does not meet the requirements for 510(k) clearance, then a premarket approval would be required and the time required for obtaining regulatory approval would be significantly lengthened.
Once 510(k) clearance has been received, any products that we manufacture or distribute are subject to extensive and continuing regulation by the FDA. Modifications to devices, including changes to product labeling, cleared via the 510(k) process may require a new 510(k) submission. We have made modifications to some of our devices which we believe do not require the filing of new 510(k) submissions. If the FDA requires us to file a new 510(k) submission for any device modification, we may be prohibited from marketing the modified device until the 510(k) is cleared by the FDA.
We are required to register as a medical device manufacturer with the FDA and with the California Department of Health Services and to list our products with the FDA. As such, we will be inspected by both the FDA and California Department of Heath and Safety for compliance with good manufacturing practices, quality systems regulations, and other applicable regulations, including labeling and the adulteration and misbranding provisions of the FDC Act. In addition, our manufacturing processes are required to comply with good manufacturing practices and quality system regulations which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging and shipping of our products.
We are also required to comply with medical device reporting regulations that require a firm to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury, or in which our product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. If the FDA believes that a company is not in compliance with the law or regulations, it can institute proceedings to, among other things, detain or seize products, order a recall, enjoin future violations or distributions and assess civil and criminal penalties against a company, its officers, and employees. As of March 31, 2000, we had filed seven medical device reports with the FDA related to skin burns primarily caused by dispersive electrode placement, one report related to an arterial bleed caused by improper needle placement and one report related to an abscess which resulted from the large volume of ablated tissue. We believe that none of these incidents were attributed to a device malfunction. None of these incidents resulted in permanent injury or death.
We are also subject to regulations and product registration requirements in many of the foreign countries in which we sell our products, in the areas of product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. The time required to obtain marketing approval or clearance required by foreign countries may be longer or shorter than that required for FDA approval or clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements. Either we or our distributors have received registrations and approvals to market our products in our international markets. We are seeking or intend to seek, regulatory registrations or approvals in other international markets.
The European Union has promulgated rules, under the Medical Devices Directive, or MDD, which require medical devices to bear the "CE mark". The CE mark is an international symbol of adherence to quality assurance standards. We obtained MDD certification in December 1996. We received our ISO9001/EN46001 recertification in January 2000 and have instituted all the systems necessary to meet the Medical Device Directive, thus acquiring the ability to affix the CE mark to our devices and export our devices to any EC-member country.
Employees
As of March 31, 2000, we had 57 full-time employees, including 20 in sales and marketing, 15 in manufacturing, 12 in research and development and 10 in general and administrative functions. Our research and development group includes two in research, seven in product development, two in clinical research and one in regulatory affairs. From time to time, we also employ independent contractors to support our engineering, marketing, sales and administrative organizations.
Facilities
We are headquartered in Mountain View, California, where we lease one building with approximately 18,000 square feet of office, research and development and manufacturing space under a lease expiring in August 2004. We currently sublease to a third party 6,000 square feet of our existing space under a sublease that expires in August 2000. Our subtenant has two options to renew the sublease for additional six-month periods. We believe that our existing facilities are adequate to meet our current and foreseeable requirements for the next twelve months or that suitable additional or substitute space will be available as needed.
Insurance
We have general and product liability insurance, which we believe is consistent with the level of coverage held by other companies in the medical device industry. We believe our level of liability insurance coverage provides us with adequate protection against the risks associated with general and product liability claims.
Legal Proceedings
We are not currently subject to any material legal proceedings, other than the patent dispute described in "Risk Factors--We are currently involved in a patent interference action and if we do not prevail in this action, our business could suffer." We may from time to time become a party to various legal proceedings arising in the ordinary course of our business.
MANAGEMENT
Executive Officers and Directors
The following table shows specific information about our executive officers and directors as of March 31, 2000.
Name Age Position(s)
--------------------------------- --- --------------------------------------
Barry Cheskin.................... 39 Chief Executive Officer, President and
Director
Marilynne Solloway............... 52 Chief Financial Officer and Vice
President, Finance and Administration
Daniel Balbierz.................. 38 Vice President, Research and
Development
Vicki Hacker..................... 43 Vice President, Clinical Affairs
Russell Johnson.................. 46 Vice President, Marketing
David Martin..................... 35 Vice President, Global Sales
Ronald Steckel................... 46 Vice President, Operations
Vincent Bucci.................... 46 Director
Janet Effland.................... 51 Director
Scott Halsted.................... 40 Director
Gordon Russell................... 67 Director
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Messrs. Halsted, Bucci and Russell are members of our compensation committee. Ms. Effland and Mr. Halsted are members of our audit committee.
Barry Cheskin has served as our President and Chief Executive Officer since May 1997. Prior to joining us, he held various positions at Datascope Corp, a medical device company. He was President, Collagen Products Division and Corporate Vice President from May 1994 to April 1997, General Manager, Vasoseal/Bioplex Division from November 1992 to May 1994, and Director, Corporate Business Development from April 1992 to November 1992. Mr. Cheskin holds a B.S. in Mechanical Engineering from Massachusetts Institute of Technology, an M.S. in Mechanical Engineering from Stanford University, and an M.B.A. from Columbia University.
Marilynne Solloway has served as our Vice President, Finance & Administration and Chief Financial Officer since April 1998. Prior to joining us, from July 1995 to April 1998, Ms. Solloway was self-employed as a consultant and worked with several non-profit organizations. In 1985, she co- founded Menlo Care, Inc., a medical device company. Ms. Solloway held the position of Chief Financial Officer and Director of Menlo Care, Inc. from May 1985 to June 1995. Ms. Solloway holds a B.A. from University of California, Berkeley and an M.B.A. from University of Santa Clara.
Daniel Balbierz has served as our Vice President, Research and Development since April 1998. Prior to joining us, he held the position of Worldwide Director, Research and Development for the Vascular Access Division of Johnson & Johnson Medical, Inc., a medical device company, from March 1996 to March 1998. Previously, Mr. Balbierz held the position of Director, Research and Development at Menlo Care, a medical device company, from June 1987 to March 1996. Mr. Balbierz holds a B.S. in Mechanical Engineering from California Polytechnic State University.
Vicki Hacker has served as our Vice President, Clinical Affairs since February 2000. Prior to joining us, she held various positions at Cardima Corporation, an electro-physiology company, including Director of Clinical Research from March 1999 to January 2000 and Manager of Clinical Programs from June 1997 to February 1999. Previously, Ms. Hacker held the position of Senior Clinical Education/Research Specialist at Heartport, a minimally invasive cardiac surgery company, from June 1996 to May 1997. From July 1993 to May 1996, she held the position of Associate Director of Clinical Research at Advanced Bioresearch Associates, a contract research association. Ms. Hacker holds a B.S. in Nursing from Rush University and an M.S. in Nursing and Administration from San Jose State University.
Russell Johnson has served as our Vice President, Marketing since July 1998. From March 1999 to March 2000, he also served as our Vice President, Global Sales. Prior to joining us, he founded The Pathfinder Group, a marketing consulting firm servicing emerging medical device companies, and served as President from June 1997 to June 1998. Previously, Mr. Johnson held the position of Director, International Sales of Vista Medical Technologies, Inc., a medical device company, from January 1997 to May 1997 and before that he was the Director, Worldwide Marketing for the Cardiothoracic Surgery Division of Vista Medical Technologies, Inc., from July 1996 to December 1996. He also held the position of Director of International Marketing for Boston Scientific, a medical device company, from July 1993 to July 1996. Mr. Johnson holds a B.A. from Brown University and an M.B.A. from University of Michigan.
David Martin has served as our Vice President, Global Sales since March 2000. Prior to joining us, he held the position of Director of United States Sales for the Cardiac Surgery division of Guidant Corporation, a medical device company, from November 1999 to March 2000. Previously, Mr. Martin held various positions at CardioThoracic Systems, Inc., a minimally invasive cardiac surgery company, including Director of Sales for the United States from January 1998 to November 1999 and Regional Sales Manager and District Sales Manager Western United States from July 1996 to December 1997. He also held the position of District Manager for Carbomedics, a medical device company, from March 1994 to June 1996. Mr. Martin holds a B.A. from University of California, Santa Barbara and an M.B.A. from University of San Diego.
Ronald Steckel has served as our Vice President, Operations since June 1998. Prior to joining us, Mr. Steckel held various positions at Metra Biosystems, Inc., a medical diagnostics company, including Senior Vice President from July 1996 to June 1998, Vice President, Operations from February 1992 to June 1996 and a consultant from July 1991 to February 1992. Mr. Steckel holds a B.S. in Biology from Blackburn University and an M.B.A. from Lake Forest College.
Vincent Bucci has served as a member of our board of directors since March 1999. Mr. Bucci holds the position of President of Health Policy Associates, Inc., a consulting company, since 1992. Mr. Bucci holds a B.A. from Bates College and a J.D. in Public Law and an M.A. in Government both from Georgetown University.
Janet Effland has served as a member of our board of directors since October 1999. She holds the position of Managing Director of Patricof & Co. Ventures, Inc., a venture capital firm, since April 1988. Ms. Effland is also a director of Focal, Inc. and various private companies. Ms. Effland holds a B.S. and a J.D. from Arizona State University, and she attended Harvard Business School's Program for Management Development.
Scott Halsted has served as a member of our board of directors since May 1998. He holds the positions of General Partner and Principal of Morgan Stanley Dean Witter Venture Partners, a venture capital firm, since February 1997 and prior to that he was Vice President from January 1992 to January 1997. Mr. Halsted is also a director of Intuitive Surgical, Inc. and various other private companies. Mr. Halsted holds an A.B. and a B.S. in Biomechanical Engineering from Dartmouth College and an M.M. from the Kellogg Graduate School of Management at Northwestern University.
Gordon Russell has served as a member of our board of directors since August 1994. From 1979 to January 2000, he held the position of General Partner at Sequoia Capital, a venture capital firm, specializing in high technology and healthcare. Mr. Russell is also a director of Fusion Medical, Inc. and various private companies. He holds an A.B. from Dartmouth College.
Our bylaws currently provide for a board of directors consisting of six members. Following the offering the board of directors will be divided into three classes, each serving staggered three year terms: Class I, which is anticipated to consist of directors Janet Effland and Scott Halsted, whose term will expire at the annual meeting of stockholders to be held in 2001; Class II, which is anticipated to consist of directors Gordon Russell and a vacancy which will be filled at a later date, whose term will expire at the annual meeting of stockholders to be held in 2002; and Class III, which is anticipated to consist of directors Vincent Bucci and Barry Cheskin, whose term will expire at the annual meeting of stockholders to be held in 2003. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their terms.
Mr. Halsted and Ms. Effland were elected to the board of directors pursuant to voting agreements between us and our Series E preferred stock investors. That voting agreement will terminate upon completion of this offering. Our officers are appointed by the board of directors and serve at the discretion of the board of directors. There are no family relationships among our directors and officers.
Director Compensation
Our directors do not currently receive compensation for their services as members of the board of directors although they are reimbursed for expenses. Employee directors are eligible to participate in our 1994 incentive stock plan and our 2000 stock plan and will be eligible to participate in our 2000 employee stock purchase plan. In March 2000, we sold to Mr. Bucci 9,000 shares of restricted common stock at $1.67 per share in exchange for regulatory consulting services he provided to us. In addition, in March 1999, Mr. Bucci was granted an option to purchase 30,000 shares of common stock under the 1994 incentive stock plan at an exercise price of $1.00 per share and 1/48th of such shares will vest each month beginning on the vesting commencement date. In October 1994 and January 1997, Mr. Russell was granted options to purchase 7,500 shares and 7,656 shares of common stock, respectively, under the 1994 incentive stock plan at exercise prices of $0.80 and $0.50, respectively, and 1/48th of such shares will vest each month after the beginning of the vesting commencement date. See "Stock Plans."
Board of Directors Committees and Other Information
The compensation committee currently consists of Scott Halsted, Vincent Bucci and Gordon Russell. The compensation committee:
. reviews and approves the compensation and benefits for our executive officers; and
. makes recommendations to the board of directors regarding such matters.
The audit committee consists of Janet Effland and Scott Halsted. The audit committee:
. makes recommendations to the board of directors regarding the selection of independent auditors;
. reviews the results and scope of the audit and other services provided by our independent auditors; and
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the board of directors are currently Scott Halsted, Vincent Bucci and Gordon Russell, none of whom has ever been an officer or employee of RITA. Scott Halsted is a General Partner at Morgan Stanley Dean Witter Venture Partners and, until January 2000, Gordon Russell was a General Partner at Sequoia Capital, both of which are principal stockholders.
Executive Compensation
The following table sets all compensation earned, including salary, bonuses, stock options and other compensation during the fiscal year ended December 31, 1999 by Barry Cheskin, our Chief Executive Officer and our four other executive officers, each of whose total annual compensation exceeded $100,000 in 1999. We may refer to these officers as our named executive officers in other parts of this prospectus.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Position(s) Salary Bonus Compensation Options Compensation
------------------------ -------- ------ ------------ ------------ ------------
Barry Cheskin........... $217,000 -- $51,000(1) 63,079 $26,075(1)
President, Chief
Executive
Officer and Director
Daniel Balbierz......... 161,250 -- -- -- --
Vice President,
Research and
Development
Marilynne Solloway...... 157,031 -- -- -- --
Chief Financial Officer
and Vice
President, Finance and
Administration
Ronald Steckel.......... 155,625 10,000(2) -- -- --
Vice President,
Operations
Russell Johnson......... 153,750 15,000(3) 54,674(4) -- 55,373(4)
Vice President,
Marketing
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(2) Ronald Steckel received a $30,000 signing bonus of which $10,000 was earned in 1999.
(3) Russell Johnson received a $15,000 signing bonus which was earned in 1999.
(4) Russell Johnson received a $15,000 housing allowance, $39,674 in sales commissions, and a $55,373 relocation reimbursement. The housing allowance terminates July 31, 2000.
Option Grants in Last Fiscal Year
The following table summarizes the stock options granted to each named executive officer during the fiscal year ended December 31, 1999. No stock appreciation rights were granted to these individuals during the year.
Individual Grants
-----------------------------------------------
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Number of Percent of Appreciation
Securities Total Options for Option
Underlying Granted to Term(2)
Options Employees in Exercise Expiration -------------
Name Granted(1) Fiscal Year 1999 Price Date 5% 10%
----------------- ---------- ---------------- -------- ---------- ------ ------
Barry Cheskin.... 63,079 17.95% $1.00 10/7/09 $ $
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(2) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the Securities and Exchange Commission and are based on the assumption that the assumed initial public offering price of $ was the fair market value of the common stock on the date of grant. There is no assurance provided to any executive officer or any other holder of our securities that the actual stock price appreciation over the 10-year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the executive officers.
Aggregate Corresponding Option Exercises in Last Fiscal Year and Option Values at December 31, 1999
The following table provides information concerning exercises of options by the named executive officers in 1999 and the number and value of unexercised options held by the named executive officers at December 31, 1999.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999 (2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ----------- ----------- ------------- ----------- -------------
Barry Cheskin........... 120,000 120,427 197,654 $ $
Marilynne Solloway...... -- 44,694 62,571
Daniel Balbierz......... -- 44,688 62,563
Ronald Steckel.......... -- 34,965 58,275
Russell Johnson......... -- 31,875 58,125
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Employment Agreements
We have entered into employment agreements with the executive officers set forth below, which provide for the payment of severance or the acceleration of unvested stock, options and warrants in some circumstances.
Mr. Cheskin's agreement provides that his initial percentage ownership of our common stock shall be protected against dilution below five percent (5%) of the company's outstanding capital stock. This antidilution protection applies to all of our issuances of securities, other than shares issued in connection with an initial public offering, and terminates upon completion of this offering. In the event Mr. Cheskin's employment with us is involuntarily terminated without cause, which would include constructive termination, all unvested shares held by Mr. Cheskin will immediately vest and Mr. Cheskin will receive monthly severance payments, equal to 1/12 of his annual base salary until the earlier of (i) twelve months after his termination date or (ii) such time as he commences full-time employment at another company. In addition, in the event of a change in control of the company, immediately upon consummation of the transaction, seventy five percent (75%) of any unvested shares held by Mr. Cheskin will immediately vest.
Mr. Steckel's agreement provides that if we terminate his employment without
cause, he will receive continued payment of his base salary for the earlier of
(i) six months after his termination date or (ii) such time as he commences
full-time employment with another company.
Mr. Martin's agreement provides that if, after the six-month anniversary of his employment with us, we terminate his employment without cause, he will receive continued payment of his base salary for the earlier of (i) twelve months after his termination date or (ii) such time as he commences full-time employment with another company.
Stock Plans
2000 Stock Plan
Our 2000 plan provides for the grant of incentive stock options to employees, including employee directors, and of nonstatutory stock options and stock purchase rights to employees and consultants, including non-employee directors. The purposes of the 2000 plan are to attract and retain the best available personnel, to provide additional incentives to our employees and consultants and to promote the success of our business. The 2000 plan was adopted by our board of directors in May 2000 and will be submitted for approval by our stockholders prior to the completion of this offering. A total of 2,000,000 shares of common stock has been reserved for issuance under the 2000 Plan. The number of shares reserved for issuance under the 2000 plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2001 and ending in 2010 equal to the lesser of 1,000,000 shares, 7% of our outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as the board of directors determines. Unless terminated earlier by the board of directors, the 2000 plan will terminate in 2010.
The 2000 plan may be administered by the board of directors or a committee of the board, each known as the administrator. The administrator determines the terms of options and stock purchase rights granted under the 2000 plan, including the number of shares subject to the award, the exercise or purchase price, and the vesting and/or exercisability of the award and any other conditions to which the award is subject. In no event, however, may an employee receive awards for more than 1,000,000 shares under the 2000 plan in any fiscal year. Incentive stock options granted under the 2000 plan must have an exercise price of at least 100% of the fair market value of the common stock on the date of grant, and not less than 110% of the fair market value in the case of incentive stock options granted to an employee who holds more than 10% of the total voting power of all classes of our stock or any parent or subsidiary's stock. After the date of this offering, the exercise price of nonstatutory stock options and the purchase price of stock purchase rights will be the price determined by the administrator, although nonstatutory stock options and stock purchase rights granted to our Chief Executive Officer and our four other most highly compensated officers will generally equal at least 100% of the grant date
fair market value if we intend that awards to those individuals will qualify as performance-based compensation under applicable tax law. Payment of the exercise or purchase price may be made in cash or such other consideration as determined by the administrator.
With respect to options granted under the 2000 plan, the administrator determines the term of options, which may not exceed 10 years (or 5 years in the case of an incentive stock option granted to an employee who holds more than 10% of the total voting power of all classes of our stock or a parent or subsidiary's stock). Generally, an option granted under the 2000 plan is nontransferable other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by such optionee. However, the administrator may in its discretion provide for the limited transferability of nonstatutory stock options granted under the 2000 plan under certain circumstances. Stock issued pursuant to stock purchase rights granted under the 2000 plan is generally subject to a repurchase right at the purchaser's original purchase price exercisable by RITA upon the termination of the holder's employment or consulting relationship with us for any reason (including death or disability). This repurchase right will lapse at such rate as the administrator may determine.
If we sell all or substantially all of our assets or if we are acquired by another corporation, each outstanding option and stock purchase right may be assumed or an equivalent award substituted by the acquiror or purchaser. However, if the acquiror does not agree to such assumption or substitution, then outstanding options will terminate. Upon the closing of the transaction, outstanding repurchase rights will terminate unless assigned to the acquiror or purchaser. Outstanding options will adjust in the event of a stock split, stock dividend or other similar change in our capital structure. The administrator has the authority to amend or terminate the 2000 plan, but no action may be taken that impairs the rights of any holder of an outstanding option or stock purchase right without the holder's consent. In addition, we must obtain stockholder approval of amendments to the plan as required by applicable law.
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan was adopted by the board of directors in May 2000 and will be submitted for approval by our stockholders prior to completion of this offering. A total of 650,000 shares of common stock has been reserved for issuance under the 2000 purchase plan, none of which have been issued as of the date of this offering. The number of shares reserved for issuance under the 2000 purchase plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2002, 2003 and 2004 and equal to the lesser of 650,000 shares, 4% of our outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as the board of directors determines. The 2000 purchase plan becomes effective upon the date of this offering. Unless terminated earlier by the board of directors, the 2000 purchase plan shall terminate in 2010.
The 2000 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be implemented by a series of offering periods of approximately 24 months' duration, with new offering periods (other than the first offering period) commencing generally on February 1 and August 1 of each year. Each offering period will consist of consecutive purchase periods of approximately six months' duration. At the end of each purchase period an automatic purchase will be made for participants. The initial offering period is expected to commence on the date of this offering and end on July 31, 2002. The 2000 purchase plan will be administered by the board of directors or by a committee appointed by the board. Our employees (including officers and employee directors), or of any majority-owned subsidiary designated by the board, are eligible to participate in the 2000 purchase plan if they are employed by us or any such subsidiary for at least 20 hours per week and more than five months per year. The 2000 purchase plan permits eligible employees to purchase common stock through payroll deductions, which in any event may not exceed 15% of an employee's eligible cash compensation. The purchase price is equal to the lower of 85% of the fair market value of the common stock at the beginning of each offering period or at the end of each purchase period. Employees may end their participation in the 2000 purchase plan at any time during an offering period, and participation ends automatically on termination of employment.
An employee cannot be granted an option under the 2000 purchase plan if immediately after the grant such employee would own stock and/or hold outstanding options to purchase stock equaling 5% or more of the total voting power or value of all classes of our stock or stock of our subsidiaries, or if such option would permit an employee's rights to purchase stock under the 2000 purchase plan at a rate that exceeds $25,000 of fair market value of such stock for each calendar year in which the option is outstanding. In addition, no employee may purchase more than 1,500 shares of common stock under the 2000 purchase plan in any one purchase period.
If we merge or consolidate with or into another corporation or sell all or substantially all of our assets, each right to purchase stock under the 2000 purchase plan will be assumed or an equivalent right substituted by the successor corporation. However, the board of directors will shorten any ongoing offering period so that employees' rights to purchase stock under the 2000 purchase plan are exercised prior to the transaction in the event that the successor corporation refuses to assume each purchase right or to substitute an equivalent right. Outstanding options will be adjusted if we effect a stock split, stock dividend or similar change in our capital. The board of directors has the power to amend or terminate the 2000 purchase plan and to change or terminate an offering period as long as such action does not adversely affect any outstanding rights to purchase stock thereunder. However, the board of directors may amend or terminate the 2000 purchase plan or an offering period even if it would adversely affect outstanding options in order to avoid our incurring adverse accounting charges.
2000 Directors' Stock Option Plan
The 2000 directors' stock option plan was adopted by the board of directors in May 2000 and will be submitted for approval by our stockholders prior to completion of this offering. It will become effective upon the date of this offering. A total of 500,000 shares of common stock have been reserved for issuance under the 2000 directors' plan, all of which remain available for future grants. The directors' plan provides for the grant of nonstatutory stock options to our nonemployee directors. The directors' plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the board of directors. To the extent they arise, it is expected that conflicts of interest will be addressed by abstention of any interested director from both deliberations and voting regarding matters in which such director has a personal interest. Unless terminated earlier, the directors' plan will terminate in 2010.
The directors' plan provides that each person who becomes a nonemployee director after the completion of this offering will be granted a nonstatutory stock option to purchase 25,000 shares of common stock on the date on which such individual first becomes a member of our board of directors. This option shall vest at the rate of 1/48 of the total number of shares subject to such option per month. Thereafter, on the dates of our annual stockholder meetings, each nonemployee director will be granted a nonstatutory stock option to purchase 5,000 shares of common stock, provided that as of the date of a meeting, the nonemployee director has been a member of the board of directors for at least six months. Each annual option shall vest at the rate of 100% of the total number of shares subject to such option on the one-year anniversary of the grant date.
All options granted under the directors' plan will have a term of 10 years and an exercise price equal to the fair market value of on the date of grant and will generally be nontransferable. If a nonemployee director ceases to serve as a director for any reason other than death or disability, he or she may, but only within 90 days after the date he or she ceases to be a director, exercise options granted under the directors' plan. If he or she does not exercise the option within such 90-day period, the option shall terminate. If a director's service terminates as a result of his or her disability or death, or if a director dies within three months following termination for any reason, the director or his or her estate will have six months after the date of termination or death, as applicable, to exercise options that were vested as of the date of termination. Options granted under the directors' plan are generally nontransferable by the option holder other than by will or the laws of descent or distribution and each option is exercisable, during the lifetime of the option holder, only by that option holder.
If we are acquired by another corporation, each option outstanding under the directors' plan will be assumed or equivalent options substituted by our acquiror, unless our acquiror does not agree to such assumption or substitution, in which case the options will terminate upon consummation of the transaction to the extent not previously exercised. In connection with any acquisition, each director holding options under the directors' plan will have the right to exercise his or her options immediately before the consummation of the merger as to all shares underlying the options. Outstanding options will be adjusted if we effect a stock split, stock dividend, or other similar change in our capital. Our board of directors may amend or terminate the directors' plan as long as such action does not adversely affect any outstanding option and we obtain stockholder approval for any amendment to the extent required by applicable law.
1994 Incentive Stock Plan
Our 1994 plan was originally adopted by our board of directors and approved by our stockholders in July 1994. It provides for the grant of incentive stock options to employees and nonstatutory stock options and stock purchase rights to employees and consultants, including non-employee directors. As of March 31, 2000, options to purchase 1,832,158 shares of common stock were outstanding under the 1994 plan at a weighted average exercise price of $1.04 per share, 667,577 shares had been issued upon exercise of outstanding options or pursuant to restricted stock purchase agreements, and 336,132 shares remained available for future grant. Our board of directors has determined that no future grants will be made under the 1994 plan after the date of this offering.
The terms of the stock awards under the 1994 plan are generally the same as those that may be issued under the 2000 plan, except for the following features. Nonstatutory stock options and restricted stock purchase rights granted under the 1994 plan are nontransferable in all cases and must generally be granted with an exercise price equal to at least 85% of the fair market value of our common stock on the date of grant. In addition, there is no limitation on the number of shares that can be awarded to an employee in a fiscal year.
If we sell all or substantially all of our assets or if we are acquired by another corporation, each outstanding option and stock purchase right may be assumed or an equivalent award substituted by the acquiror or purchaser. However, if the acquiror does not agree to such assumption or substitution, then outstanding options will terminate. Upon the closing of the transaction, outstanding repurchase rights will terminate unless assigned to the acquiror or purchaser. Outstanding options will adjust in the event of a stock split, stock dividend or other similar change in our capital structure. The administrator has the authority to amend or terminate the 1994 plan, but no action may be taken that impairs the rights of any holder of an outstanding option or stock purchase right without the holder's consent. In addition, we must obtain stockholder approval of amendments to the plan as required by applicable law.
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions, including loans, between us and our officers, directors and principal stockholders and their affiliates, are approved by a majority of the board of directors, including a majority of the independent and disinterested members of the board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.
Each share of Series B preferred stock, Series C preferred stock, Series D preferred stock and Series E preferred stock outstanding immediately prior to the offering is convertible into 1.000 share, 1.047 shares, 1.411 shares and 1.000 share, respectively, of common stock. Upon the closing of this offering, all outstanding shares of preferred stock will be automatically converted into common stock. All share and per share amounts below have been adjusted to reflect such conversion and have been adjusted to reflect the three-for-five reverse split to be effected upon completion of this offering.
From January 1, 1996 through March 31, 2000, we have issued shares of preferred stock in private placement transactions as follows:
. an aggregate of 1,160,526 shares of Series B preferred stock at $1.05 per share in May 1996(1);
. an aggregate of 259,179 shares of Series B preferred stock at $1.05 per share in June 1996;
. an aggregate of 1,113,591 shares of Series C preferred stock at $4.78 per share in December 1996;
. an aggregate of 317,475 shares of Series D preferred stock at $7.09 per share in January 1998;
. an aggregate of 2,076,043 shares of Series E preferred stock at $4.58 per share in April 1998;
. an aggregate of 872,727 shares of Series E preferred stock at $4.58 per share in June 1998;
. an aggregate of 218,182 shares of Series E preferred stock at $4.58 per share in July 1999;
. an aggregate of 1,527,273 shares of Series E preferred stock at $4.58 per share in August 1999; and
The purchasers of the preferred stock include the following holders of more than 5% of our securities and their affiliated entities:
Shares of Preferred Stock
---------------------------------
Series Series Series
Investor B C D Series E
-------------------------------------------- ------- ------- ------- ---------
Entities Affiliated with Patricof & Co.
Ventures, Inc.
APA Excelsior V, L.P........................ -- -- -- 964,493
The P/A Fund III, L.P....................... -- -- -- 201,974
Patricof Private Investment Club II, L.P.... -- -- -- 11,714
Entities Affiliated with Morgan Stanley
Venture Partners
Morgan Stanley Venture Partners III, L.P.... -- -- -- 1,573,862
The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P. ................... -- -- -- 62,500
Entities Affiliated with Bank of America
Ventures
Bank of America Ventures.................... -- -- -- 741,818
BA Venture Partners IV...................... -- -- 130,909
Entities Affiliated with Sequoia Capital
Sequoia Capital VI.......................... 243,698 152,433 -- 127,537
Sequoia Technology Partners VI.............. 13,389 8,375 -- 7,007
Sequoia 1995, L.L.C......................... 10,710 6,700 -- 5,605
Entities Affiliated with Delphi Ventures
Delphi BioInvestments II, L.P. ............. 1,362 326 -- --
Delphi Ventures II.......................... 266,436 63,650 -- 117,208
Mohr, Davidow Ventures III.................. 267,800 63,975 -- 117,808
Entities Affiliated with Nissho Iwai
Corporation
Nissho Iwai Corporation..................... -- -- 317,514 --
Nissho Iwai American Corporation............ -- -- -- 218,182
The Gordon Russell Trust(1)................. 17,834 4,265 -- 43,636
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Since January 1, 1996, we have issued the following warrants to executive officers, directors, holders of more than 5% of our outstanding stock and their affiliates
. a warrant for 4,551 shares of Series E preferred stock issued to Sequoia Capital VI in October 1997;
. a warrant for 200 shares of Series E preferred stock issued to Sequoia 1995, L.L.C. in October 1997;
. a warrant for 250 shares of Series E preferred stock issued to Sequoia Technology Partners in October 1997;
. a warrant for 21 shares of Series E preferred stock issued to Delphi BioInvestments II, L.P. in October 1997;
. a warrant for 4,183 shares of Series E preferred stock issued to Delphi Ventures II, L.P. in October 1997; and
. a warrant for 4,205 shares of Series E preferred stock issued to Mohr, Davidow Ventures III in October 1997.
For additional details on the shares held by each of these purchasers, please refer to the information in this prospectus under the heading "Principal Stockholders."
In 1999 the board approved stock bonus programs for employees and officers of the company. These programs were created to provide employees and officers of the company annual performance-based bonuses in the form of grants of options or restricted stock out of the 1994 Stock Option Plan, to reward them for their performance during the course of the year. Following retirement of the 1994 in connection with this offering,
grants under this program shall be made out of the 2000 Plan. This program is administered by our Chief Financial Officer. Eligibility to participate is based on the requirement that the employee be employed by us for no less than three months prior to December 31 of the preceding year and continue to be employed on the date of grant. Employees and officers are eligible to earn up to 10% of the number of options or restricted common stock, as the case may be, that they hold as of December 31 of the relevant year. Each officer who is granted restricted stock under this program shall be permitted to purchase the stock immediately upon grant, subject to the company's right of repurchase. This repurchase right shall lapse as to 25% of the stock for each year following the date of grant. In addition, each officer granted stock under this program shall be permitted to execute a full recourse promissory note to purchase their stock. These notes shall be forgiven as follows: 25% of the principal and accrued interest on the note shall be forgiven on each one year anniversary of the date of grant.
On January 25, 2000, the following officers were granted options at an exercise price of $1.00 per share: Mr. Cheskin, 68,983 shares; Mr. Balbierz, 33,000 shares; Mr. Johnson, 21,000 shares; Ms. Solloway, 33,000 shares; and Mr. Steckel, 18,000 shares. On March 24, 2000, the following officers were granted options at an exercise price of $1.67 per share: Ms. Hacker, 96,000 shares and Mr. Martin, 180,000 shares. On May 1, 2000, Mr. Johnson and Mr. Steckel were granted 15,000 options each at an exercise price of $3.33 per share. In addition, under our 1999 stock bonus plan, on March 24, 2000, we sold restricted stock at a purchase price of $1.67 per share to the following officers and directors: Mr. Balbierz, 12,624 shares; Mr. Cheskin, 49,500 shares; Mr. Johnson, 11,100 shares; Ms. Solloway, 14,028 shares; and Mr. Steckel, 11,124 shares. This restricted stock was paid through the issuance of a full recourse promissory note, which bears interest at the rate of 8% per annum, compounded semiannually, on the unpaid balance of such principal sum. The principal and interest under this note become due and payable on the earlier of March 31, 2005, unless such amounts are forgiven in accordance with the following schedule: 25% of the loaned amount shall be forgiven on each twelve-month anniversary of the vesting commencement date, or the date of termination of the employment of the officer or services of the director. A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time.
Nissho Iwai Corporation is both a 5% stockholder of ours and our distributor in Japan, Korea and Taiwan. Nissho Iwai Corporation purchased 317,514 shares of our Series D preferred stock for $2,250,000 and Nissho Iwai American Corporation, which is affiliated with Nissho Iwai Corporation, purchased 218,182 shares of Series E preferred stock for $1,000,002.
See "Management--Executive Compensation" for description of employment agreements with some of our executive officers, which provide for the payment of severance or the acceleration of unvested stock and options in some circumstances.
Indemnification of Directors and Executive Officers
We have entered into indemnification agreements with our officers and directors containing provisions which may require us, among other things, to indemnify our officers and directors against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.
PRINCIPAL STOCKHOLDERS
The following tables set forth information about the beneficial ownership of our common stock on March 31, 2000, and as adjusted to reflect the sale of the shares of common stock in this offering, by:
. each named executive officer;
. each of our directors;
. each person known to us to be the beneficial owner of more than 5% of our common stock; and
. all of our executive officers and directors as a group.
Unless otherwise noted below, the address of each beneficial owner noted on the table is c/o RITA Medical Systems, Inc., 967 North Shoreline Blvd., Mountain View, California 94043.
We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 10,138,948 shares of common stock outstanding on March 31, 2000 and shares of common stock outstanding upon completion of this offering.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 31, 2000. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Asterisks represent beneficial ownership of less than one percent.
Executive Officers and Directors
Percent of Common Stock
Beneficially Owned
Number of Shares ------------------------------
Name and Address of of Common Stock
Beneficial Owner Beneficially Owned Before Offering After Offering
---------------------------- ------------------ --------------- --------------
Janet Effland(1)............ 1,963,635 19.4%
Scott Halsted(2)............ 1,636,362 16.1
Barry Cheskin(3)............ 519,794 5.0
Gordon Russell(4)........... 97,375 1.0
Daniel Balbierz(5).......... 75,608 *
Marilynne Solloway(6)....... 74,019 *
Ronald Steckel(7)........... 73,051 *
Russell Johnson(8).......... 69,975 *
Vincent Bucci(9)............ 17,750 *
All directors and executive
officers as a group
(10 persons)(10)........... 4,497,569 42.9
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(1) Includes 1,607,489 shares, 336,623 shares and 19,523 shares held by APA Excelsior V, L.P., The P/A Fund III, L.P. and Patricof Private Investment Club II, L.P., respectively. Janet Effland, a director of RITA, is a Managing Director of Patricof & Co. Ventures, Inc. Ms. Effland disclaims beneficial ownership of the shares held by these entities except to the extent of her proportional interest in the entities.
(2) Includes 1,435,988 shares, 62,500 shares and 137,874 shares held by Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P., respectively. Scott Halsted, a director of RITA, is a General Partner of Morgan Stanley Dean Witter Venture Partners. Mr. Halsted disclaims beneficial ownership of the shares held by these entities except to the extent of his proportional interest in the entities.
(3) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time. Also includes 170,297 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(4) Includes 82,219 shares held by The Gordon Russell Trust, of which Mr. Russell is trustee. Mr. Russell disclaims beneficial ownership of the shares held by this entity except to the extent of his proportional interest in the entity. Also includes 15,156 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000. Excludes shares held by entities affiliated with Sequoia Capital, of which Mr. Russell is a former general partner. Mr. Russell disclaims beneficial ownership of such shares except to the extent of his proportional interest in these entities.
(5) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time. Also includes 62,984 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(6) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time. Also includes 10,829 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(7) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time. Also includes 46,927 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(8) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. This right of repurchase lapses over time. Also includes 25,875 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(9) Also includes 8,750 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
(10) Includes a total of 340,818 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
5% Stockholders
Percent of Common Stock
Beneficially Owned
Number of Shares ------------------------------
Name and Address of of Common Stock
Beneficial Owner Beneficially Owned Before Offering After Offering
---------------------------- ------------------ --------------- --------------
Entities affiliated with
Patricof & Co. Ventures,
Inc.(1).................... 1,963,635 19.4%
2100 Geng Road, Suite 150
Palo Alto, California 94303
Entities affiliated with
Morgan Stanley
Dean Witter Venture
Partners(2)............... 1,636,362 16.1
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Entities affiliated with
BankAmerica Ventures(3).... 872,727 8.6
950 Tower Lane, Suite 700
Foster City CA 94404
Entities affiliated with
Sequoia Capital(4)......... 827,718 8.2
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Entities affiliated with
Delphi Ventures(5)......... 701,048 6.9
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Mohr, Davidow Ventures III,
L.P. ...................... 701,053 6.9
2775 Sand Hill Road, Suite
240
Menlo Park, CA 94025
Entities affiliated with
Nissho Iwai
Corporation(6)............. 535,696 5.3
c/o Nissho Iwai American
Corporation
44 Montgomery Street, Suite
2150
San Francisco, CA 94104
Barry Cheskin(7)............ 519,794 5.0
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(2) Includes 1,435,988 shares, 62,500 shares and 137,874 shares held by Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P., respectively. Scott Halsted, a director of RITA, is a General Partner of Morgan Stanley Dean Witter Venture Partners. Mr. Halsted disclaims beneficial ownership of the shares held by these entities except to the extent of his proportional interest in the entities.
(3) Includes 130,909 shares and 741,818 shares held by Bank of America Ventures and BA Venture Partners IV, respectively.
(4) Includes 753,229 shares, 41,384 shares, 23,215 shares and 9,890 shares held by Sequoia Capital VI, Sequoia Technology Partners VI, Sequoia 1995, L.L.C. and Sequoia XXIV, respectively.
(5) Includes 2,308 shares and 698,740 shares held by Delphi BioInvestments II, L.P. and Delphi Ventures II, L.P., respectively.
(6) Includes 317,514 shares and 218,182 shares hold by Nissho Iwai Corporation and Nissho Iwai American Corporation, respectively.
(7) A portion of these shares is subject to repurchase by us at the original issuance price in the event of termination of employment or consulting relationship with us. The right of repurchase lapses over time. Also includes 170,297 shares issuable upon exercise of options exercisable within 60 days of March 31, 2000.
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue 100,000,000 shares of common stock, $0.001 par value, and 2,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock does not purport to be complete and is qualified in its entirety by our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law upon the closing of this offering.
Common Stock
As of March 31, 2000, there were 10,138,948 shares of common stock outstanding and held by 123 stockholders of record, assuming the automatic conversion of each outstanding share of preferred stock upon the closing of this offering. In addition, as of March 31, 2000, there were 1,832,158 shares of common stock subject to outstanding options and 253,042 shares of common stock subject to outstanding warrants. After this offering, there will be 13,538,948 shares of our common stock outstanding and 14,048,948 shares if the underwriters exercise their over-allotment option in full.
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. There are no cumulative voting rights and therefore, the holders of a plurality of the shares of common stock voting for the election of directors may elect all of our directors standing for election. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of funds legally available for that purpose. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities subject to the prior rights of the preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock will be converted into an aggregate of 8,934,628 shares of common stock and automatically retired. Thereafter, the board of directors will have the authority, without further action by the stockholders, to issue up to 2,000,000 shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each such series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing our change in control without further action by the stockholders. We have no present plans to issue any additional shares of preferred stock.
Warrants
As of March 31, 2000, we had 24 warrants outstanding entitling the holders to purchase an aggregate of 253,042 shares of common stock at a weighted average exercise price of $4.66 per share, as adjusted to reflect the automatic conversion of preferred stock into common stock upon the closing of the offering. Of these warrants, warrants to purchase a total of 154,091 shares of common stock at a weighted average exercise price of $5.64 per share will terminate upon the completion of this offering, if not exercised prior to that time.
Registration Rights
After the offering, the holders of 9,069,548 shares of common stock and warrants to purchase 253,042 shares of common stock (the "registrable securities") are entitled to have their shares registered by
us under the Securities Act under the terms of an agreement between us and the holders of the registrable securities. Subject to limitations specified in the agreement, these registration rights include the following:
. The holders of at least 40% of the registrable securities may require, on two occasions beginning on the earlier of (i) June 30, 2000, or (ii) six months after the date of this prospectus, that we use our best efforts to register the registrable securities for public resale, provided that the aggregate offering price for such registrable securities is more than $7,500,000. This right is subject to the ability of the underwriters to limit the number of shares included in the offering in view of market conditions.
. If we register any common stock, either for our own account or for the account of other security holders, the holders of registrable securities are entitled to include their shares of common stock in such registration. This right is subject to the ability of the underwriters to limit the number of shares included in the offering in view of market conditions.
. Once we become eligible to file a registration statement on From S-3, the holders of at least 25% of the then outstanding registrable securities may require us to register all or a portion of their registrable securities on a registration statement on Form S-3, provided that the proposed aggregate offering price is more than $1,000,000. The holders of registrable securities may only exercise these Form S-3 registration rights three times.
All registration rights terminate on the date five years after the completion of this offering, or, with respect to any holder, at such time as the holder can sell all of the holder's shares in any three month period under Rule 144 of the Securities Act.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult our acquisition by a third party and the removal of our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of RITA to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging such proposals because, among other things, negotiation could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless:
. the board of directors approved the transaction in which such stockholder became an interested stockholder prior to the date the interested stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, he or she owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers; or
. 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.
A business combination generally includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. In general, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation's voting stock.
Our certificate of incorporation and bylaws do not provide for the right of stockholders to act by written consent without a meeting or for cumulative voting in the election of directors. In addition, our certificate of incorporation permits the board of directors to issue preferred stock with voting or other rights without any
stockholder action. Our certificate of incorporation and bylaws also provide that our board of directors will be divided into three classes, with each class serving staggered three year terms. These provisions, some of which require the vote of stockholders holding at least 66 2/3% of the outstanding common stock to amend, may have the effect of deterring hostile takeovers or delaying changes in our management. Our bylaws establish procedures, including advance notice procedures with regard to stockholder proposals at stockholder meetings, and with regard to the nomination, other than by or at the direction of the board of directors, of candidates for election as directors.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or redemptions as provided by Section 174 of the Delaware Law; or
. any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our certificate of incorporation and bylaws provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by the Delaware law. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive officers in addition to indemnification provided for in our bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses specified in the agreements, including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of such person's services as our director or executive officer, any subsidiary of ours or any other entity to which the person provides services at our request. In addition, we maintain directors' and officers' insurance. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
At present, we are not aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is U.S. Stock Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock, and no predictions can be made regarding the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to certain contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after the restrictions lapse, or the perception that such sales may occur, could adversely affect the prevailing market price.
Sale of Restricted Shares and Lock-Up Agreements
Upon completion of this offering, we will have an aggregate of outstanding shares of common stock or shares if the underwriters exercise the over-allotment option in full. Of these shares, the shares sold in the offering, plus any shares issued upon exercise of the underwriters' overallotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. In general, affiliates include officers, directors or 10% stockholders.
The remaining 10,138,948 shares outstanding are "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock.
Our directors, officers and substantially all of our stockholders have entered into lock-up agreements in connection with this offering generally providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Salomon Smith Barney. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be salable until such agreements expire or are waived by Salomon Smith Barney. Taking into account the lock-up agreements, and assuming Salomon Smith Barney does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times:
. Beginning on the effective date of this prospectus, the shares sold in the offering will be immediately available for sale in the public market.
. Beginning 90 days after the effective date, approximately 129,550 shares will be eligible for sale all of which will be subject to volume, manner of sale and other limitations under Rule 144.
. Beginning 180 days after the effective date, approximately all of the remaining 10,138,948 shares will be eligible for sale, 6,989,543.
Rule 144
In general, under Rule 144 as currently in effect, after the expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding; or
. the average weekly trading volume of the common stock during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice, and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at anytime during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144 but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities Act as promptly as possible after the effective date to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under the 2000 stock plan, the 1994 incentive stock plan, the 2000 employee stock purchase plan, the 2000 directors' stock option plan or any other benefit plan after the effectiveness of the registration statements will also be freely tradable in the public market. However, such shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resalable under Rule 701.
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal income tax consequences of the ownership and disposition of our common stock to a non-United States holder. As used in this prospectus, the term non-United States holder is a person other than:
. a citizen or individual resident of the United States for United States federal income tax purposes;
. a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any political subdivision of the United States;
. an estate whose income is included in gross income for United States federal income tax purposes regardless of its source; or
. a trust, in general, if it is subject to the primary supervision of a court within the United States and which has one or more United States persons who have the authority to control all substantial decisions of the trust.
This discussion does not address all aspects of United States federal income taxation that may be relevant in light of a non-United States holder's particular facts and circumstances, such as being a United States expatriate, and does not address any tax consequences arising under the laws of any state, local or non-United States taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. Accordingly, each non-United States holder should consult a tax advisor regarding the United States federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We have never paid dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. In the event, however, that we do pay dividends on our common stock, any dividend paid to a non-United States holder of common stock generally will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. Dividends received by a non-United States holder that are effectively connected with a United States trade or business conducted by the non-United States holder are exempt from such withholding tax. However, those effectively connected dividends, net of certain deductions and credits, are taxed at the same graduated rates applicable to United States persons.
In addition to the graduated tax described above, dividends received by a corporate non-United States holder that are effectively connected with a United States trade or business of the corporate non-United States holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.
A non-United States holder of common stock that is eligible for a reduced rate of withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the Internal Revenue Service.
Gain on Disposition of Common Stock
A non-United States holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of our common stock unless:
. the gain is effectively connected with a United States trade or business of the non-United States holder (which gain, in the case of a corporate non-United States holder, must also be taken into account for branch profits tax purposes);
. the non-United States holder is an individual who holds his or her common stock as a capital asset (generally, an asset held for investment purposes) and who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
. we are or have been a "United States real property holding corporation" for United States federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock. We have determined that we are not and do not believe that we will become a "United States real property holding corporation" for United States federal income tax purposes.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.
Dividends paid to a non-United States holder at an address within the United States may be subject to backup withholding at a rate of 31% if the non-United States holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and other information to the payer. Backup withholding generally will not apply to dividends paid to non- United States holders at an address outside the United States on or prior to December 31, 2000 unless the payer has knowledge that the payee is a United States person. Under recently finalized Treasury Regulations regarding withholding and information reporting, payment of dividends to non-United States holders at an address outside the United States after December 31, 2000 may be subject to backup withholding at a rate of 31% unless such non-United States holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the disposition of common stock to or through the United States office of a broker is subject to information reporting and backup withholding at a rate of 31% unless the holder certifies its non-United States status under penalties of perjury or otherwise establishes an exemption. Generally, the payment of the proceeds of the disposition by a non-United States holder of common stock outside the United States to or through a foreign office of a broker will not be subject to backup withholding but will be subject to information reporting requirements if the broker is:
. a United States person;
. a "controlled foreign corporation" for United States federal income tax purposes; or
. a foreign person 50% or more of whose gross income for certain periods is from the conduct of a United States trade or business
unless the broker has documentary evidence in its files of the holder's non- United States status and certain other conditions are met, or the holder otherwise establishes an exemption. Neither backup withholding nor information reporting generally will apply to a payment of the proceeds of a disposition of common stock by or through a foreign office of a foreign broker not subject to the preceding sentence.
In general, the recently promulgated final Treasury Regulations, described above, do not significantly alter the substantive withholding and information reporting requirements but would alter the procedures for claiming benefits of an income tax treaty and change the certifications procedures relating to the receipt by intermediaries of payments on behalf of the beneficial owner of shares of common stock. Non-United States holders should consult their tax advisors regarding the effect, if any, of those final Treasury Regulations on an investment in our common stock. Those final Treasury Regulations generally are effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the United States income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, each underwriter named below has agreed to purchase, and we have agreed to sell to each underwriter, the number of shares set forth opposite the name of that underwriter.
Number
Name of shares
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Salomon Smith Barney Inc. .........................................
FleetBoston Robertson Stephens Inc. ...............................
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Total ...........................................................
----
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The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares of common stock, other than those covered by the over-allotment option described below, if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc. and FleetBoston Robertson Stephens Inc. are acting as representatives, propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share on sales to other dealers. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over- allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must, subject to specified conditions, purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment.
At our request, the underwriters have reserved for sale, at the initial public offering price, up to of the common shares, or % of our common stock to be sold in this offering to our directors, officers and employees, as well as to clients, vendors and individuals associated with us. The number of shares available for sale to the general public will be reduced to the extent that any reserve shares are purchased. Any reserved shares not purchased will be offered by the underwriters on the same terms as the other shares offered by this prospectus. We have agreed to indemnify the underwriters against some liabilities and expenses, including liabilities under the Securities Act of 1933, in connection with sales of the directed shares.
We, our officers and directors and holders of substantially all of our existing outstanding stock have agreed that, for a period of 180 days from the date of this prospectus, we will not, without the prior written consent of Salomon Smith Barney Inc., dispose of or hedge, any shares of our common stock or any securities convertible into or exchangeable for common stock. Salomon Smith Barney Inc. in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
Prior to this offering, there has been no public market for our common stock. Consequently, the initial offering price for our shares will be determined by negotiation among us and the representatives. Among the
factors considered in determining the initial public offering price will be our record of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to us. There can be no assurance, however, that the prices at which our shares will sell in the public market after this offering will not be lower than the price at which they are sold by the underwriters or that an active trading market in our common stock will develop and continue after this offering.
We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol "RITA."
The following table shows the underwriting discounts and commissions to be paid to the underwriters by us in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of common stock.
Paid by RITA
----------------------
No
Exercise Full Exercise
-------- -------------
Per share............................................. $ $
Total................................................. $ $
|
In connection with the offering, Salomon Smith Barney Inc., on behalf of the underwriters, may purchase and sell shares of common stock in the open market. These transactions may include over-allotment, syndicate covering transactions and stabilizing transactions. Over-allotment involves syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in this offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or purchases of common stock made to prevent or retard a decline in the market price of the common stock while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from an underwriter when Salomon Smith Barney Inc., in covering syndicate short positions or making stabilizing purchases, repurchases shares originally sold by that underwriter.
Any of these activities may cause the price of the common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or in the over-the-counter market, or otherwise and, if commenced, may be discontinued at any time.
We estimate that the total expenses, excluding underwriting discounts and commissions, of this offering will be approximately $ . The offering expenses include the SEC registration fee Nasdaq filing fee, printing and engraving expenses, legal fees and expenses, accounting fees and expenses, transfer agent and registration fees and miscellaneous fees and expenses.
The representatives or their respective affiliates may, in the future, perform various investment banking and advisory services for us from time to time, for which they will receive customary fees. The representatives may, from time to time, engage in transactions with and perform services for us in the ordinary course of business.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
Various legal matters with respect to the validity of our common stock offered by this prospectus will be passed upon for us by Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo Park, California 94025. Mark Weeks, a Director of Venture Law Group, is our Secretary. Legal matters with respect to information contained in this prospectus under the captions "Risk Factors--We are currently involved in a patent interference action, and if we do not prevail in this action, our business could suffer," "--Patents and other proprietary rights provide uncertain protections, and we may be unable to protect our intellectual property," and "--Because the medical device industry is characterized by competing intellectual property, we may be sued for violating the intellectual property rights of others," and "Business--Patents and Proprietary Technology" will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304, patent counsel to us. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019-7475. Mark Weeks, employees of Venture Law Group and an investment partnership affiliated with Venture Law Group collectively own a total of 20,046 shares of our common stock. Two partners of Wilson Sonsini Goodrich & Rosati and two investment partnerships affiliated with Wilson Sonsini Goodrich & Rosati collectively own a total of 21,765 shares of our common stock, including an option to purchase 6,000 shares.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of the firm as experts in auditing and accounting.
The statements set forth in the prospectus under the captions "Risk Factors--We are currently involved in a patent interference action, and if we do not prevail in this action, our business could suffer," "--Patents and other proprietary rights provide uncertain protections, and we may be unable to protect our intellectual property" and"--Because the medical device industry is characterized by competing intellectual property, we may be sued for violating the intellectual property rights of others," and "Business--Patents and Proprietary Technology" have been reviewed and approved by Wilson Sonsini Goodrich & Rosati, a Professional Corporation, patent counsel to RITA, as experts in such matters, and are included herein in reliance upon its review and approval.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and Exchange Commission under the Securities Act with respect to the shares of common stock offered in this offering. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement, or the exhibits which are part of the registration statement, parts of which are omitted as permitted by the rules and regulations of the Securities and Exchange Commission. For further information about us and the shares of our common stock to be sold in this offering, please refer to the registration statement and the exhibits which are part of the registration statement. Statements contained in this prospectus as to the contents of any contract or any other document are not necessarily complete. Each statement in this prospectus regarding the contents of the referenced contract or other document is qualified in all respects by our reference to the copy filed with the registration statement.
For further information about us and our common stock, we refer you to our registration statement and its attached exhibits, copies of which may be inspected without charge at the Securities and Exchange Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these
documents by writing to the Securities and Exchange Commission and paying a duplicating fee. Please call the Securities and Exchange Commission at 1-800- SEC-0330 for further information about the public reference rooms. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy and information statements and other information with the Commission. Our periodic reports, proxy and information statements and other information will be available for inspection and copying at the regional offices, public references facilities and Web site of the Commission referred to above.
We intend to furnish our stockholders with annual reports containing audited financial statements and an opinion thereon expressed by independent certified public accountants. We also intend to furnish other reports as we may determine or as required by law.
RITA MEDICAL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Deficit........................................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of RITA Medical Systems, Inc.
The stock split and reincorporation described in Note 11 to the financial statements have not been consummated at the date of our opinion. When they have been consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of RITA Medical Systems, Inc. at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above."
San Jose, California
April 10, 2000, except for
Note 11, for which the
date is , 2000
RITA Medical Systems, Inc.
Balance Sheets
(in thousands)
|
Pro Forma
Stockholders'
December 31, Equity at
------------------ December 31,
1998 1999 1999
-------- -------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents.................. $ 5,322 $ 7,067
Marketable securities...................... 2,322 5,086
Accounts receivable, net of allowance for
doubtful accounts of $29 and $54 in 1998
and 1999, respectively.................... 288 1,149
Inventories, net........................... 252 845
Prepaid assets and other current assets.... 558 616
-------- --------
Total current assets..................... 8,742 14,763
Property, plant and equipment, net........... 248 875
Other assets................................. 19 67
-------- --------
Total assets............................. $ 9,009 $ 15,705
======== ========
Liabilities, Convertible Preferred Stock and
Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable........................... $ 210 $ 892
Accrued liabilities........................ 964 956
Current portion of term loan............... -- 312
Current portion of capital lease
obligations............................... 8 166
-------- --------
Total current liabilities................ 1,182 2,326
Long-term notes payable...................... -- 1,091
Revolving term loan.......................... -- 532
Capital lease obligations, net of current
portion..................................... -- 231
-------- --------
Total liabilities........................ 1,182 4,180
-------- --------
Commitments and contingency (Note 5)
Convertible preferred stock, $0.001 par
value;
Authorized: 13,725 shares in 1998 and
15,166 shares in 1999
Issued and outstanding: 6,398 shares and
8,580 shares in 1998
and 1999, respectively, and none pro forma
(Liquidation value: $38,383).............. 27,964 37,911 $ --
Preferred stock warrants (Note 6)............ 373 605 --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value
Authorized: 30,000 shares in 1998 and 1999
Issued and outstanding: 778 shares in 1998
and 927 shares in 1999; and 9,862 shares
pro forma ............................... 1 1 10
Additional paid-in capital................. 1,538 2,862 41,369
Deferred stock-based compensation.......... (933) (1,146) (1,146)
Stockholder note receivable................ -- (73) (73)
Accumulated other comprehensive income
(loss).................................... 2 (7) (7)
Accumulated deficit........................ (21,118) (28,628) (28,628)
-------- -------- --------
Total stockholders' equity (deficit)..... (20,510) (26,991) $ 11,525
-------- -------- ========
Total liabilities, convertible preferred
stock and warrants and stockholders'
equity (deficit)........................ $ 9,009 $ 15,705
======== ========
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc. Statements of Operations
(in thousands, except per share data)
Years Ended December
31,
-------------------------
1997 1998 1999
------- ------- -------
Sales............................................... $ 220 $ 1,137 $ 4,629
Cost of goods sold.................................. 589 1,498 2,887
------- ------- -------
Gross profit (loss)............................... (369) (361) 1,742
------- ------- -------
Operating expenses:
Research and development (exclusive of stock-based
compensation of $14, $186 and $354 in 1997, 1998
and 1999, respectively)............................ 2,472 2,543 3,577
Selling, general and administrative (exclusive of
stock-based compensation of $25, $217 and $637 in
1997, 1998 and 1999, respectively)................. 2,804 3,414 4,922
Stock-based compensation............................ 39 403 991
------- ------- -------
Total operating expenses.......................... 5,315 6,360 9,490
------- ------- -------
Loss from operations................................ (5,684) (6,721) (7,748)
Interest income..................................... 40 342 446
Interest expense.................................... (138) (359) (212)
Other income (expense), net......................... (78) (11) 4
------- ------- -------
Net loss............................................ (5,860) (6,749) (7,510)
Other comprehensive income (expense):
Change in unrealized gain (loss) on marketable
securities....................................... -- 2 (9)
------- ------- -------
Comprehensive loss.................................. $(5,860) $(6,747) $(7,519)
======= ======= =======
Net loss per common share, basic and diluted........ $(11.02) $(10.10) $ (9.33)
======= ======= =======
Shares used in computing net loss per share, basic
and diluted........................................ 532 668 805
Pro forma net loss per share, basic and diluted
(unaudited)........................................ $ (0.90)
=======
Shares used in computing pro forma net loss per
share, basic and diluted (unaudited)............... 8,355
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc. Statements of Stockholders' Deficit For the years ended December 31, 1997, 1998 and 1999
(in thousands)
Common Stock Accumulated
------------- Additional Deferred Stockholder Other
Shares Paid-in Stock-based Note Comprehensive Accumulated
Issued Amount Capital Compensation Receivable Income (Loss) Deficit Total
------ ------ ---------- ------------ ----------- ------------- ----------- --------
Balances, January 1,
1997................... 513 $ 1 $ 18 $ -- $ -- $-- $ (8,509) $ (8,490)
Conversion of Series A
preferred stock in
August 1997............ 1 -- -- -- -- -- -- --
Stock options
exercised.............. 64 -- 37 -- -- -- -- 37
Deferred stock-based
compensation........... -- -- 57 (57) -- -- -- --
Amortization of deferred
stock-based
compensation........... -- -- -- 39 -- -- -- 39
Net loss................ -- -- -- -- -- -- (5,860) (5,860)
--- --- ------ ------- ---- --- -------- --------
Balances, December 31,
1997................... 578 1 112 (18) -- -- (14,369) (14,274)
Issuance of common
stock.................. 4 -- 2 -- -- -- -- 2
Stock options
exercised.............. 196 -- 106 -- -- -- -- 106
Deferred stock-based
compensation........... -- -- 1,318 (1,318) -- -- -- --
Amortization of deferred
stock-based
compensation........... -- -- -- 403 -- -- -- 403
Change in unrealized
gain on marketable
securities............. -- -- -- -- -- 2 -- 2
Net loss................ -- -- -- -- -- -- (6,749) (6,749)
--- --- ------ ------- ---- --- -------- --------
Balances, December 31,
1998................... 778 1 1,538 (933) -- 2 (21,118) (20,510)
Stock options
exercised.............. 149 -- 92 -- (73) -- -- 19
Stock compensation...... -- -- 28 -- -- -- -- 28
Deferred stock-based
compensation........... -- -- 1,204 (1,204) -- -- -- --
Amortization of deferred
stock-based
compensation........... -- -- -- 991 -- -- -- 991
Change in unrealized
gain on marketable
securities............. -- -- -- -- -- (9) -- (9)
Net loss................ -- -- -- -- -- -- (7,510) (7,510)
--- --- ------ ------- ---- --- -------- --------
Balances, December 31,
1999................... 927 $ 1 $2,862 $(1,146) $(73) $(7) $(28,628) $(26,991)
=== === ====== ======= ==== === ======== ========
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc. Statements of Cash Flows
(in thousands)
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
Cash flows from operating activities:
Net loss.......................................... $(5,860) $(6,749) $(7,510)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 251 621 399
Preferred stock issued for interest payable..... -- 15 --
Issuance of common stock for services received.. -- -- 2
Allowance for doubtful accounts................. -- 29 24
Provision for obsolete inventory................ -- 53 104
Amortization of stock-based compensation........ 39 403 991
Changes in operating assets and liabilities:
Accounts receivable........................... (110) (207) (885)
Inventory..................................... (130) (175) (697)
Prepaid and other current assets.............. 110 (525) 26
Accounts payable and accrued liabilities...... (37) 524 674
------- ------- -------
Net cash used in operating activities....... (5,737) (6,011) (6,872)
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (225) (120) (441)
Purchase of short-term investments................ -- (3,853) (7,061)
Maturities of short-term investments.............. -- 1,532 4,290
Notes receivable and other assets................. (30) 152 (48)
------- ------- -------
Net cash used in investing activities........... (255) (2,289) (3,260)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock............ 37 108 45
Proceeds from issuance of preferred stock......... -- 15,128 9,947
Proceeds from borrowings of long-term debt........ 2,333 500 1,500
Proceeds from revolving term loan................. -- -- 532
Payments on capital lease obligations............. (22) (31) (147)
Payments on long-term debt........................ -- (2,230) --
------- ------- -------
Net cash provided by financing activities....... 2,348 13,475 11,877
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ (3,644) 5,175 1,745
Cash and cash equivalents at beginning of year...... 3,791 147 5,322
------- ------- -------
Cash and cash equivalents at end of year............ $ 147 $ 5,322 $ 7,067
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for taxes............................... $ 1 $ 1 $ 2
Cash paid for interest............................ 138 103 183
Supplemental disclosures of noncash
financing activities:
Preferred stock issued upon conversion of notes
payable.......................................... $ -- $ 500 $ --
Issuance of preferred stock warrants in connection
with long-term debt.............................. 171 202 232
Equipment purchased under capital leases.......... -- -- 557
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc.
Notes to Financial Statements
NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:
RITA Medical Systems, Inc. (formerly ZoMed International, Inc.) (the "Company") was incorporated in January 1994. The Company is engaged in developing, manufacturing and marketing innovative products that use radiofrequency energy to treat patients with solid cancerous or benign tumors. Products include radiofrequency generators and a family of disposable needle electrode devices which deliver controlled thermal energy to the targeted tissue.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited pro forma stockholders' equity
If the offering contemplated by this prospectus is consummated, all of the convertible preferred stock outstanding will automatically convert into 8,934,628 shares of common stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the balance sheet.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of credit risk and other risks and uncertainties
The Company's products include components subject to rapid technological change. Certain components used in manufacturing the product have relatively few alternative sources of supply and establishing additional or replacement suppliers for such components cannot be accomplished quickly. While the Company has ongoing programs to minimize the adverse effect of such changes and considers technological change in estimating its allowances, such estimates could change in the future.
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable securities and accounts receivable. Cash and cash equivalents are deposited in demand and money market accounts in three financial institutions in the United States. Deposits held with financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.
The Company extends credit to its customers, which are primarily comprised of accounts of private companies in the United States, Europe and Asia. The Company performs ongoing credit evaluations of its customers financial conditions and generally requires no collateral. The Company maintains an allowance for doubtful accounts receivable based on the expected collectibility of individual accounts.
Cash and cash equivalents
All highly liquid investments with original or remaining maturities of ninety days or less from the date of purchase are considered to be cash equivalents.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
Marketable securities
The Company's marketable securities are categorized as available-for-sale, as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Unrealized holding gains and losses are reflected as a net amount in a separate component of stockholders equity (deficit) until realized. For the purposes of computing realized gains and losses, cost is identified on a specific identification basis. As of December 31, 1998 and 1999, all available-for-sale securities mature within one year.
The cost and fair value of available-for-sale securities at December 31, 1998 are as follows (in thousands):
Cost Unrealized Fair
Value Gain/Loss Value
------ ---------- ------
Corporate commercial paper......................... $ 683 $-- $ 683
Corporate notes.................................... 1,637 2 1,639
------ --- ------
$2,320 $ 2 $2,322
====== === ======
|
The cost and fair value of available-for-sale securities at December 31, 1999 are as follows (in thousands):
Cost Unrealized Fair
Value Gain/Loss Value
------ ---------- ------
Corporate commercial paper......................... $3,242 $ 1 $3,243
Corporate notes.................................... 849 (4) 845
Foreign debt securities............................ 1,002 (4) 998
------ --- ------
$5,093 $(7) $5,086
====== === ======
|
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets as follows:
Machinery and equipment......................................... 1 to 5 years Computers and software.......................................... 3 to 5 years Furniture and fixtures.......................................... 5 years |
Leasehold improvements are amortized over their estimated useful lives, or the remaining lease term, whichever is shorter, using the straight-line method. Upon sale or retirement, the asset's cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in operations.
Long-lived assets
Long-lived assets and certain intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability is measured by
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
comparison of the asset's carrying amount to future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.
Fair value of financial instruments
The carrying amounts of some of the Company's financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its debt obligations approximates fair value.
Revenue recognition
Revenue from product sales is recognized upon receipt of a purchase order and product shipments provided no significant obligations remain and collection of the receivables is deemed probable.
Research and development
Research and development costs are expensed as incurred. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities which conduct certain research activities on behalf of the Company.
Income taxes
Income taxes are accounted for using the liability method under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Accounting for stock-based compensation
The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), Financial Accounting Standards Board Interpretation ("FIN") No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans" and complies with the disclosure provisions of Statements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price. SFAS No. 123 defines a "fair value" based method of accounting for an employee stock option or similar equity instruments. The pro forma disclosures of the difference between compensation expense included in net loss and the related cost measured by the fair value method are presented in Note 7.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
Net loss per share
Basic earnings per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share would give effect to the dilutive effect of common stock equivalents consisting of stock options, shares issuable upon conversion of the preferred stock and warrants. Potentially dilutive securities have been excluded from the dilutive earnings per share computations as they have an antidilutive effect due to the Company's net losses.
The computation of pro forma net loss per share includes shares issuable upon the conversion of outstanding shares of convertible preferred stock (using the as-if-converted method) from the original date of issuance.
A reconciliation of shares used in the calculations is as follows (in thousands, except per share data):
Years Ended December
31,
-------------------------
1997 1998 1999
------- ------- -------
Net loss......................................... $(5,860) $(6,749) $(7,510)
======= ======= =======
Shares used to compute net loss per share........ 532 668 805
Basic and diluted net loss per share............. $(11.02) $(10.10) $ (9.33)
======= ======= =======
Shares used to compute net loss per share........ 805
Adjustment to reflect weighted-average effect of
assumed conversion of preferred stock
(unaudited)..................................... 7,550
-------
Shares used to compute pro forma basic and
diluted net loss per share (unaudited).......... 8,355
=======
Pro forma basic and diluted net loss per share... $ (0.90)
=======
|
The following weighted outstanding options and warrants (prior to the application of the treasury stock method), and convertible preferred stock (on an as-if-converted basis) were excluded from the computation of diluted net loss per share as they had an antidilutive effect (in thousands):
Years Ended
December 31,
-----------------
1997 1998 1999
----- ----- -----
Options and warrants....................................... 806 1,260 1,700
Convertible preferred stock................................ 3,310 5,927 7,550
----- ----- -----
4,116 7,187 9,250
===== ===== =====
|
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. The Company, to date, has not engaged in derivative or hedging activities. The Company will adopt SFAS No. 133, as required, in fiscal year 2001.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), "Accounting for Certain Transactions Involving Stock compensation-an Interpretation of APB 25." This Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. The adoption of FIN 44 does not have a material impact on the Company's financial statements.
NOTE 3--BALANCE SHEET COMPONENTS
December 31,
----------------
1998 1999
------- -------
Inventories (in thousands):
Raw materials.............................................. $ -- $ 250
Work in progress........................................... -- 28
Finished goods............................................. 252 567
------- -------
$ 252 $ 845
======= =======
Property and equipment (in thousands):
Computer equipment and software............................ $ 371 $ 459
Furniture and fixtures..................................... 63 68
Leasehold improvements..................................... 164 195
Machinery and equipment.................................... 651 1,524
------- -------
1,249 2,246
Less: accumulated depreciation and amortization............ (1,001) (1,371)
------- -------
$ 248 $ 875
======= =======
|
Property and equipment includes $62,174 and $574,518 of machinery under capital leases at December 31, 1998 and 1999, respectively. Accumulated amortization of assets under capital leases totaled $53,884 and $184,324 at December 31, 1998 and 1999, respectively.
Accrued liabilities (in thousands):
Payroll and related expenses...................................... $ 78 $177
Deferred revenue.................................................. -- 64
Other accrued liabilities......................................... 886 715
---- ----
$964 $956
==== ====
|
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
NOTE 4--DEBT
Bridge loan
In July 1997, the Company obtained a $3 million bridge loan from a financial
institution. Under the terms of the agreement, the Company's aggregate
outstanding advances could not exceed $1.25 million until certain contractual
obligations were met. These obligations were met during 1999. Additionally,
certain investors of the Company were required to deposit an aggregate of
$500,000 into an escrow account under which the Company could draw funds at
their discretion. The Company drew down $500,000 during 1998. The bridge loan
bore interest at prime plus 2% and was collateralized by substantially all of
the assets of the Company. In connection with the bridge loan, the Company
issued warrants to purchase 111,818 shares of Series E Preferred Stock (Note
6). In May 1998, the Company paid all amounts outstanding under the bridge
loan. In June 1998, all amounts owed under the additional financing from
certain investors of $500,000 were converted to Series E preferred stock at
$4.58 per share.
Notes payable
In June 1999, the Company entered into a loan and security agreement for a loan facility of up to $5,000,000. The facility consists of two term loans of $1,500,000 each and a revolving credit note of up to $2,000,000. The facility is covered by a security interest in receivables, marketable securities, inventory, equipment and other property including intellectual property. In connection with the loan and security agreement, the Company issued warrants to purchase 85,091 shares of Series E Preferred Stock (Note 6).
As of December 31, 1999, the Company had drawn down the initial term loan of $1,500,000 with a term of three years and bearing interest at 13.36% per annum. Subsequent to the year end, the Company satisfied the terms of the additional draw down and entered into the second term loan of $1,500,000 in February 2000.
Principal payments on the initial term loan at December 31, 1999 are as follows (in thousands):
2000................................................................. $ 312
2001................................................................. 750
2002................................................................. 438
------
1,500
Less: Warrants issued................................................ (97)
------
$1,403
======
|
Revolving loans will be made under the revolving loan facility, bearing interest at prime plus 2% (10.5% at December 31, 1999), through the later of the maturity date or June 30, 2001. The maturity date will automatically be extended to successive additional terms of one year each unless either the lender or the Company provides written notice to terminate the loan period effective on the next maturity date. On the loan maturity date, the Company is required to pay in full all outstanding revolving loans. As of December 31, 1999, the Company had drawn down $532,685 of the revolving credit note.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
NOTE 5--COMMITMENTS AND CONTINGENCY
Capital lease
In September 1998, the Company entered into a three year capital lease agreement and may borrow up to $1,000,000 for equipment to be delivered no later than December 31, 1999 and extended to March 31, 2000. In conjunction with the capital lease, the Company issued warrants to purchase 10,909 shares of Series E preferred stock at $4.58 per share (Note 6).
As of December 31, 1999, future minimum payments under the capital lease are as follows (in thousands):
2000.................................................................. $ 211
2001.................................................................. 211
2002.................................................................. 64
-----
Total............................................................... 486
Less imputed interest (including warrants)............................ (89)
-----
Present value of future minimum lease payments........................ 397
Less current portion.................................................. (166)
-----
Noncurrent portion.................................................. $ 231
=====
|
Operating leases
The Company leases manufacturing and office space under a 60 month noncancelable operating lease terminating in August 2004. The base rent will increase according to the CPI formula as stipulated in the lease agreement. Under the terms of the lease, the Company is responsible for property taxes, insurance and maintenance costs. The Company subleases a portion of its facilities terminating in August 2000. Subject to certain provisions, the sublessee has the right to extend the sublease for two additional six month periods.
Minimum annual rental payments are as follows (in thousands):
2000.................................................................. $ 489
2001.................................................................. 489
2002.................................................................. 489
2003.................................................................. 489
2004.................................................................. 347
------
$2,303
======
|
Rent expense was $169,340, $185,168 and $296,094, net of sublease income of $126,062, $142,381 and $128,184 for the years ended December 31, 1997, 1998 and 1999, respectively.
Contingency
The Company is involved in a patent interference proceeding with RadioTherapeutics Corporation in which the validity of a patent issued to the Company has been called into question. Although the Company believes it has meritorious defenses, if it does not prevail in this interference, it could be prevented from selling the RITA System or be required to pay license fees and or royalties on past and future product sales.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
NOTE 6--STOCKHOLDERS' EQUITY
Convertible preferred stock
The designated series and shares issued of convertible preferred stock are as follows (in thousands):
Shares Issued
and
Outstanding
Number of -------------- Minimum
Shares Gross Liquidation
1998 Authorized Shares Value Value
---- ---------- ------ ------- -----------
Series A............................... 1,500 745 $ 5,811 $ 5,811
Series B............................... 2,500 1,415 1,489 1,489
Series C............................... 2,500 1,064 5,318 5,318
Series D............................... 425 225 2,250 2,250
Series E............................... 6,800 2,949 13,515 13,515
------ ----- ------- -------
13,725 6,398 $28,383 $28,383
====== ===== ======= =======
Shares Issued
and
Number of Outstanding Minimum
Shares -------------- Liquidation
1999 Authorized Shares Value Value
---- ---------- ------ ------- -----------
Series A............................... 1,242 745 $ 5,811 $ 5,811
Series B............................... 2,359 1,415 1,489 1,489
Series C............................... 1,845 1,064 5,318 5,318
Series D............................... 375 225 2,250 2,250
Series E............................... 9,345 5,131 23,515 23,515
------ ----- ------- -------
15,166 8,580 $38,383 $38,383
====== ===== ======= =======
|
The rights, privileges and preferences of Series A, Series B, Series C, Series D and Series E preferred stock are as follows:
Voting rights
Holders of shares of all series of preferred stock are entitled to one vote for each share of common stock into which each share of preferred stock could be converted. The holders of the outstanding shares of all series of preferred stock shall vote with the holders of the common stock upon the election of directors.
Dividends
The holders of shares of all series of preferred stock are entitled to receive noncumulative dividends, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the rate of $0.6238, $0.0842, $0.4000, $0.8000 and $0.3667 per share per annum for Series A stockholders, Series B stockholders, Series C stockholders, Series D stockholders and Series E stockholders, respectively, as declared by the Board of Directors. No dividends have been declared as of December 31, 1999.
Conversion rights
Shares of all series of preferred stock are convertible into common shares at the option of the holder, or automatically upon a public offering of at least $15,000,000 of common stock at an offering price of at least
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
$11.4667 per share, or upon the election of the holders of more than 50% of the then outstanding shares of Series A, Series B, Series C, Series D or Series E preferred stock. Each share of preferred stock shall be convertible into the number of fully paid and non-assessable shares of common stock which results from dividing the conversion price per share in effect for each series of preferred stock at the time of conversion into the per share conversion value of such series. The conversion price per share of Series A preferred stock is $6.0685, Series B preferred stock is $1.0523, Series C preferred stock is $4.7759, Series D preferred stock is $7.0863 and Series E preferred stock is $4.5833.
Liquidation
In the event of liquidation or sale of the Company, holders of Series C, Series D and Series E preferred stock are entitled to receive in preference over other preferred and common stockholders, an amount of $5.00, $10.00 and $4.5833 per share, respectively, including any declared but unpaid dividends. In the event that the Company assets are insufficient to permit the holders full payment as mentioned above, the entire assets and funds of the Company shall be distributed ratably among the holders of Series C, Series D and Series E preferred stock in proportion to the aggregate preferential amount each holder would otherwise be entitled to receive.
Holders of Series B preferred stock are entitled to receive in preference over the Series A and common stockholders, an amount of $1.0523 per share, respectively, including any declared but unpaid dividends. In the event that the Company's assets are insufficient to permit the holders full payment as mentioned above, the entire assets and funds of the Company shall be distributed ratably among the holders of Series B preferred stock in proportion to the aggregate preferential amount each holder would otherwise be entitled to receive.
Holders of Series A preferred stock are entitled to receive in preference over the common stockholders, an amount of $7.7973 per share, respectively, including any declared but unpaid dividends. In the event that the Company's assets are insufficient to permit the holders full payment as mentioned above, the entire assets and funds of the Company shall be distributed ratably among the holders of Series A preferred stock in proportion to the aggregate preferential amount each holder would otherwise be entitled to receive.
After distributions to preferred stockholders have been paid, the remaining assets of the Company available for distribution to stockholders shall be distributed ratably among the common shareholders.
Warrants
In conjunction with a line of credit obtained in August 1996, the Company issued warrants to purchase 18,200 shares of Series C preferred stock at an exercise price of $5.00 per share. The warrants are exercisable for five years from the date of issuance. The Company has reserved 18,200 shares of its Series C preferred stock in the event of exercise of the warrants. All warrants were valued using the Black-Scholes method. The fair value of these warrants has been reflected as a discount on the debt and accreted as interest expense to be amortized over the life of the line of credit.
In conjunction with the 1997 bridge loan, the Company issued warrants to purchase 111,818 shares of Series E preferred stock at $4.5833 per share and warrants to purchase 25,000 shares of Series C preferred stock at $5.00 per share. The Series E and Series C preferred stock warrants had fair values of $2.62 and $2.85 per warrant, respectively, at the time of issuance, as calculated based on the Black-Scholes valuation model. The fair value of these warrants has been reflected as additional consideration for the bridge loan, recorded as a discount on the debt and accreted as interest expense to be amortized over the life of the bridge loan.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
In connection with a September 1998 capital lease agreement, the Company issued warrants to purchase 10,909 shares of Series E preferred stock at $4.58 per share. These warrants expire in September 2006. The aggregate fair value of these warrants was $201,863 based on the Black-Scholes valuation model, and has been reflected as a discount on the lease obligation and is being amortized as interest expense over the term of the lease.
In connection with the establishment of the June 1999 loan arrangement, the Company issued warrants to purchase 85,091 shares of the Company's Series E preferred stock at $4.5833 per share. These warrants expire the earlier of June 2006 on the fifth anniversary of the Company's initial public offering. The aggregate fair value of these warrants was $231,646 based on the Black-Scholes valuation model. Of the total warrants under the loan and security agreement, 42,245 are subject to cancellation if the Company does not draw down the second term. Such warrants are included as a component of other assets and will be offset against the debt upon its draw downs.
NOTE 7--STOCK OPTIONS
As at December 31, 1999, the Company has reserved 1,958,448 shares of common stock for sale to employees, directors and consultants under the 1994 Incentive Stock Plan. Under the Plan, options may be granted at prices not lower than 85% and 100% of the fair market value of the common stock, as determined by the board of directors, for non-statutory and incentive stock options, respectively. For individuals, who at the time of the grant, own stock representing more than 10% of the voting power of all classes of stock, options may be granted at prices not lower than 110% of the fair market value of the common stock for both non-statutory and incentive stock options. Options become exercisable and vest on a cumulative basis at the discretion of the Board of Directors and generally expire ten years from the date of grant.
Activity under the Plan are set forth below (in thousands, except per share data):
Options Outstanding
--------------------------
Weighted
Average
Shares Aggregate Exercise
Available Shares Price Price
--------- ------ --------- --------
Balances, January 1, 1997............... 682 198 $ 279 $0.72
Additional shares reserved............ 455
Options granted....................... (743) 743 234 0.50
Options exercised..................... (64) (37) 0.58
Options canceled...................... 26 (26) (17) 0.65
---- ----- ------
Balances, December 31, 1997............. 420 851 459 0.53
Additional shares reserved............ 600
Options granted....................... (769) 769 769 1.00
Options exercised..................... -- (196) (106) 0.55
Options canceled...................... 64 (64) (38) 0.58
---- ----- ------
Balances, December 31, 1998............. 315 1,360 1,084 0.80
Options granted....................... (406) 406 404 1.00
Options exercised..................... -- (149) (92) 0.62
Options canceled...................... 156 (155) (145) 0.93
---- ----- ------
Balances, December 31, 1999............. 65 1,462 $1,251 $0.85
==== ===== ======
|
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
The options outstanding and currently exercisable by exercise price at December 31, 1999 are as follows (in thousands, except per share data):
Options Outstanding Options Exercisable
-------------------------------- --------------------
Remaining
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- ----------- -------- ----------- --------
$0.0133.................. 1 4.45 years $0.0133 1 $0.0133
$0.0500.................. 386 7.06 years $0.0500 301 $0.0500
$0.8000.................. 86 5.83 years $0.8000 86 $0.8000
$1.0000.................. 989 8.83 years $1.0000 288 $1.0000
----- ---
1,462 676
===== ===
|
Stock-based compensation
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock- Based Compensation." Had compensation cost for the Incentive Stock Plan been determined based on the fair value at the grant date for awards during 1997, 1998 and 1999, consistent with the provisions of SFAS No. 123, the Company's pro forma net loss and pro forma net loss per share would have been as follows (in thousands, except per share amount):
December 31,
-------------------------
1997 1998 1999
------- ------- -------
Net loss, as reported........................... $(5,860) $(6,749) $(7,510)
Net loss, pro forma............................. $(5,890) $(6,812) $(7,589)
Net loss per share, as reported, basic and
diluted........................................ $(11.02) $(10.10) $ (9.33)
Net loss per share, pro forma, basic and
diluted........................................ $(11.07) $(10.20) $ (9.43)
|
Such pro forma disclosure may not be representative of future compensation cost because options vest over several years and additional grants are anticipated to be made each year.
The weighted average fair values of options granted during 1997, 1998 and 1999 were $0.08, $0.13 and $0.14, respectively.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
The value of each option grant is estimated on the date of grant using the minimum value method with the following weighted assumptions:
December 31,
-----------------------
1997 1998 1999
------- ------- -------
Risk-free interest rate.............................. 6.56% 5.22% 5.54%
Expected life........................................ 5 years 5 years 5 years
Expected dividends................................... 0% 0% 0%
|
During 1997, 1998 and 1999, the Company recorded a total of approximately $2.58 million of deferred stock-based compensation in accordance with APB No. 25, SFAS No. 123 and EITF 96-18, related to options granted to employees and non-employees. For options granted to non-employees during 1998 and 1999, the Company determined the fair value using the Black-Scholes option pricing model with the following assumptions: expected volatility of 50%, risk-free interest rate of 5.75% and deemed values of common stock between $1.00 and $6.38 per share. Stock compensation expense is being recognized in accordance with FIN 28 over the vesting periods of the related options, generally four years. The Company recognized stock compensation expense of approximately $39,000, $403,000 and $991,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 8--INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of deferred tax assets are as followed (in thousands):
December 31,
-----------------
1998 1999
------- --------
Net operating loss carryforwards......................... $ 7,717 $ 9,745
Capitalized startup and research and development costs... 895 830
Research and development credit.......................... 331 597
Other.................................................... 52 308
------- --------
Total deferred tax assets.............................. 8,995 11,480
Less valuation allowance................................. (8,995) (11,480)
------- --------
$ -- $ --
======= ========
|
At December 31, 1999, the Company had federal and state net operating loss carryforwards of approximately $24,608,000 and $15,984,000, respectively, available to offset future regular taxable income. The Company's federal and state operating loss carryforwards expire between 2010 and 2019 and between 2001 and 2004, respectively, if not utilized.
Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its deferred tax assets. At such times as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
The Tax Reform Act of 1986 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event the Company has had a change in ownership, utilization of the carryforwards could be restricted.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
NOTE 9--RELATED PARTY TRANSACTIONS
In August 1994, the Company entered into a cross-license agreement (the "Agreement") with VidaMed (a company whose founder was also the founder of the Company) whereby the Company granted VidaMed an exclusive royalty-free license to use the Company's technology for certain applications. In return, VidaMed granted the Company an exclusive license to use VidaMed's technology for certain applications. The Company is required to pay a royalty of 2.5% of net sales on products developed incorporating the VidaMed technology. The obligation to pay royalties terminates on the earlier of ten years from the effective date of the Agreement or when payments by the Company to VidaMed total $500,000.
During the year, the Company entered into a nonrecourse promissory note arrangement with an officer and director of the Company. The balance due to the Company of $72,881 arose on the exercise of stock options and is to be repaid over 4 years at a 6.11% interest rate. The note is collateralized by common stock of the Company and becomes repayable in full immediately should the shareholder leave the employment of the Company.
NOTE 10--SEGMENT INFORMATION
The Company operates in one business segment. The Company sells its products and systems directly to customers in the United States, Europe and Asia.
Sales for geographic regions reported below are based upon the customers' locations. Following is a summary of the geographic information related to revenues, long-lived assets and information related to significant customers for the years ended December 31, 1997, 1998 and 1999:
Years Ended
December 31,
--------------------
1997 1998 1999
---- ------ ------
Sales:
North America............................................. $ 95 $ 669 $1,669
Europe.................................................... 125 468 1,084
Asia...................................................... -- -- 1,876
---- ------ ------
Total................................................... $220 $1,137 $4,629
==== ====== ======
Long-lived assets:
North America............................................. $491 $ 248 $ 613
Europe.................................................... -- -- 262
---- ------ ------
Total..................................................... $491 $ 248 $ 875
==== ====== ======
Significant customers:
Revenue:
Customer 1................................................ 14% -- --
Customer 2................................................ 57% 41% 14%
Customer 3................................................ 13% -- --
Customer 4................................................ -- -- 41%
|
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
Accounts Receivable
As of December 1998 and 1999, the accounts receivable balances comprise of the following:
1998 1999
----- -----
Customer A........................................................ 42.29% 11.89%
Customer B........................................................ 10.57% --
Customer C........................................................ -- 24.02%
Customer D........................................................ -- 28.87%
|
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)
Initial public offering
In May 2000, the Board of Directors authorized management of the Company to file a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the initial public offering is closed under the terms presently anticipated, all of the convertible preferred stock outstanding will automatically convert into 8,934,628 shares of common stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the balance sheet.
Certificate of Incorporation
On May 1, 2000 the board of directors approved the filing of an amended and restated certificate of incorporation in connection with the Company's initial public offering. The amendment, which will become effective upon the completion of the offering will increase the Company's authorized common stock to 100 million shares and decrease authorized preferred stock to 2 million shares.
Stock Split
On May 1, 2000, the board of directors approved a 3-for-5 reverse stock split of the common and preferred stock. Stockholders approval of the reverse stock split was obtained on 2000. All share and per share amounts in the accompanying financial statements have been adjusted retroactively.
[INSIDE BACK COVER]
Graphic 6: The RITA Model 1500 Radiofrequency Generator with Graphic Display and Patient Documentation Software
Our new higher-power generator is an advance in tissue ablation technology, allowing the physician to create a 5 cm volume of ablated tissue in a simple procedure. Software also allows physicians to monitor graphically the ablation in real time and to record procedural information for the patient record.
Graphic 7: The RITA Family of Disposable Devices
Since the introduction of our Model 30 disposable devices, we have continued to advance our technology to allow physicians to create larger ablations. The 5 cm StarBurst XL, our newest device, features our curved wire array which allows broad and consistent heat dispersion within the targeted tissue. Temperature- sensing thermocouples embedded within the tips of the disposable devices allow the physician to monitor tissue temperature during the procedure.
Graphic 8: RITA Model 30
Graphic 9: RITA Model 70
Graphic 10: RITA StarBurstXL
Shares
RITA Medical Systems, Inc.
Common Stock
[RITA LOGO]
Salomon Smith Barney
Robertson Stephens
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of common stock being registered. All amounts are estimates except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
Amount
to be Paid
----------
Securities and Exchange Commission registration fee............... $ 13,419
NASD filing fee................................................... $ 6,480
Nasdaq National Market listing fee ............................... $ 95,000
Printing and engraving expenses .................................. $200,000
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky qualification fees and expenses.......................... *
Transfer Agent and Registrar fees................................. *
Miscellaneous fees and expenses................................... *
--------
Total........................................................... *
========
|
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware Law") authorizes a court to award, or a corporation's board of directors to grant, indemnity 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"). The Registrant's certificate of incorporation (Exhibit 3.1 hereto) and Bylaws (Exhibit 3.3 hereto) provide for indemnification of the Registrant's directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. In addition, the Registrant has entered into Indemnification Agreements (Exhibit 10.1 hereto) with certain officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among the Registrant and the underwriters with respect to certain matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since April 1, 1996, the Registrant has issued and sold the following unregistered securities:
(1) In May 1996, the Registrant issued and sold shares of Series B Preferred Stock convertible into an aggregate of 1,160,526 shares of common stock to a total of 36 investors for an aggregate purchase price of $1,221,182.
(2) In June 1996, the Registrant issued and sold shares of Series B Preferred Stock convertible into an aggregate of 2,259,179 shares of common stock to a total of 34 investors for an aggregate purchase price of $272,700.
(3) In December 1996, the Registrant issued and sold shares of Series C Preferred Stock convertible into an aggregate of 1,113,591 shares of common stock to a total of 43 investors for an aggregate purchase price of $5,318,013.
II-1
(4) In January 1998, the Registrant issued and sold shares of Series D Preferred Stock convertible into an aggregate of 317,475 shares of common stock to a total of 1 investor for an aggregate purchase price of $2,250,000.
(5) In April 1998, the Registrant issued and sold shares of Series E Preferred Stock convertible into an aggregate of 2,076,043 shares of common stock to a total of 13 investors for an aggregate purchase price of $9,515,200.
(6) In June 1998, the Registrant issued and sold shares of Series E Preferred Stock convertible into an aggregate of 872,727 shares of common stock to a total of 1 investor for an aggregate purchase price of $4,000,002.
(7) In July 1999, the Registrant issued and sold shares of Series E Preferred Stock convertible into an aggregate of 218,182 shares of common stock to a total of 1 investor for an aggregate purchase price of $1,000,002.
(8) In August 1999, the Registrant issued and sold shares of Series E Preferred Stock convertible into an aggregate of 1,527,273 shares of common stock to a total of 3 investors for an aggregate purchase price of $7,000,001.
(9) In October 1999, the Registrant issued and sold shares of Series E Preferred Stock convertible into an aggregate of 436,363 shares of common stock to a total of 3 investors for an aggregate purchase price of $2,000,001.
(10) In September 1996, December 1996, July 1997, July 1997 and January 1998, the Registrant issued warrants to a lender for the purchase of preferred stock convertible into 4,397 shares, 14,657 shares, 26,173 shares, 21,818 shares and 73,636 shares, respectively of common stock in connection with equipment financings.
(11) In October 1997, the Registrant issued warrants to a total of 7 investors for the purchase of shares of Series E preferred stock convertible into an aggregate of 16,361 shares of common stock.
(12) In September 1998 and November 1998, the Registrant issued warrants to persons affiliated with a lender for the purchase of preferred stock convertible into 2,596 shares, 5,040 shares, 1,113 shares and 2,160 shares, respectively, of common stock in connection with equipment financings.
(13) In June 1999, the Registrant issued a warrant to a lender for the purchase of preferred stock convertible into 85,091 shares of common stock in connection with a term loan.
(14) From March, 1994 (the Registrant's date of inception) to March 31, 2000, 1,204,400 shares of common stock had been issued upon exercise of options or pursuant to restricted stock purchase agreements, and 1,881,181 shares of common stock were issuable upon exercise of outstanding options under the Registrant's 1994 Incentive Stock Plan.
(b) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1) through 15(a)(11) were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions by an issuer not involving any public offering. Certain of the issuances described in Items 15(a)(11) were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated thereunder in that they were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Registrant.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Number Description
------ -----------
*1.1 Form of Underwriting Agreement (subject to negotiation).
2.1 Form of Agreement and Plan of Merger between the Registrant and RITA
Medical Systems, Inc., a California corporation.
*3.1 Amended and Restated Certificate of Incorporation of RITA Medical
Systems, Inc., a Delaware corporation.
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed upon completion of this offering.
3.3 Amended and Restated Bylaws of RITA Medical Systems, Inc., a Delaware
corporation.
3.4 Amended and Restated Bylaws of the Registrant, to be effective upon
completion of this offering.
*4.1 Form of Stock Certificate.
*5.1 Opinion of Venture Law Group.
10.1 Fifth Amended and Restated Shareholder Rights Agreement dated October
29, 1999 by and among the Registrant and certain security holders.
10.2 1994 Incentive Stock Plan (as amended) and form of option agreement.
*10.3 2000 Stock Plan and form of option agreement.
10.4 2000 Directors' Stock Option Plan and form of option agreement.
10.5 2000 Employee Stock Purchase Plan and form of subscription agreement.
*10.6 Lease for office space.
10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.8 Employment Agreement with Barry Cheskin.
10.9 Employment Agreement with Ronald Steckel.
10.10 Employment Agreement with David Martin.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
*23.2 Consent of Venture Law Group, A Professional Corporation (included in
Exhibit 5.1).
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
|
(b) Financial Statement Schedules*
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-3
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.
The undersigned registrant hereby undertakes that:
(1) 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.
(2) 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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Menlo Park, State of California, on May 3, 2000.
RITA MEDICAL SYSTEMS, INC.
/s/ Barry Cheskin
By: _________________________________
Barry Cheskin
President and Chief Executive
Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Barry Cheskin and Marilynne Solloway and each of them, as his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Barry Cheskin President, Chief Executive May 3, 2000
___________________________________ Officer
Barry Cheskin and Director (Principal
Executive
Officer)
/s/ Marilynne Solloway Chief Financial Officer May 3, 2000
___________________________________ (Principal
Marilynne Solloway Financial and Accounting
Officer)
/s/ Gordon Russell Director May 3, 2000
___________________________________
Gordon Russell
/s/ Scott Halsted Director May 3, 2000
___________________________________
Scott Halsted
/s/ Janet Effland Director May 3, 2000
___________________________________
Janet Effland
/s/ Vincent Bucci Director May 3, 2000
___________________________________
Vincent Bucci
|
II-5
EXHIBIT INDEX
Number Description
------ -----------
*1.1 Form of Underwriting Agreement (subject to negotiation).
2.1 Form of Agreement and Plan of Merger between the Registrant and RITA
Medical Systems, Inc., a California corporation.
*3.1 Amended and Restated Articles of Incorporation of RITA Medical Systems,
Inc., a California corporation.
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed upon completion of this offering.
3.3 Amended and Restated Bylaws of RITA Medical Systems, Inc., a Delaware
corporation.
3.4 Amended and Restated Bylaws of the Registrant, to be effective upon
completion of this offering.
*4.1 Form of Stock Certificate.
*5.1 Opinion of Venture Law Group.
10.1 Fifth Amended and Restated Shareholder Rights Agreement dated October
29, 1999 by and among the Registrant and certain security holders.
10.2 1994 Incentive Stock Plan (as amended) and form of option agreement.
*10.3 2000 Stock Plan and form of option agreement.
10.4 2000 Directors' Stock Option Plan and form of option agreement.
10.5 2000 Employee Stock Purchase Plan and form of subscription agreement.
*10.6 Lease for office space.
10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.8 Employment Agreement with Barry Cheskin.
10.9 Employment Agreement with Ronald Steckel.
10.10 Employment Agreement with David Martin.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
*23.2 Consent of Venture Law Group, A Professional Corporation (included in
Exhibit 5.1).
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
|
* To be filed by amendment.
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
OF RITA MEDICAL SYSTEMS, INC.
A DELAWARE CORPORATION,
and
RITA MEDICAL SYSTEMS, INC.
A CALIFORNIA CORPORATION
This Agreement and Plan of Merger dated as of _____, 2000 (the "Agreement") is between RITA Medical Systems, Inc., a California corporation ("RITA Medical-California"), and RITA Medical Systems, Inc., a Delaware corporation (RITA Medical-Delaware"). RITA Medical-Delaware and RITA Medical-California are sometimes referred to in this Agreement as the "Constituent Corporations."
RECITALS
A. RITA Medical-Delaware is a corporation duly organized and existing under the laws of the State of Delaware and has an authorized capital of 45,165,774 shares, 30,000,000 of which are designated "Common Stock," $0.001 par value, and 15,165,774 of which are designated "Preferred Stock," $0.001 par value. 1,241,939 shares of Preferred Stock are designated Series A Preferred Stock; 2,358,709 shares of Preferred Stock are designated Sereis B Preferred Stock; 1,844,671 shares of Preferred Stock are designated Series C Preferred Stock; 375,000 shares of Preferred Stock are designated Series D Preferred Stock; and 9,345,455 shares of Preferred Stock are designated Series E Preferred Stock. As of _____, 2000, 1,000 shares of RITA Medical-Delaware Common Stock were issued and outstanding, all of which are held by RITA Medical-California, and no shares of Preferred Stock were issued and outstanding.
B. RITA Medical-California is a corporation duly organized and existing under the laws of the State of California and has an authorized capital of 45,165,774 shares, 30,000,000 of which are designated "Common Stock," $0.001 par value, and 15,165,774 of which are designated "Preferred Stock," $0.001 par value. 1,241,939 shares of Preferred Stock are designated Series A Preferred Stock; 2,358,709 shares of Preferred Stock are designated Sereis B Preferred Stock; 1,844,671 shares of Preferred Stock are designated Series C Preferred Stock; 375,000 shares of Preferred Stock are designated Series D Preferred Stock; and 9,345,455 shares of Preferred Stock are designated Series E Preferred Stock. As of _____, 2000, 2,007,370 shares of Common Stock were issued and outstanding, 1,241,939 shares of Series A Preferred Stock were issued and outstanding, 2,358,709 shares of Series B Preferred Stock were issued and outstanding, 1,772,671 shares of Series C Preferred Stock were issued and outstanding, 375,000 shares of Series D Preferred Stock were issued and outstanding and 8,550,983 shares of Series E Preferred Stock were issued and outstanding.
C. The Board of Directors of RITA Medical-California has determined that, for the purpose of effecting the reincorporation of RITA Medical-California in the State of Delaware, it is advisable and in the best interests of RITA Medical-California that RITA Medical-California
merge with and into RITA Medical-Delaware upon the terms and conditions provided in this Agreement.
D. The respective Boards of Directors of RITA Medical-Delaware and RITA Medical-California have approved this Agreement and have directed that this Agreement be submitted to a vote of their respective stockholders and executed by the undersigned officers.
In consideration of the mutual agreements and covenants set forth herein, RITA Medical-Delaware and RITA Medical-California hereby agree, subject to the terms and conditions hereinafter set forth, as follows:
1. Merger.
1.1 Merger. In accordance with the provisions of this Agreement, the Delaware General Corporation Law and the California General Corporation Law, RITA Medical-California shall be merged with and into RITA Medical-Delaware (the "Merger"), the separate existence of RITA Medical-California shall cease and RITA Medical-Delaware shall be, and is sometimes referred to below as, the "Surviving Corporation," and the name of the Surviving Corporation shall be RITA Medical Systems, Inc.
1.2 Filing and Effectiveness. The Merger shall become effective upon completion of the following actions:
(a) Adoption and approval of this Agreement and the Merger by the stockholders of each Constituent Corporation in accordance with the applicable requirements of the Delaware General Corporation Law and the California General Corporation Law;
(b) The satisfaction or waiver of all of the conditions precedent to the consummation of the Merger as specified in this Agreement; and
(c) The filing with the Secretary of State of Delaware of an executed Certificate of Merger or an executed counterpart of this Agreement meeting the requirements of the Delaware General Corporation Law.
The date and time when the Merger becomes effective is referred to in this Agreement as the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of RITA Medical-California shall cease and RITA
Medical-Delaware, as the Surviving Corporation, (a) shall continue to possess
all of its assets, rights, powers and property as constituted immediately prior
to the Effective Date of the Merger, (b) shall be subject to all actions
previously taken by its and RITA Medical-California's Board of Directors, (c)
shall succeed, without other transfer, to all of the assets, rights, powers and
property of RITA Medical-California in the manner more fully set forth in
Section 259 of the Delaware General Corporation
Law, (d) shall continue to be subject to all of the debts, liabilities and obligations of RITA Medical-Delaware as constituted immediately prior to the Effective Date of the Merger, and (e) shall succeed, without other transfer, to all of the debts, liabilities and obligations of RITA Medical-California in the same manner as if RITA Medical-Delaware had itself incurred them, all as more fully provided under the applicable provisions of the Delaware General Corporation Law and the California General Corporation Law.
2. Charter Documents, Directors and Officers
2.1 Certificate of Incorporation. The Certificate of Incorporation of RITA Medical-Delaware as in effect immediately prior to the Effective Date of the Merger shall continue in full force and effect as the Certificate of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of RITA Medical-Delaware as in effect immediately prior to the Effective Date of the Merger shall continue in full force and effect as the Bylaws of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of RITA Medical-Delaware immediately prior to the Effective Date of the Merger shall be the directors and officers of the Surviving Corporation until their successors shall have been duly elected and qualified or as otherwise provided by law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation.
3. Manner of Conversion of Stock
3.1 RITA Medical-California Common Stock. Upon the Effective Date of the Merger, each one share of RITA Medical-California Common Stock issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such share or any other person, be converted into and exchanged for one fully paid and nonassessable share of Common Stock, $0.001 par value, of the Surviving Corporation. No fractional share interests of the Surviving Corporation shall be issued. Any fractional share interests to which a holder would otherwise be entitled shall be aggregated so that no RITA Medical-California shareholder shall receive cash in an amount greater than the value of one (1) full share of RITA Medical-Delaware Common Stock.
3.2 RITA Medical-California Preferred Stock. Upon the Effective Date of the Merger, each share of RITA Medical-California Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock issued and outstanding immediately prior thereto, which shares are convertible into such number of shares of RITA Medical-California Common Stock as set forth in the RITA Medical-California Articles of Incorporation, as amended, shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be converted into and exchanged for one fully paid and non-assessable share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
of the Surviving Corporation, $0.001 par value, respectively, having such rights, preferences and privileges as set forth in the Certification of Incorporation of the Surviving Corporation, which shares of Preferred Stock shall be convertible into the same number of shares of the Surviving Corporation's Common Stock, $0.001 par value as such share of RITA Medical-California Preferred Stock was convertible into shares of RITA Medical-California common stock immediately prior to the Effective Date of the Merger, subject to adjustment pursuant to the terms of the Certificate of Incorporation of the Surviving Corporation.
3.3 RITA Medical-California Options, Stock Purchase Rights and Convertible Securities.
(a) Upon the Effective Date of the Merger, the Surviving Corporation shall assume the obligations of RITA Medical-California under RITA Medical-California's [199__] Stock Option Plan and all other employee benefit plans of RITA Medical-California. Each outstanding and unexercised option, other right to purchase, or security convertible into, RITA Medical-California Common Stock or Preferred Stock (a "Right") shall become, subject to the provisions in paragraph (c) hereof, an option, right to purchase, or a security convertible into the Surviving Corporation's Common Stock or Preferred Stock, respectively, on the basis of one share of the Surviving Corporation's Common Stock or Preferred Stock, as the case may be, for each one share of RITA Medical-California Common Stock or Preferred Stock, issuable pursuant to any such Right, on the same terms and conditions and at an exercise price equal to the exercise price applicable to any such RITA Medical-California Right at the Effective Date of the Merger. This paragraph 3.3(a) shall not apply to RITA Medical-California Common Stock or Preferred Stock. Such Common Stock and Preferred Stock are subject to paragraph 3.1 and 3.2 hereof , respectively.
(b) A number of shares of the Surviving Corporation's Common Stock and Preferred Stock shall be reserved for issuance upon the exercise or conversion of Rights equal to the number of shares of RITA Medical-California Common Stock and Preferred Stock so reserved immediately prior to the Effective Date of the Merger.
(c) The assumed Rights shall not entitle any holder thereof to a fractional share upon exercise or conversion (unless the holder was entitled to a fractional interest immediately prior to the Merger). In lieu thereof, any fractional share interests to which a holder of an assumed Right (other than an option issued pursuant to RITA Medical-Delaware's 199__ Stock Option Plan) would otherwise be entitled upon exercise or conversion shall be aggregated (but only with other similar Rights which have the same per share terms). To the extent that after such aggregation, the holder would still be entitled to a fractional share with respect thereto upon exercise or conversion, the holder shall be entitled upon the exercise or conversion of all such assumed Rights pursuant to their terms (as modified herein), to one full share of Common Stock or Preferred Stock in lieu of such fractional share. With respect to each class of such similar Rights, no holder will be entitled to more than one full share in lieu of a fractional share upon exercise or conversion.
Notwithstanding the foregoing, with respect to options issued under the RITA Medical-California 199__ Stock Option Plan that are assumed in the Merger, the number of shares of Common Stock to which the holder would be otherwise entitled upon exercise of each such assumed option following the Merger shall be rounded down to the nearest whole number and the exercise price shall be rounded up to the nearest whole cent. In addition, no "additional benefits" (within the meaning of Section 424(a)(2) of the Internal Revenue Code of 1986, as amended) shall be accorded to the optionees pursuant to the assumption of their options.
3.4 RITA Medical-Delaware Common Stock. Upon the Effective Date of the Merger, each share of Common Stock, $0.001 par value, of RITA Medical-Delaware issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by RITA Medical-Delaware, the holder of such shares or any other person, be canceled and returned to the status of authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger, each holder of an outstanding certificate representing shares of RITA Medical-California Common Stock or Preferred Stock may be asked to surrender the same for cancellation to an exchange agent, whose name will be delivered to holders prior to any requested exchange (the "Exchange Agent"), and each such holder shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of the appropriate class and series of the Surviving Corporation's capital stock into which the surrendered shares were converted as herein provided. Until so surrendered, each outstanding certificate theretofore representing shares of RITA Medical-California capital stock shall be deemed for all purposes to represent the number of whole shares of the appropriate class and series of the Surviving Corporation's capital stock into which such shares of RITA Medical-California capital stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation or the Exchange Agent of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to the Surviving Corporation or the Exchange Agent, have and be entitled to exercise any voting and other rights with respect to and to receive dividends and other distributions upon the shares of capital stock of the Surviving Corporation represented by such outstanding certificate as provided above.
Each certificate representing capital stock of the Surviving Corporation so issued in the Merger shall bear the same legends, if any, with respect to the restrictions on transferability as the certificates of RITA Medical-California so converted and given in exchange therefor, unless otherwise determined by the Board of Directors of the Surviving Corporation in compliance with applicable laws.
If any certificate for shares of Surviving Corporation's stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and comply with applicable securities laws and that the person requesting such transfer pay to the Exchange Agent any transfer or other taxes payable by reason of the issuance of such new certificate in a name
other than that of the registered holder of the certificate surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not payable.
4. General
4.1 Covenants of RITA Medical-Delaware. RITA Medical-Delaware covenants and agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of California and irrevocably appoint an agent for service of process as required under the provisions of Section 2105 of the California General Corporation Law.
(b) File any and all documents with the California Franchise Tax Board necessary for the assumption by RITA Medical-Delaware of all of the franchise tax liabilities of RITA Medical-California; and
(c) Take such other actions as may be required by the California General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by RITA Medical-Delaware or by its successors or assigns, there shall be executed and delivered on behalf of RITA Medical-California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other actions, as shall be appropriate or necessary in order to vest or perfect in or conform of record or otherwise by RITA Medical-Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of RITA Medical-California and otherwise to carry out the purposes of this Agreement, and the officers and directors of RITA Medical-Delaware are fully authorized in the name and on behalf of RITA Medical-California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger, this Agreement may be terminated and the Merger may be abandoned for any reason whatsoever by the Board of Directors of either RITA Medical-California or RITA Medical-Delaware, or both, notwithstanding the approval of this Agreement by the shareholders of RITA Medical-California or by the sole stockholder of RITA Medical-Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may amend this Agreement at any time prior to the filing of this Agreement (or certificate in lieu thereof) with the Secretary of State of the State of Delaware, provided that an amendment made subsequent to the adoption of this Agreement by the stockholders of either Constituent Corporation shall not: (a) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such Constituent Corporation, (b) alter or change any term of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger, or (c) alter or change any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class of shares or series of capital stock of such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation in the State of Delaware is located at 1209 Orange Street, Wilmington, County of New Castle, Delaware. The Corporation Trust Company is the registered agent of the Surviving Corporation at such address.
4.6 FIRPTA Notification.
(a) On the Effective Date of the Merger, RITA Medical-California shall deliver to RITA Medical-Delaware, as agent for the shareholders of RITA Medical-California, a properly executed statement (the "Statement") in substantially the form attached hereto as Exhibit A. RITA Medical-Delaware shall retain the Statement for a period of not less than seven years and shall, upon request, provide a copy thereof to any person that was a shareholder of RITA Medical-California immediately prior to the Merger. In consequence of the approval of the Merger by the shareholders of RITA Medical-California, (i) such shareholders shall be considered to have requested that the Statement be delivered to RITA Medical-Delaware as their agent and (ii) RITA Medical-Delaware shall be considered to have received a copy of the Statement at the request of the RITA Medical-California shareholders for purposes of satisfying RITA Medical-Delaware's obligations under Treasury Regulation Section 1.1445-2(c)(3).
(b) RITA Medical-California shall deliver to the Internal Revenue Service a notice regarding the Statement in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2).
4.7 Agreement. Executed copies of this Agreement will be on file at the principal place of business of the Surviving Corporation at 967 Shoreline Boulevard, Mountain View, CA 94043 and copies thereof will be furnished to any stockholder of either Constituent Corporation, upon request and without cost.
4.8 Governing Law; Jurisdiction. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. Each of the parties to this Agreement consents to the exclusive jurisdiction and venue of the courts of the state and federal courts of Santa Clara County, California.
4.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
The undersigned authorized representatives of the Constituent Corporation have executed and acknowledged this Agreement as of the date first set forth above.
RITA Medical Systems, Inc., a Delaware corporation
President and Chief Executive Officer
RITA Medical Systems, Inc., a California
corporation
President and Chief Executive Officer
EXHIBIT A -- FORM OF FIRPTA CERTIFICATE
_____, 2000
Assistant Commissioner (International)
Director, Office of Compliance
OP:I:C:E:666
950 L'Enfant Plaza South, S.W.
COMSAT Building
Washington, D.C. 20024
NOTICE TO THE INTERNAL REVENUE SERVICE OF RITA MEDICAL SYSTEMS, INC. (A CALIFORNIA CORPORATION) UNITED STATES REAL PROPERTY HOLDING CORPORATION STATUS UNDER TREASURY REGULATION 1.897-2(H)(2)
Dear Sir:
1. This Notice is being filed by RITA Medical Systems, Inc.-California, ("Target") pursuant to section 1.897-2(h)(2) of the Treasury Regulations promulgated under the Internal Revenue Code of 1986, as amended (the "Code").
2. The undersigned, on behalf of Target hereby declares that stock of
Target is not a United States real property interest within the meaning of
section 897 of the Code because Target is not and has not been a United States
real property holding corporation as that term is defined in section 897(c) (2)
of the Code during the applicable period specified in section 897(c) (1) (A)
(ii) of the Code.
3. Target's United States taxpayer identifying number is: [_________]
4. Target's address is:
967 Shoreline Boulevard Mountain View, CA 94043
5. In connection with the acquisition of Target by RITA Medical Systems, Inc.- Delaware ("Acquiror"), the undersigned provided the attached statement to Acquiror declaring that an interest in Target is not a United States real property interest. The statement was voluntarily provided in response to a request from the transferee, Acquiror under Regulation 1. 1445-2(c) (3) (i).
Acquiror's United States taxpayer identifying number is:[____________]
Acquiror's address is:
967 Shoreline Boulevard Mountain View, CA 94043
6. No supplemental statements pursuant to Treasury Regulations section 1.897-2(h) (5) are required to be filed herewith.
7. Under penalties of perjury the undersigned declares that he has examined this certification, and the attachment hereto, and to the best of his knowledge and belief they are true, correct and complete. The undersigned further declares that he is a responsible officer and that he has authority to sign this document on behalf of Target.
A copy of the statement provided pursuant to Treasury Regulation ss.ss.1.897-2(h)(2) and 1.1445-2(c)(3)(i) is attached.
RITA Medical Systems, Inc.
A California Corporation
OFFICERS' CERTIFICATE OF APPROVAL OF THE MERGER
Barry Cheskin and Mark Weeks certify that:
1. They are the President and Chief Executive Officer and the Secretary, respectively, of RITA Medical Systems, Inc. a corporation organized under the laws of the State of California.
2. The corporation has authorized two classes of stock, designated "Common Stock" and "Preferred Stock," respectively.
3. There were [2,007,370] shares of Common Stock and [14,299,302] shares of Preferred Stock outstanding as of the record date (the "Record Date") and entitled to vote by written consent of the shareholders whereby the Agreement and Plan of Merger attached hereto (the "Merger Agreement") was approved.
4. The principal terms of the Merger Agreement were approved by the Board of Directors and by the vote of a number of shares of each class and series of stock which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the outstanding shares of Common Stock and more than 50% of the outstanding shares of Preferred Stock, voting as separate classes.
Barry Cheskin and Mark Weeks further declare under penalty of perjury under the laws of the States of California and Delaware that each has read the foregoing certificate and knows the contents thereof and that the same is true and correct of his own knowledge.
Executed in ____________________, California on _____, 2000.
RITA Medical Systems, Inc.
A Delaware Corporation
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
Barry Cheskin and Mark Weeks certify that:
1. They are the President and Chief Executive Officer and the Secretary, respectively, of RITA Medical Systems, Inc., a corporation organized under the laws of the State of Delaware.
2. The corporation has authorized two classes of stock, designated "Common Stock" and "Preferred Stock," respectively.
3. There are 1,000 shares of Common Stock outstanding and entitled to vote on the Agreement and Plan of Merger attached hereto (the "Merger Agreement"). There are no shares of Preferred Stock outstanding.
4. The principal terms of the Merger Agreement were approved by the Board of Directors and by the vote of a number of shares of each class and series of stock which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled to be cast by holders of outstanding shares of Common Stock.
Barry Cheskin and Mark Weeks further declare under penalty of perjury under the laws of the States of Delaware and California that each has read the foregoing certificate and knows the contents thereof and that the same is true and correct of each's own knowledge.
Executed in ________________________, California, _____, 2000.
Mark Weeks, Secretary
Exhibit 3.3
BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
(a Delaware private company)
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES.................................................1
1.1 Registered Office................................................1
1.2 Other Offices....................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.........................................1
2.1 Place Of Meetings................................................1
2.2 Annual Meeting...................................................1
2.3 Special Meeting..................................................1
2.4 Notice Of Stockholders' Meetings.................................2
2.5 Manner Of Giving Notice; Affidavit Of Notice.....................2
2.6 Quorum...........................................................2
2.7 Adjourned Meeting; Notice........................................2
2.8 Conduct Of Business..............................................3
2.9 Voting...........................................................3
2.10 Waiver Of Notice................................................3
2.11 Stockholder Action By Written Consent Without A Meeting.........3
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.....4
2.13 Proxies.........................................................4
ARTICLE III - DIRECTORS.......................................................5
3.1 Powers...........................................................5
3.2 Number Of Directors..............................................5
3.3 Election, Qualification And Term Of Office Of Directors..........5
3.4 Resignation And Vacancies........................................5
3.5 Place Of Meetings; Meetings By Telephone.........................6
3.6 Regular Meetings.................................................6
3.7 Special Meetings; Notice.........................................7
3.8 Quorum...........................................................7
3.9 Waiver Of Notice.................................................7
3.10 Board Action By Written Consent Without A Meeting...............8
3.11 Fees And Compensation Of Directors..............................8
3.12 Approval Of Loans To Officers...................................8
3.13 Removal Of Directors............................................8
3.14 Chairman Of The Board Of Directors..............................8
ARTICLE IV - COMMITTEES.......................................................9
4.1 Committees Of Directors..........................................9
4.2 Committee Minutes................................................9
4.3 Meetings And Action Of Committees................................9
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TABLE OF CONTENTS
(continued)
Page
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ARTICLE V - OFFICERS 10
5.1 Officers........................................................10
5.2 Appointment Of Officers.........................................10
5.3 Subordinate Officers............................................10
5.4 Removal And Resignation Of Officers.............................10
5.5 Vacancies In Offices............................................10
5.6 Chief Executive Officer.........................................11
5.7 President.......................................................11
5.8 Vice Presidents.................................................11
5.9 Secretary.......................................................11
5.10 Chief Financial Officer........................................12
5.11 Representation Of Shares Of Other Corporations.................12
5.12 Authority And Duties Of Officers...............................12
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS..............................................13
6.1 Indemnification Of Directors And Officers.......................13
6.2 Indemnification Of Others.......................................13
6.3 Payment Of Expenses In Advance..................................13
6.4 Indemnity Not Exclusive.........................................13
6.5 Insurance.......................................................14
6.6 Conflicts.......................................................14
ARTICLE VII - RECORDS AND REPORTS............................................14
7.1 Maintenance And Inspection Of Records...........................14
7.2 Inspection By Directors.........................................15
7.3 Annual Statement To Stockholders................................15
ARTICLE VIII - GENERAL MATTERS...............................................15
8.1 Checks..........................................................15
8.2 Execution Of Corporate Contracts And Instruments................15
8.3 Stock Certificates; Partly Paid Shares..........................15
8.4 Special Designation On Certificates.............................16
8.5 Lost Certificates...............................................16
8.6 Construction; Definitions.......................................17
8.7 Dividends.......................................................17
8.8 Fiscal Year.....................................................17
8.9 Seal............................................................17
8.10 Transfer Of Stock..............................................17
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TABLE OF CONTENTS
(continued)
8.11 Stock Transfer Agreements......................................18
8.12 Registered Stockholders........................................18
ARTICLE IX - AMENDMENTS......................................................18
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BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office.
The registered office of the corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company.
1.2 Other Offices.
The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place Of Meetings.
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation.
2.2 Annual Meeting.
The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.
2.3 Special Meeting.
A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the Board of Directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
2.4 Notice Of Stockholders' Meetings.
All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.5 Manner Of Giving Notice; Affidavit Of Notice.
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.6 Quorum.
The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.8 Conduct Of Business.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.
2.9 Voting.
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
2.10 Waiver Of Notice.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to 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 transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.
2.11 Stockholder Action By Written Consent Without A Meeting.
Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary 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. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.
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 entitled 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 sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) 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.
(b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the corporation.
(c) 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.
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.
2.13 Proxies.
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's
attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
3.1 Powers.
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
3.2 Number Of Directors.
Upon the adoption of these bylaws, the number of directors constituting the entire Board of Directors shall be NoofDirs. Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires.
3.3 Election, Qualification And Term Of Office Of Directors.
Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation And Vacancies.
Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these Bylaws:
(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote
as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 Place Of Meetings; Meetings By Telephone.
The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 Regular Meetings.
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
3.7 Special Meetings; Notice.
Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation.
3.8 Quorum.
At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9 Waiver Of Notice.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to 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 transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.
3.10 Board Action By Written Consent Without A Meeting.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original.
3.11 Fees And Compensation Of Directors.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
3.12 Approval Of Loans To Officers.
The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
3.13 Removal Of Directors.
Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.
3.14 Chairman Of The Board Of Directors.
The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation.
ARTICLE IV
COMMITTEES
4.1 Committees Of Directors.
The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by this chapter to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation.
4.2 Committee Minutes.
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
4.3 Meetings And Action Of Committees.
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 Officers.
The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.
5.2 Appointment Of Officers.
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers.
The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal And Resignation Of Officers.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the attention of the Secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 Vacancies In Offices.
Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.
5.6 Chief Executive Officer.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws.
5.7 President.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.8 Vice Presidents.
In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.
5.11 Representation Of Shares Of Other Corporations.
The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
5.12 Authority And Duties Of Officers.
In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 Indemnification Of Directors And Officers.
The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
6.2 Indemnification Of Others.
The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
6.3 Payment Of Expenses In Advance.
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation
6.5 Insurance.
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.
6.6 Conflicts.
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance And Inspection Of Records.
The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect 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. In every instance where an attorney or other agent is the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other writing that 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 place of business.
7.2 Inspection By Directors.
Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
7.3 Annual Statement To Stockholders.
The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks.
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
8.2 Execution Of Corporate Contracts And Instruments.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of
any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, 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 shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation On Certificates.
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
8.7 Dividends.
The directors of the corporation, subject to any restrictions contained in
(a) the General Corporation Law of Delaware or (b) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
8.8 Fiscal Year.
The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.
8.10 Transfer Of Stock.
Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
Adoption by Incorporator
The undersigned person appointed in the certificate of incorporation to act as the Incorporator of RITA Medical Systems, Inc. hereby adopts the foregoing bylaws as the Bylaws of the corporation.
Executed this 28 day of April, 2000.
/s/ Maribeth T. Younger --------------------------------- Maribeth T. Younger, Incorporator |
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of RITA Medical Systems, Inc., and that the foregoing Bylaws were adopted as the Bylaws of the corporation on April 28, 2000, by the person appointed in the certificate of incorporation to act as the Incorporator of the corporation.
Executed this 28 day of April, 2000.
/s/ Mark B. Weeks --------------------------------- Mark B. Weeks, Secretary |
Exhibit 3.4
BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
[(AS AMENDED AND RESTATED EFFECTIVE __________ __, 2000)]
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES.....................................................................................1
1.1 Registered Office.................................................................................1
1.2 Other Offices.....................................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................................................................1
2.1 Place of Meetings.................................................................................1
2.2 Annual Meeting....................................................................................1
2.3 Special Meeting...................................................................................2
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.............................................2
2.5 Advance Notice of Stockholder Nominees and Other Stockholder Proposals............................2
2.6 Quorum............................................................................................3
2.7 Adjourned Meeting; Notice.........................................................................3
2.8 Conduct of Business...............................................................................3
2.9 Voting............................................................................................3
2.10 Waiver of Notice..................................................................................3
2.11 Record Date for Stockholder Notice; Voting........................................................4
2.12 Proxies...........................................................................................4
ARTICLE III - DIRECTORS...........................................................................................4
3.1 Powers............................................................................................4
3.2 Number of Directors...............................................................................4
3.3 Election, Qualification and Term of Office of Directors...........................................5
3.4 Resignation and Vacancies.........................................................................5
3.5 Place of Meetings; Meetings by Telephone..........................................................5
3.6 Regular Meetings..................................................................................6
3.7 Special Meetings; Notice..........................................................................6
3.8 Quorum............................................................................................6
3.9 Waiver of Notice..................................................................................6
3.10 Board Action by Written Consent Without a Meeting.................................................6
3.11 Fees and Compensation of Directors................................................................7
3.12 Approval of Loans to Officers.....................................................................7
3.13 Removal of Directors..............................................................................7
3.14 Chairman of the Board of Directors................................................................7
ARTICLE IV - COMMITTEES...........................................................................................7
4.1 Committees of Directors...........................................................................7
4.2 Committee Minutes.................................................................................8
4.3 Meetings and Action of Committees.................................................................8
ARTICLE V - OFFICERS..............................................................................................8
5.1 Officers..........................................................................................8
5.2 Appointment of Officers...........................................................................9
5.3 Subordinate Officers..............................................................................9
5.4 Removal and Resignation of Officers...............................................................9
5.5 Vacancies in Offices..............................................................................9
5.6 Chief Executive Officer...........................................................................9
5.7 President.........................................................................................9
5.8 Vice Presidents...................................................................................9
5.9 Secretary........................................................................................10
|
5.10 Chief Financial Officer..........................................................................10
5.11 Representation of Shares of Other Corporations...................................................10
5.12 Authority and Duties of Officers.................................................................10
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.................................11
6.1 Indemnification of Directors and Officers........................................................11
6.2 Indemnification of Others........................................................................11
6.3 Payment of Expenses in Advance...................................................................11
6.4 Indemnity Not Exclusive..........................................................................11
6.5 Insurance........................................................................................11
6.6 Conflicts........................................................................................12
ARTICLE VII - RECORDS AND REPORTS................................................................................12
7.1 Maintenance and Inspection of Records............................................................12
7.2 Inspection by Directors..........................................................................12
7.3 Annual Statement to Stockholders.................................................................12
ARTICLE VIII - GENERAL MATTERS...................................................................................13
8.1 Checks...........................................................................................13
8.2 Execution of Corporate Contracts And Instruments.................................................13
8.3 Stock Certificates; Partly Paid Shares...........................................................13
8.4 Special Designation on Certificates..............................................................13
8.5 Lost Certificates................................................................................14
8.6 Construction; Definitions........................................................................14
8.7 Dividends........................................................................................14
8.8 Fiscal Year......................................................................................14
8.9 Seal.............................................................................................14
8.10 Transfer of Stock................................................................................14
8.11 Stock Transfer Agreements........................................................................14
8.12 Registered Stockholders..........................................................................15
ARTICLE IX.......................................................................................................15
|
AMENDED AND RESTARTED
BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office.
The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
1.2 Other Offices.
The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings.
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation.
2.2 Annual Meeting.
(a) The annual meeting of stockholders shall be held each year on a date and at a time designated by resolution of the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2, who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this Section 2.2.
(c) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation, as provided in Section 2.5, and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware.
(d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has
been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting.
(e) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 Special Meeting.
(a) special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or the Chief Executive Officer.
(b) Nominations of persons for elections to the Board of Directors may be made at a special meeting of stockholders, if such election is set forth in the notice of such special meeting. Such nominations may be made either by or at the direction of the Board of Directors, or by any stockholder of record entitled to vote at such special meeting, provided the stockholder follows the notice procedures set forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees and Other Stockholder Proposals.
Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. Stockholders may bring other business before the annual meeting, provided that timely notice is provided to the secretary of the Corporation in accordance with this section, and provided further that such business is a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the prior year's meeting; provided, however, that in the event that (i) the date of the annual meeting is more than 30 days prior to or more than 60 days after such anniversary date, and (ii) less than 60 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a directors, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including, without limitation, such person's written consent to being name in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the proposal is made
(i) the name and address of the stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned of record by such stockholder and beneficially
by such beneficial owner. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 2.5. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
2.6 Quorum.
The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.8 Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.
2.9 Voting.
(a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
2.10 Waiver of Notice.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to 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 transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting.
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 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. If the Board of Directors does not so fix a record date:
(a) 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.
(b) 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.
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.
2.12 Proxies.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, electronic or telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
3.1 Powers.
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
3.2 Number of Directors.
The number of directors constituting the entire Board of Directors shall be six (6).
Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors.
Except as provided in Section 3.4 of these Bylaws, and unless otherwise provided in the Certificate of Incorporation (e.g. regarding a staggered Board of Directors), directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Unless otherwise specified in the Certificate of Incorporation, elections of directors need not be by written ballot.
3.4 Resignation and Vacancies.
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies. Unless
otherwise provided in the Certificate of Incorporation, and subject to the
rights of the holders of any series of Preferred Stock that may then be
outstanding, a vacancy created by the removal of a director by the vote of the
stockholders or by court order may be filled only by the affirmative vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute a majority
of the quorum). Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone.
The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 Regular Meetings.
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
3.7 Special Meetings; Notice.
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, the chief executive officer, any vice president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telecopy, telegram, telex or other similar means of communication, it shall be delivered at least twenty-four (24) hours before the time of the holding of the meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary and appropriate in the circumstances. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation.
3.8 Quorum.
At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9 Waiver of Notice.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to 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 transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
3.10 Board Action by Written Consent Without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original.
3.11 Fees and Compensation of Directors.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
3.12 Approval of Loans to Officers.
The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
3.13 Removal of Directors.
Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the Corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.
3.14 Chairman of the Board of Directors.
The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board of Directors who shall not be considered an officer of the Corporation.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors.
The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, with each committee to consist of one or more of the directors 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. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
Corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (a) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),(b) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 Committee Minutes.
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
4.3 Meetings and Action of Committees.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 Officers.
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers.
The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers.
The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal and Resignation of Officers.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the attention of the secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5 Vacancies in Offices.
Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
5.6 Chief Executive Officer.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.7 President.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the Corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
5.8 Vice Presidents.
In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board Of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation of Shares of Other Corporations.
The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
5.12 Authority and Duties of Officers.
In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 Indemnification of Directors and Officers.
The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.1, a "director" or "officer" of the Corporation includes any person (a) who is or was a director or officer of the Corporation, (b) who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a Corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.
6.2 Indemnification of Others.
The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the Corporation, (b) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.
6.3 Payment of Expenses in Advance.
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the Corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may been titled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Certificate of Incorporation.
6.5 Insurance.
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.
6.6 Conflicts.
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Certificate of Incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records.
The Corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect 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. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that 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 place of business.
7.2 Inspection by Directors.
Any director shall have the right to examine the Corporation's stockledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
7.3 Annual Statement to Stockholders.
The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks.
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, 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 shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
8.7 Dividends.
The directors of the Corporation, subject to any restrictions contained in
(a) the General Corporation Law of Delaware or (b) the Certificate of
Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
8.8 Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock.
Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
RITA MEDICAL SYSTEMS, INC.
The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of RITA Medical Systems, Inc. (the "Corporation"), and that the foregoing Amended and Restated Bylaws, comprising ___ pages, were adopted the Bylaws of the corporation on _______, 2000, by the Board of Directors of the corporation.
Executed this _____ day of _________________, 2000.
Mark B. Weeks, Secretary
FIFTH AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT
This Fifth Amended and Restated Shareholder Rights Agreement (the "Agreement") is effective as of October 29, 1999 by and among RITA Medical Systems, Inc., a California corporation (the "Company"), the investors holding
Registrable Securities (the "Investors") listed on Exhibit A hereto and certain individuals holding Common Stock of the Company or options to purchase Common Stock of the Company listed on Exhibit B (the "Common Holders").
RECITALS
WHEREAS, certain investors (the "Series A Investors") have purchased shares of Series A Preferred Stock of the Company (the "Series A Shares") pursuant to that certain Series A Preferred Stock Purchase Agreement, dated August 2, 1994, by and among the Company and certain of its investors (the "Series A Agreement"); certain investors (the "Series B Investors") have purchased shares of Series B Preferred Stock of the Company (the "Series B Shares") pursuant to that certain Series B Preferred Stock Purchase Agreement, dated May 17, 1996, by and among the Company and certain of its investors (the "Series B Agreement"); certain investors (the "Series C Investors") have purchased shares of Series C Preferred Stock of the Company (the "Series C Shares") pursuant to that certain Series C Preferred Stock Purchase Agreement, dated December 20, 1996, by and among the Company and certain of its investors (the "Series C Agreement"); VIDAMed, Inc. ("VIDAMed") has purchased shares of Common Stock of the Company pursuant to that certain Cross License Agreement and Stock Transfer Agreement dated August 2, 1994; certain lenders have been issued warrants to purchase shares of Preferred Stock (the "Warrants") dated January 29, 1998; a certain investor (the "Series D Investor") purchased shares of Series D Preferred Stock of the Company (the "Series D Shares") pursuant to that certain Series D Preferred Stock Purchase Agreement, dated January 29, 1998, by and among the Company and Nissho Iwai Corporation (the "Series D Agreement") and certain investors (the "Series E Investors") purchased shares of Series E Preferred Stock of the Company ("the Series E Shares") pursuant to that certain Series E Preferred Stock Purchase Agreement, dated April 29, 1998 by and among the Company and certain of its investors (the "Series E Agreement"), as amended by Omnibus Amendment No. 1 to the Series E Agreement dated June 3, 1998, Omnibus Amendment No. 2 to the Series E Agreement dated June 18, 1999, and Omnibus Amendment No. 3 to the Series E Agreement dated August 10, 1999. The Series A Investors, Series B Investors, Series C Investors, VIDAMed, the holders of the Warrants, the Series D Investor and the Series E Investors are, collectively, the "Existing Investors."
WHEREAS, certain investors (the "New Investors") desire to purchase shares of Series E Preferred Stock of the Company (the "Series E Shares") pursuant to that certain Omnibus Amendment No. 4 to the Series E Preferred Stock Purchase Agreement of even date herewith ("Amendment No. 4").
WHEREAS, the Existing Investors and the Company desire to amend and restate in its entirety that certain Fourth Amended and Restated Shareholder Rights Agreement, dated April 29,
1998, by and among the Company and the Existing Investors (the "Amended and Restated Shareholder Rights Agreement") in order to induce the New Investors to enter into Amendment No. 4.
AGREEMENT
1. Registration Rights.
The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (1) the Common Stock issuable or issued upon conversion of the Series A Shares, the Series B Shares, the Series C Shares, the Series D Shares, the Series E Shares and the shares of Preferred Stock issued upon exercise of the Warrants (the "Warrant Shares," and, collectively with the Series A Shares, the Series B Shares, the Series C Shares, the Series D Shares and the Series E Shares, the "Preferred Shares"), (2) the Common Stock issued to VIDAMed, Inc. pursuant to the terms of a Cross License Agreement and Stock Transfer Agreement dated August 2, 1994 (the "VIDAMed Common Stock") and (3) 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, the Preferred Shares or the VIDAMed Common Stock, excluding in all cases, however, (i) any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned, or (ii) any Registrable Securities sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction.
(c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then outstanding and exercisable or convertible securities which are, Registrable Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(e) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and Exchange Commission (the "SEC") which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(f) The term "Act" shall mean the Securities Act of 1933, as amended.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i) June
30, 2000, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of at
least forty percent (40%) of the Registrable Securities then outstanding
(including securities convertible into Registrable Securities) that the Company
file a registration statement under the Act covering the registration of
Registrable Securities having an aggregate estimated offering price of at least
$7,500,000, then the Company shall, within ten (10) days of the receipt thereof,
give written notice of such request to all Holders and shall, subject to the
limitations of Section 1.2(b), effect as soon as practicable, and in any event
within ninety (90) days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such written notice by the Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.2(a):
(i) During the period starting with the date ninety (90) days prior to the Company's estimated date of filing of, and ending on the date one-hundred twenty (120) days immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;
(ii) After the Company has effected two such registrations pursuant to this Section 1.2(a), and such registrations have been declared or ordered effective; or
(iii) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed at such time, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.2(a) shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period.
(b) If the Holders initiating the registration request hereunder (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 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(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 (together with the Company as provided in Section 1.4(e)) 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. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder.
1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing and concurrent transmission by facsimile, where applicable and where the Company has such Holder's facsimile number, of written notice by the Company, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 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 Act with respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(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 of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement provided that such underwriting agreement shall not provide for indemnification or contribution obligations on the part of the holders greater than the obligations set forth in Section l.10(b).
(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 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 any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, 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, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.
(h) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and
(i) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements (not to exceed $25,000) of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements (not to exceed $25,000) of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold by persons or entities other than the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders), but (i) in any registration other than the first registered offering of the Company's securities to the public, the amount of Registrable Securities to be included in such registration shall not be reduced to less than 20% of the securities being registered in such registration and (ii) in no event shall any shares being sold by a shareholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of apportionment, in the case of a selling shareholder that is a Holder of Registrable Securities and that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration
rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, amended (the "1934 Act"), against any reasonable, out of pocket expenses, losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such reasonable, out of pocket expenses, losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, 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 l.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any reasonable, out of pocket expenses, losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such reasonable, out of pocket expenses, losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
Section l.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section l.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this Section l.10(b) exceed the gross proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the failure so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. Each indemnified party shall furnish such information regarding itself or the claim in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.
If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense 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 hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined 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.
The parties agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediate preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was guilty of such fraudulent misrepresentation.
(d) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any Holder or Holders who hold in excess of twenty-five percent (25%) of the Company's 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:
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $l,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has already effected three (3) registrations on Form S-3 for the Holders pursuant to this Section 1.12; or (5) 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) If the Holders initiating the registration request hereunder (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 part of their request made pursuant to this Section 1.12 and the Company shall include such information in the written notice referred to in Section l.12(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 (together with the Company as provided in Section 1.4(e)) 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. Notwithstanding any other provision of this Section 1.12, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder.
(d) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned by a Holder to a transferee or assignee who acquires at least 120,000 shares of Registrable Securities, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. Notwithstanding the above, such rights may be assigned by a Holder to an affiliated Limited Partnership, a limited partner, general partner or other affiliate of an Investor (the "Transferee") regardless of the number of shares acquired by such Transferee.
1.14 Limitations 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 holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included.
1.15 "Market Stand-Off" Agreement. Each holder of securities which are or at one time were Registrable Securities (or which are or were convertible into Registrable Securities) hereby agrees that, during a period not to exceed 180 days, following the effective date of a registration statement of the Company filed under the Act relating to an underwritten offering, it shall not, to the extent requested by the Company and such underwriter, sell or otherwise transfer or dispose of (other than to a donee who agrees to be similarly bound) any Common Stock of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company shall enter into similar agreements.
In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No shareholder shall be entitled
to exercise any right provided for in this Section 1 and all such rights shall
terminate with respect to a particular shareholder at the earlier of: (i) five
(5) years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public, in which the aggregate proceeds raised equals or exceeds $15,000,000 and
in connection with which the Company becomes subject to the periodic reporting
requirements of Section 12(g) or 15(d) of the 1934 Act concurrently with such
public offering, or (ii) when Rule 144 or another similar exemption under the
Act is available for the sale of all such Holder's shares during a three (3)
month period without registration.
2. Right of First Offer.
2.1 Grant of Right. Subject to the terms and conditions specified in this
Section 2, the Company hereby grants to each Major Investor (as hereinafter
defined) a right of first offer with respect to future sales by the Company of
its Future Shares (as hereinafter defined). For purposes of this Section 2, a
Major Investor shall mean any Investor (or its assignee) who, holds at least
120,000 shares of the Preferred Stock (or Common Stock issued or issuable upon
the conversion of such Preferred Stock). For purposes of this Section 2.1, Major
Investor includes any general partners and affiliates of a Major Investor. A
Major Investor shall be entitled to apportion the right of first offer hereby
granted among itself and its partners and affiliates in such proportions it
deems appropriate.
2.2 Future Shares. "Future Shares" shall mean shares of any capital stock
of the Company, whether now authorized or not, and any rights options or
warrants to purchase such capital stock, and securities of any type that are, or
may become, convertible into such capital stock; provided however, that "Future
Shares," do not include (i) the shares of Common Stock issued or issuable upon
the conversion of the Preferred Shares, (ii) securities offered pursuant to a
registration statement filed under the Securities Act, as hereinafter defined,
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or other
reorganization, (iv) securities issued in connection with equipment leasing,
equipment financing or loan transactions, (v) all shares of Common Stock or
other securities hereafter issued or issuable in connection with acquisitions of
technology or other strategic transactions or to officers, directors, employees
or consultants of the Company pursuant to any employee or consultant stock
offering, plan, arrangement or transaction approved by the
Board of Directors of the Company, and (vi) the Warrants, the Preferred Stock issuable upon exercise of the Warrants and the Common Stock issuable upon the conversion of such shares of Preferred Stock.
2.3 Notice. In the event the Company proposes to offer any of its Future Shares, the Company shall first make an offering of such Future Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail (the "Notice") to the Major Investors stating (i) its bona fide intention to offer such Future Shares, (ii) the number of such Future Shares to be offered, (iii) the price, if any, for which it proposes to offer such Future Shares, and (iv) a statement as to the number of days from receipt of such Notice within which the Investor must respond to such Notice.
(b) Within twenty (20) calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Future Shares which equals the proportion that the number of shares of Common Stock issued or issuable upon conversion of the shares of Preferred Stock then held, by such Major Investor bears to the total number of shares of Common Stock and Preferred Stock issued and outstanding, including shares issuable upon conversion of convertible securities and options and other rights exercisable for Common Stock issued and outstanding. The Company shall promptly, in writing, inform each Major Investor that purchases all the Future Shares available to it (the "Fully-Exercising Investor") of any other Major Investor's failure to do likewise.
2.4 Sale After Notice. If all such Future Shares referred to in the Notice are not elected to be obtained as provided in Section 2.3 hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in Section 2.3 hereof, offer the remaining unsubscribed Future Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Notice. If the Company does not enter into an agreement for the sale of the Future Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Future Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.
2.5 Expiration. The right of first offer granted under this Section 2 shall expire for each Major Investor on the date which such Major Investor no longer holds a minimum of 120,000 shares of Common Stock (including any shares of Common Stock into which shares of Preferred Stock are convertible) of the Company.
2.6 Assignment. The right of first offer granted under this Section 2 is assignable by the Major Investors to any transferee of a minimum of 120,000 shares of Common Stock (including any shares of Common Stock into which the Shares are convertible).
2.7 Termination of Rights. The rights set forth in Section 2 will terminate
and no shareholder shall be entitled to exercise any right provided for in this
Section 2: (i) upon the
consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public in which the aggregate proceeds raised equals or exceeds $7,500,000, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event shall first occur, or (iii) when the Company sells, conveys, or otherwise disposes of or encumbers all or substantially all of its property or business or merges into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effects any transaction or series of related transactions in which more than 50% of the voting power of the corporation is disposed of.
3. Voting and Protective Provisions
3.1 Election of Directors. At any annual or special meeting called, or any other action taken, for the purpose of electing directors to the Company's Board of Directors, each Investor and Common Holder agrees to vote all shares of capital stock of the Company beneficially owned by such Investor or Common Holder (whether currently owned or hereafter acquired) in each election of directors of the Company:
(a) For the election of one (1) person to be designated by a majority in interest of the Series A Shares, the Series B Shares, and Series C Shares, voting together as a class. Such person shall initially be Gordon Russell;
(b) For the election of one (1) person to be designated by a majority in interest of the Series A Shares, the Series B Shares, Series C Shares, and Series E Shares, voting together as a class. Such person shall initially be Scott Halstead;
(c) For the election of one (1) person to be designated by a majority in interest of the Series E Shares, voting as a separate class. Such person shall initially be Janet G. Effland;
(d) For the election of one (1) person to be designated by a majority in interest of the Company's Common Stock and acceptable to the director elected pursuant to subsection (e) below. Such person shall initially be Stuart D. Edwards;
(e) For the election of one (1) person who shall be the Company's Chief Executive Officer. Such person shall initially be Barry Cheskin; and
(f) For the election of two (2) persons mutually agreeable to all directors elected pursuant to subsections (a)-(e) of this Section 3.1. One of such persons shall initially be Vincent Bucci. The remaining seat shall initially be vacant.
3.2 Appointment of Directors. In the event of the resignation, death, removal or disqualification of a director selected by the groups of shareholders listed in Section 3.1 above, such shareholders shall promptly nominate a new director and, after written notice of the
nomination has been given by such shareholders to the other parties, each Investor shall promptly vote its shares of capital stock of the Company to elect such nominee to the Board of Directors.
3.3 Removal. The groups of shareholders listed in Section 3.1 above may at any time and from time to time, remove, with or without cause (subject to the Bylaws of the Company as in effect from time to time and any requirements of law), in their sole discretion, their designated director or directors and, after written notice to each of the parties hereto of the new nominee(s) to replace such director(s), each Investor and Common Holder shall promptly vote its shares of capital stock of the Company to elect such nominee to the Board of Directors of the Company.
3.4 Other Voting. The provisions of this Section 3 shall not extend to voting upon questions and matters (other than the election of directors) upon which shareholders of the Company have a right to vote under the Articles of Incorporation or Bylaws of the Company or under the laws of the State of California.
3.5 Protective Provision. The Company shall not, without the consent of the Company's Board of Directors sell all or substantially all of the Company's technology, by license or otherwise.
3.6 Legend on Certificates. Each certificate representing shares held by the Investors, and any assignees or transferees thereof, shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO a SHAREHOLDER RIGHTS AGREEMENT BETWEEN THE CORPORATION AND CERTAIN SHAREHOLDERS OF THE CORPORATION WHICH CONTAINS CERTAIN RESTRICTIONS ON TRANSFER AND VOTING PROVISIONS. COPIES OF THIS AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE SECRETARY OF THE COMPANY.
3.7 Termination of Voting and Protective Provisions. The provisions of this
Section 3 will terminate and no shareholder shall be entitled to exercise any
right provided for in this Section 3 or obligated to vote as provided for in
this Section 3: (i) upon the consummation of the sale of securities pursuant to
a registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public in which the aggregate proceeds raised equals or exceeds
$15,000,000, (ii) when the Company first becomes subject to the periodic
reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act
of 1934, whichever event shall first occur, or (iii) when the Company sells,
conveys, or otherwise disposes of or encumbers all or substantially all of its
property or business or merges into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation) or effects any transaction or
series of related transactions in which more than 50% of the voting power of the
corporation is disposed of.
4. Miscellaneous Provisions.
4.1 Waivers and Amendments. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the shares of Registrable Securities, provided however that a holder of Warrant Shares shall be added as a signatory to this Agreement and be deemed an "Investor" hereunder promptly after the exercise of such Warrant without any such consent. Any amendment or waiver effected in accordance with this Section 4.1 shall be binding upon each person or entity that are granted certain rights under this Agreement and the Company, but in no event shall any obligation of a Holder hereunder be materially increased without the consent of such Holder.
4.2 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, except as otherwise noted herein, shall be
deemed effectively given upon personal delivery, delivery by nationally
recognized courier upon confirmed facsimile transmission, or upon deposit with
the United States Post Office (by first class mail, postage prepaid), addressed:
(a) if to the Company, at 967 Shoreline Boulevard, Mountain View, CA 94043 (or
at such other address as the Company shall have furnished to the Holders in
writing) attention of President and (b) if to a Holder, at the latest address or
facsimile number of such person shown on the Company's records.
4.3 Descriptive Headings. The descriptive headings herein have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provisions hereof.
4.4 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California.
4.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced.
4.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
4.7 Successors and Assigns. Except as otherwise expressly provided in this Agreement, this Agreement shall benefit and bind the successors, assigns, heirs, executors and administrators of the parties to this Agreement.
4.8 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter of this Agreement.
4.9 Separability; Severability. Unless expressly provided in this Agreement, the rights and obligations of each Investor under this Agreement are several rights, not rights jointly held with any other Investors. Any invalidity, illegality or limitation on the enforceability of this Agreement with respect to any Investor shall not affect the validity, legality or enforceability of this Agreement with respect to the other Investors. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired.
4.10 Stock Splits. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization of shares by the Company occurring after the date of this Agreement.
[signature page attached]
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.
RITA MEDICAL SYSTEMS, INC.
By: /s/ Barry Cheskin
-----------------------------
Barry Cheskin, President and
Chief Executive Officer
|
INVESTORS:
Patricof Private Investment
Club II, L.P.
By: /s/ Janet Effland
-----------------------------
(signature)
Print Name: Janet Effland
Title: Vice President
|
APA Excelsior V, L.P.
By: /s/ Janet Effland
-----------------------------
(signature)
Print Name: Janet Effland
Title: Vice President
|
The P/A III Fund, L.P.
By: /s/ Janet Effland
-----------------------------
(signature)
Print Name: Janet Effland
Title: Vice President
|
Dephi BioInvestments II, L.P.
By: /s/ David L. Douglass
-----------------------------
(signature)
Print Name: David L. Douglass
Title: General Partner
|
Delphi Ventures II, L.P.
By: /s/ David L. Douglass
-----------------------------
(signature)
Print Name: David L. Douglass
Title: General Partner
|
Morgan Stanley Venture Investors III, L.P.
By: /s/ Scott Halsted
-----------------------------
(signature)
Print Name: Scott Halsted
Title: General Partner
|
Morgan Stanley Venture Partners III, L.P.
By: /s/ Scott Halsted
-----------------------------
(signature)
Print Name: Scott Halsted
Title: General Partner
|
Morgan Stanley Venture Partners Entreprenuer Fund, L.P.
By: /s/ Scott Halsted
-----------------------------
(signature)
Print Name: Scott Halsted
Title: General Partner
|
Hugh R. Sharkey
By: /s/ Hugh R. Sharkey
-----------------------------
(signature)
Print Name: Hugh R. Sharkey
Title:
---------------------------
|
Hugh R. Sharkey and Kathleen A.
Daly, Trustees of the
Sharkey-Daly Family Trust U/D/T
By: /s/ Hugh R. Sharkey
-----------------------------
(signature)
Print Name: Hugh R. Sharkey
Title:
---------------------------
|
Hugh Sharkey as Custodian for Zoe Sharkey until age 18 under the California Uniform Transfers to Minors Act
By: /s/ for Zoe Hugh Sharkey
-----------------------------
(signature)
|
Mark Will
By: /s/ Mark Will
-----------------------------
(signature)
Print Name: Mark Will
Title:
|
Ronald G. Lax
By: /s/ Ronald G. Lax
-----------------------------
(signature)
Print Name: Ronald G. Lax
Title:
---------------------------
|
Nissho Iwai American Corporation
By: /s/ S. Gene Kawaratani
-----------------------------
(signature)
Print Name: Gene Kawaratani
Title: General Manager
|
Nissho Iwai Corporation
By: /s/ S. Kawaratani
-----------------------------
(signature)
Print Name: S. Gene Kawaratani
Title: General Manager
|
Stuart D. Edwards
By: /s/ Stuart D. Edwards
-----------------------------
(signature)
Print Name: Stuart D. Edwards
Title: Self
|
Stuart Edwards Family Partners, a California Limited Partnership
By: /s/ Stuart D. Edwards
-----------------------------
(signature)
Print Name: Stuart D. Edwards
Title: Self
|
Mohr, Davidow Ventures III By: WLPJ Partners, General Partner
By: /s/ Lawrence G. Mohr, Jr.
-----------------------------
(signature)
Print Name: Lawrence G. Mohr, Jr.
Title: General Partner
|
Yamaichi Uni Ven No. 8 Investment Partnership
By: /s/ Yutaka Shigematsu
-----------------------------
(signature)
Print Name: Yutaka Shigematsu
Title: General Manager, Phoenix
Capital Management Co., Ltd.
|
Yamaichi Uni Ven No. 7 Investment Partnership
By: /s/ Yutaka Shigematsu
-----------------------------
(signature)
Print Name: Yutaka Shigematsu
Title: General Manager, Phoenix
Capital Management Co., Ltd.
|
BankAmerica Ventures
By: /s/ Mark Brooks
-----------------------------
(signature)
Print Name: Mark Brooks
Title: Vice President
|
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.
COMMON HOLDERS:
/s/ Barry Cheskin ----------------- Barry Cheskin |
SIGNATURE PAGE TO SHAREHOLDER RIGHTS AGREEMENT
EXHIBIT A
SCHEDULE OF INVESTORS
Edward D. & Susan M. Atz
301 Greentree Parkway
Libertyville, IL 60048
Zbigniew Cierkosz
3415 Bowman Court
Santa Cruz, CA 95065
Ronald Conway & Gayle Conway,
Trustees of the Conway Family
Trust dtd 9/25/96
Personal Training Systems
76 Adam Way
Atherton, CA 94027
Delphi BioInvestments II, L.P.
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Delphi Ventures II, L.P.
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Stuart D. Edwards
C/o CSM
735 Palomar Avenue
Sunnyvale, CA 94086
Electronic Investments, Ltd.
Jared Anderson
140 Sunrise Drive
Woodside, CA 94062
Robert S. Enea
6670 Amador Plaza Rd.
Dublin, CA 94568
Thomas Fahey
VidaMed, Inc.
46107 Landing Parkway
Fremont, CA 94538
Michael R. Franz, M.D.
4701 Connecticut Avenue, NW #506
Washington, D.C. 20008-5618
Edward Ray Gamble
Strategic Information Group
2001 Gateway Place, Suite 195E
San Jose, CA 95110
Efraim Gildor
345 Maple Row
Northfield, IL 60093
Joshua L. Green and Judith P. Green as Trustees
of the Community Trust under the Green Family Trust under agreement dated
November 6, 1995
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Geoffrey O. Hartzler, Trustee of the Geoffrey O. Hartzler Revocable Trust dated
January 8, 1997, as amended
2600 Verona Road
Mission Hills, KS 66208
Peter F. Healey
c/o Mobil Saudi Arabia Inc.
P.O. Box 5335 - Jeddah 21422
Kingdom of Saudi Arabia
Mir A. Imran
995 Benecia Avenue
Sunnyvale, CA 94086
Ronald G. Lax
1822 Wiley Post Trail
Daytona Beach, FL 32124
Kee Sein Lee
415 Northaven Drive
Daly City, CA 94015
Christian H. Lundquist
11300 Sun Valley Drive
Oakland, CA 94605
Steven V. Marcus Custodian
Hayden A. Marcus
UTMA CA
1471 Hollidale Court
Los Altos, CA 94024
Steven V. Marcus Custodian
Kayla Dawn Marcus
UTMA CA
1471 Hollidale Court
Los Altos, CA 94024
Steven V. Marcus Custodian
Olivia Rose Marcus
UTMA CA
1471 Hollidale Court
Los Altos, CA 94024
Steven V. Marcus & Denise C. Marcus,
Trustees of the Marcus Family
Trust DTD 7-14-93
1471 Hollidale Court
Los Altos, CA 94024
The Marcus Family
Limited Partnership
Attn: Louis Marcus
1611 Borel Place #3
San Mateo, CA 94402
J. Casey McGlynn
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Mohr, Davidow Ventures III
2775 Sand Hill Road
Menlo Park, CA 94025
David B. Musket
Musket Research Associates Inc.
125 Cambridge Park Dr.
Cambridge, MA 02140
Linda S. M. Oleson
4292 Wilkie Way, Apt P
Palo Alto, CA 94306
G.B. Pentz Family Trust,
G.B. Pentz Trustee
CPS Realty Group
1740 Technology Drive #290
San Jose, CA 95110
Elieser S. Posner
P.O. Box 2189
Savyon, 56530
ISRAEL
Jacob Ramon
73 Weizmann Street
Tel Aviv, 62155
ISRAEL
Arthur Rock
One Maritime Plaza
San Francisco, CA 94111
Douglas R. Rousse Smith Barney Inc.
as Rollover Custodian
Account 595-62811-1-6-019
Smith Barney Inc.
Attn: Joseph S. Simpson
540 Lawrence Expressway
Sunnyvale, CA 94088-3587
Gordon Russell TTEE Russell
1988 Revocable
Trust U/A/ 11/17/88
Sequoia Capital
3000 Sand Hill Road
Suite 280, Building 4
Menlo Park, CA 94025
Sequoia 1995, L.L.C.
Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Sequoia Capital VI
Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Sequoia Technology Partners VI
Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Sequoia XXIV, L.P.
SequoiaCapital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Hugh R. Sharkey
ORATEC
3700 Haven Court
Menlo Park, CA 94025
Hugh R. Sharkey as Custodian for Zoe Alexandra Sharkey until age 18 under the
California Uniform Transfers to Minors Act
150 Normandy Lane
Woodside, CA 94062
Stanford University
Attn: Carol Gilmer
2770 Sand Hill Road
Menlo Park, CA 94025
Bruno Strul
485 Cervantes Road
Portola Valley, CA 94028
Katherine Styles
c/o Arthur Rock
One Maritime Plaza, Suite 1220
San Francisco, CA 94111
Anthony J. Trepel Deferred
Benefit Trust
50 West San Fernando
13th Floor
San Jose, CA 95113
VIDAMed, Inc.
46107 Landing Parkway
Fremont, CA 94538
VLG Investments 1996
c/o Joshua Pickus
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Mark B. Weeks
c/o Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Kurt O. Will and Elizabeth R. Will,
Trustees for The Will Family 1996
Revocable Trust
EDM Tek
3101 Whipple Road #25
Union City, CA 94587
Mark A. Will
EDM Tek
3101 Whipple Road #25
Union City, CA 94587-1216
WS Investment Company 94B
Attn: J. Casey McGlynn
650 Page Mill Road
Palo Alto, CA 94304-1050
WS Investment Company 96A
Attn: J. Casey McGlynn
650 Page Mill Road
Palo Alto, CA 94304-1050
WTI Ventures
1010 El Camino Real
Suite 300
Menlo Park, CA 94025
William Young
839 28th Avenue
San Francisco, CA 94121
Douglas P. Zipes & M. Joan Zipes
10614 Winterwood
Carmel, IN 46032
Nikko Capital Co., Ltd.
Mr. Yoshio Chitani
Deputy General Manager, International Division
Nikko Capital Co., Ltd.
2-3, Higashi Gotanda 2-Chome
Shinagawa-ku, Tokyo
Japan 141
NC No. 2 Investment Enterprise Partnership (Asia)
Mr. Yoshio Chitani
Deputy General Manager, International Division
Nikko Capital Co., Ltd.
2-3, Higashi Gotanda 2-Chome
Shinagawa-ku, Tokyo
Japan 141
NC No. 7 Investment Enterprise Partnership (Asia Pacific)
Mr. Yoshio Chitani
Deputy General Manager, International Division
Nikko Capital Co., Ltd.
2-3, Higashi Gotanda 2-Chome
Shinagawa-ku, Tokyo
Japan 141
Synergy Partners International
1010 El Camino Real, Suite 300
Menlo Park, CA 94025
Yamaichi Uni Ven No. 7 Investment Partnership
C/o Phoenix Capital Management Co., Ltd.
Attn: Yutaka Shigematsu
Fuji Bldg.2-3, Marunouchi 3-Chome
Chiyoda-ku Tokyo
JAPAN 100-005
Yamaichi Uni Ven No. 8 Investment Partnership
C/o Phoenix Capital Management Co., Ltd.
Attn: Yutaka Shigematsu
Fuji Bldg.2-3, Marunouchi 3-Chome
Chiyoda-ku Tokyo
JAPAN 100-005
Nissho Iwai Corporation
c/o Nissho Iwai American Corporation
1211 Avenue of the Americas
New York, NY 10036
Attention: Gene Kawaratani
Morgan Stanley Venture Partners III, L.P.
3000 Sandhill Road
Building 4, Suite 250
Menlo Park, CA 94025
Morgan Stanley Venture Investors III, L.P.
3000 Sandhill Road
Building 4, Suite 250
Menlo Park, CA 94025
The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P.
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
BankAmerica Ventures
950 Tower Lane, Suite 700
Foster City, CA 94404
Nissho Iwai American Corporation
1211 Avenue of the Americas
New York, NY 10036
Attention: Gene Kawaratani
APA Excelsior V, L.P.
Patricof & Co. Ventures, Inc.
2100 Geng Road, Suite 150
Palo Alto, CA 94303
The P/A III Fund, L.P.
Patricof & Co. Ventures, Inc.
2100 Geng Road, Suite 150
Palo Alto, CA 94303
Patricof Private Investment Club II, L.P.
Patricof & Co. Ventures, Inc.
2100 Geng Road, Suite 150
Palo Alto, CA 94303
EXHIBIT B
SCHEDULE OF COMMON HOLDERS
Barry Cheskin
c/o RITA Medical Systems, Inc.
967 N Shoreline Blvd.
Mountain View, CA 94043
C. Donald Allen
1401 Loma Rio Drive
Saratoga, CA 95070
Exhibit 10.2
RITA MEDICAL SYSTEMS, INC.
1994 INCENTIVE STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means RITA MEDICAL SYSTEMS, INC.
(g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not, provided that if and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the employment or consulting relationship with the Company or any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Company, including sick leave, military leave, or any other personal leave, provided, however, that for purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute, provided, further, that on the ninety-first (91st) day of any such leave (where reemployment is not guaranteed by contract or statute) the Optionee's Incentive Stock Option shall cease to be treated as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option, or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor.
(i) "Employee" means any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation (NASDAQ) System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported, as quoted on such exchange or system for the last market trading day prior to the time of determination) as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(1) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(m) "Listed Security" means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option or a Stock Purchase Right.
(r) "Optionee" means an Employee or Consultant who receives an Option or Stock Purchase Right.
(s) "Parent" means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1994 Incentive Stock Plan.
(u) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below.
(w) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 below.
(x) "Subsidiary" means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. "Stock Subject to the Plan" Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 4,764,080 shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right 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.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon Which the Company becomes Subject to the Exchange Act.
(i) Administration With Respect to Directors and Officers. With respect to grants of Options or Stock Purchase Rights to Employees who are also officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as a discretionary plan, or (B) a committee designated by the Board to administer the Plan, which committee shall be constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed,
such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other Employees. With respect to grants of Options or Stock Purchase Rights to Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the Code, and of any applicable stock exchange (the Applicable Laws). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new meanders in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers Of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if otherwise eligible, be granted additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment relationship at any time, with or without cause.
(e) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Securities Exchange
Act, the following limitations shall apply to grants of Options and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than 1,000,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12(a).
(iii) If an Option or Stock Purchase Right is cancelled (other than in connection with a transaction described in Section 12), the cancelled Option or Stock Purchase Right will be counted against the limit set forth in Section 5(e)(i). For this purpose, if the exercise price of an Option or Stock Purchase Right is reduced, the transaction will be treated as a cancellation of the Option or Stock Purchase Right and the grant of a new Option or Stock Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement, provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) 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 Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) 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 surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company
9. Exercise Of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) 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. The Company shall issue (or cause to
be issued) such stock certificate promptly upon 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 12 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 Employment or Consulting Relationship. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination, provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy out for a patent in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine, but at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is
prior to the date the Stock Purchase Right is exercised, except as provided in
Section 12 of the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase Or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company, provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been. effected without receipt of consideration. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Board shall notify the Optionee at least fifteen
(15) days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into another corporation, the Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option or Stock Purchase Right is not assumed or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the option or right confers the right to purchase, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares), provided, however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common
stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.
14. Taxes.
(a) As a condition of the exercise of an Option granted under the Plan, the Optionee (or in the case of the Optionee's death, the person exercising the Option) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding and employment tax obligations that may arise in connection with the exercise of the Option and the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option.
(c) This Section 14(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of an Optionee other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Optionee shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the minimum statutory amounts required to be withheld. For purposes of this Section 14, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, an Optionee may satisfy his or her tax withholding obligations upon exercise of an Option by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value determined as of the applicable Tax Date equal to the minimum statutory amounts required to be withheld.
(e) Any election or deemed election by a Optionee to have Shares withheld to satisfy tax withholding obligations under Section 14(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or
disapproval of the Administrator. Any election by an Optionee under Section 14(d) above must be made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.
15. 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 discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), 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 or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as 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.
16. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed.
20. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquired Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
RITA MEDICAL SYSTEMS, INC.
1994 INCENTIVE STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Name
Address1
Address2
You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Date of Grant GrantDate
Vesting Commencement Date VCD
Exercise Price per Share $ ExercisePrice
Total Number of Shares Granted NoShares
Total Exercise Price $ TotalPrice
Type of Option: ISO Incentive Stock Option Agreement
NSO Nonstatutory Stock Option
Term/Expiration Date: TermDate
|
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the following schedule:
1/48th of the Shares subject to the Option shall be exercisable on each monthly anniversary of the Vesting Commencement Date, provided that on such date the Optionee remains in continuous status as an Employee or Consultant until all of the Shares are exercisable.
Termination Period:
This Option may be exercised for three months after termination of employment or consulting relationship, or such longer period as may be applicable upon death or disability of Optionee as provided in the Plan, but in no event later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. RITA Medical Systems, Inc. (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1994 Incentive Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a Share.
(b) In the event of Optionee's death, disability or other termination of the employment or consulting relationship, the exercisability of the Option is governed by Sections 6, 7 and 8 below, subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written notice (in the form attached as Exhibit A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise
Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date
of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6 above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement) exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as Incentive Stock Options and Options granted to more than ten percent (10%) shareholders shall apply to this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon exercising a Nonstatutory Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares over the exercise price. However, the timing of this income recognition may be deferred for up to six months if Optionee is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the Optionee is an Employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, the Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying
disposition of an Incentive Stock Option. The Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option out of Optionee's compensation or by payment to the Company.
12. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) Exercise of ISO Following Disability. If the Optionee's Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within 90 days of such termination for the ISO to be qualified as an ISO.
(iii) Exercise of Nonstatutory Stock Option. There may be a regular federal income tax liability and California income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
(iv) Disposition of Shares. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. In either case, the long-term capital gain will be taxed for federal income tax and alternative minimum tax purposes at a maximum rate of 28% if the Shares are held more than one year but less than 18 months after exercise and at 20% if the Shares are held more than 18 months after exercise. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares.
(v) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or Otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.
RITA MEDICAL SYSTEMS, INC.
By: _____________________________
Title: ______________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.
Dated: __________________
Optionee ________________________
Residence Address: ______________
EXHIBIT A
RITA MEDICAL SYSTEMS, INC.
1994 INCENTIVE STOCK PLAN
EXERCISE NOTICE
RITA Medical Systems, Inc.
967 N. Shoreline Blvd.
Mountain View, CA 94043
Attention: Secretary
1. Exercise of Option. Effective as of today, _______________, 19___ the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase ________ shares of the Common Stock (the "Shares") of RITA Medical Systems, Inc. (the "Company") under and pursuant to the 1994 Incentive Stock Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated GrantDate (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section,
and there shall be no further transfer of such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
5. Investment and Taxation Representations. In connection with the purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the securities. Purchaser is purchasing these securities for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by state or federal securities laws:
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 IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.
8. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the
committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address
as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party.
11. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and is governed by California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE RITA MEDICAL SYSTEMS, INC.
By: -----------------------------
Its:
---------------------- -----------------------------
(Signature)
Address:
----------------------
----------------------
|
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : Name COMPANY : RITA Medical Systems, Inc. SECURITY : Common Stock AMOUNT : |
DATE :
In connection with the purchase of the above-listed Securities, the undersigned Optionee to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed hereto. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present such intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualities under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached.
Signature of Optionee:
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
(a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
Exhibit 10.4
RITA Medical Systems, Inc.
2000 DIRECTORS' STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation, or any other transaction or series of related transactions in which the Company's stockholders immediately prior thereto own less than 50% of the voting stock of the Company (or its successor or parent) immediately thereafter.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means RITA Medical Systems, Inc., a Delaware corporation.
(f) "Continuous Status as a Director" means the absence of any interruption or termination of service as a Director.
(g) "Director" means a member of the Board.
(h) "Employee" means any person, including any officer or Director, 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.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Option" means a stock option granted pursuant to the Plan. All options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code).
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means an Outside Director who receives an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 2000 Directors' Stock Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 Shares of Common Stock (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. -----
If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan has been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock that are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option, or any withholding taxes due with respect to such exercise, shall be treated as not issued and shall continue to be available under the Plan. If Shares that 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. 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 to purchase 25,000 Shares, (the "Initial Option") on the date on which such person first becomes an Outside Director after the effective date of this Plan, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director, including an Outside Director who did not receive an Initial Option grant, shall be automatically granted an Option to purchase 5,000 Shares (the "Annual Option") on the date of each Annual Meeting of the Company's shareholders immediately following which such Outside Director is serving on the Board, provided that, on such date, he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof.
(vi) The terms of each Initial Option granted hereunder shall be as follows:
(1) each Initial Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below;
(2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each Initial Option, determined in accordance with Section 8 hereof;
(3) each Initial Option shall vest and become exercisable at the rate of 1/48 of the Shares subject to the Initial Option on each monthly anniversary of the date of grant of the Initial Option.
(vii) The terms of each Annual Option granted hereunder shall be as follows:
(1) each Annual Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below;
(2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each Annual Option, determined in accordance with Section 8 hereof;
(3) each Annual Option shall vest and become exercisable at the rate of one hundred percent (100%) of the Shares subject to the Annual Option on the day before the first anniversary of the date of grant of the Annual Option.
(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 8(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 8 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.
(e) Suspension or Termination of Option. If the Chief Executive Officer or his or her designee reasonably believes that an Optionee has committed an act of misconduct, such officer may suspend the Optionee's right to exercise any option pending a determination by the Board (excluding the Outside Director accused of such misconduct). If the Board (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board.
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) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
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 or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the effectiveness of the registration statement under the Securities Act of 1933, as amended, relating
to the Company's initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from the date of grant thereof unless an Option terminates sooner pursuant to Section 9 below.
8. 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 shall be determined by the Board; provided however that in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing sales price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal, or if there is a public market for the Common Stock but the Common Stock is not traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the mean of the bid and asked prices 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).
(c) Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) above; provided however that no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 below 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 8(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 stockholder 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 11 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 Continuous Status as a Director. If an Outside Director ceases to serve as a Director, he or she may, but only within ninety (90) days after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in the
event a Director is unable to continue his or her service as a Director with the
Company as a result of his or her total and permanent disability (as defined in
Section 22(e)(3) of the Code), he or she may, but only within twelve (12) months
from the date of such termination, exercise his or her Option to the extent he
or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee: (A) during the term of the Option who is, at the time of his or her death, a Director of the Company and who shall have been in Continuous Status as a Director since the date of grant of the Option, or (B) three (3) months after the termination of Continuous Status as a Director, the Option may be exercised, at any time within twelve (12) 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 death or the date of termination, as applicable. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that an Optionee was not entitled to exercise the Option at the date of death or termination or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the
Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan.
10. Nontransferability 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 or pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder). The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii),
(iii) and (iv) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Change of Control. In the event of any transaction that qualifies as a Change of Control and notwithstanding whether or not outstanding Options are assumed, substituted for or terminated in connection with the transaction, the vesting of each outstanding Option shall accelerate in full such that each Optionee shall have the right to exercise his or her Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable, immediately prior to consummation of the transaction.
For purposes of this Section 11(b), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such Change of Control, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the occurrence of such transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the
number of Shares covered by the Option as provided for in this Section 11); provided however that if such consideration received in the transaction was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction.
(c) Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option to reflect the effect of such distribution.
12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(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.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, 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 approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation.
(b) Effect of Amendment or Termination. Any such amendment or termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the legal requirements relating to the administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any stock exchange or Nasdaq rules or regulations to which the Company may be subject and the applicable laws of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time (the "Applicable Laws"). Such compliance shall be determined by the Company in consultation with its legal counsel.
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 law.
15. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve.
17. Stockholder Approval. If required by the Applicable Laws, continuance of the Plan shall be subject to approval by the stockholders of the Company. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws.
RITA MEDICAL SYSTEMS, INC.
2000 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee
OptioneeAddress1
OptioneeAddress2
You have been granted an option to purchase Common Stock of RITA Medical Systems, Inc. (the "Company") as follows:
Date of Grant GrantDate
Vesting Commencement Date VestingStartDate
Exercise Price per Share ExercisePrice
Total Number of Shares Granted SharesGranted
Total Exercise Price TotalExercisePrice
Expiration Date ExpirDate
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance
with the following schedule:
_________ of the Option Shares
shall vest and be exercisable on
each _____ anniversary of the
Vesting Commencement Date.
Termination Period: This Option may be exercised for
90 days after termination of
Optionee's Continuous Status as a
Director, or such longer period as
may be applicable upon death or
Disability of Optionee as provided
in the Plan, but in no event later
than the Expiration Date as
provided above.
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By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 2000 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement, all of which are attached and made a part of this document.
OPTIONEE: RITA MEDICAL SYSTEMS, INC.
By:
------------------------------------- -----------------------------
Signature
Title:
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Print Name
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RITA MEDICAL SYSTEMS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
1. Grant of Option. The Board of Directors of the Company hereby grants to the Optionee named in the Notice of Stock Option Grant attached as Part I of this Agreement (the "Optionee"), an option (the "Option") to purchase a number of Shares, as set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price"'), subject to the terms and conditions of the 2000 Directors' Stock Option Plan (the "Plan"), which is incorporated herein by reference. (Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Plan.) In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Nonstatutory Stock Option Agreement, the terms and conditions of the Plan shall prevail.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. In the event of Optionee's death, disability or other termination of Optionee's employment or consulting relationship, the exercisability of the Option is governed by the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised during the lifetime of Optionee only by the Optionee or a transferee permitted by Section 10 of the Plan. The terms of the Plan and this Nonstatutory Stock Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Nonstatutory Stock Option Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain federal tax consequences relating to this Option under the law in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an incentive stock option under Section 422 of the Code, the Optionee may incur regular federal income tax liability upon exercise. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares for more than one year, gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. The long-term capital gain will be taxed for federal income tax purposes at a maximum rate of 20 percent.
By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Nonstatutory Stock Option Agreement and fully understands all provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Nonstatutory Stock Option Agreement.
RITA MEDICAL SYSTEMS, INC.
By:
----------------------------- -----------------------------
Optionee
Title:
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CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Nonstatutory Stock Option Agreement.
EXHIBIT A
NOTICE OF EXERCISE
To: RITA Medical Systems, Inc. Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Stock Option |
This is official notice that the undersigned ("Optionee") intends to exercise Optionee's option to purchase __________ shares of RITA Medical Systems, Inc. Common Stock, under and pursuant to the Company's 2000 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement dated _______________, as follows:
The shares should be issued as follows:
Exhibit 10.5
RITA MEDICAL SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase Plan of RITA Medical Systems, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means RITA Medical Systems, Inc., a Delaware corporation.
(e) "Compensation" means total cash compensation received by an Employee from the Company or a Designated Subsidiary. By way of illustration, but not limitation, Compensation includes regular compensation such as salary, wages, overtime, shift differentials, bonuses (other than bonuses offered in connection with, and as an inducement for, the commencement of employment), commissions and incentive compensation, but excludes relocation payments or reimbursements, expense reimbursements, tuition or other reimbursements, automobile allowances, housing allowances, cash payments in lieu of sick or vacation time benefits and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Designated Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is an Employee of the Company for income and payroll tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Offering Date" means the first business day of each Offering Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months commencing on February 1 and August 1 of each year, except for the first Offering Period and as otherwise as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
(p) "Purchase Date" means the last day of each Purchase Period of the Plan.
(q) "Purchase Period" means a period of six (6) months within an Offering Period, except for the first Purchase Period as set forth in Section 4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder-approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date
Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance with
Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
(a) Offering Periods. The Plan shall be implemented by a series of Offering Periods of approximately twenty-four (24) months duration, with new Offering Periods commencing on or about February 1 and August 1 of each year (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until July 31, 2002 (unless the IPO date occurs after August 1, 2000, in which case "August 1" wherever used in this Plan shall be replaced with "November 1" and "February 1" wherever used in this Plan shall be replaced with "May 1" of the following year). The Plan shall continue until terminated in accordance with Section 20 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall consist of four (4) consecutive Purchase Periods of approximately six (6) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A Purchase Period commencing on February 1 shall end on the next July 31 and a Purchase Period commencing on August 1 shall end on the next January 31 (unless the IPO date occurs after August 1, 2000, in which case "August 1" wherever used in this Plan shall be replaced with "November 1," "February 1" wherever used in this Plan shall be replaced with "May 1", "July 31" wherever used in this Plan shall be replaced with "October 31" and "January 31" wherever used in this Plan shall be replaced with "April 30"). The first Purchase Period shall commence on the IPO Date and shall end on January 31, 2001. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
an enrollment agreement on the form provided by the Company and delivering it to
the Company prior to the applicable Offering Date. The enrollment agreement
shall set forth the percentage of the participant's Compensation (subject to
Section 6(a) below) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll paid following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the enrollment agreement is applicable, unless sooner terminated by the participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than fifteen percent (15%) (or such greater percentage as the Board may establish from time to time before an Offering Date) of such participant's Compensation on each payday during an Offering Period; provided that to the extent a participant is participating in more than one Offering Period, the maximum percentage of Compensation that he or she may contribute under the Plan shall be fifteen percent (15%) (or such greater percentage as the Board may establish from time to time before an Offering Date). All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, may notify the Administrator that he or she wishes to increase or decrease the rate of his or her Contributions with respect to the Offering Period by completing and filing with the Company a new enrollment agreement authorizing a change in the payroll deduction rate. Any change in rate of Contributions pursuant to the preceding sentence shall be effective as of the next payroll date, provided the agreement indicating such change is filed at least ten (10) business days prior to such date and, if not, then such change shall be effective as of the next following payroll date.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b), a participant's payroll
deductions may be decreased by the Company to 0% at any time during a Purchase
Period. Payroll deductions shall re-commence at the rate provided in such
participant's enrollment agreement at the beginning of the first Purchase Period
which is scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10. In addition, a participant's payroll
deductions may be decreased by the Company to 0% at any time during a Purchase
Period in order to avoid unnecessary payroll contributions as a result of
application of the maximum share limit set forth in Section 7(a), in which case
payroll deductions shall re-commence at the rate provided in such participant's
enrollment agreement at the beginning of the next Purchase Period, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Employee may purchase during each Purchase Period shall be 1,500 Shares (subject to any adjustment pursuant to Section 19 below), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Board in its discretion; provided that, to the extent the Common Stock is trading on the Nasdaq National Market, (i) the Fair Market Value as of an Offering Date shall be the closing sales price of the Common Stock as reported by the Nasdaq National Market for the last trading day immediately preceding the Offering Date, and (ii) the Fair Market Value of the Common Stock as of a Purchase Date shall be the closing sales price of the Common Stock as reported by the Nasdaq National Market for the Purchase Date, in each case as reported in The Wall Street Journal. For purposes of the Offering Date under the first Offering Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. To the extent permitted by any applicable laws, regulations or stock exchange rules, if the Fair Market Value of the Shares on an Offering Date for an Offering Period (the "New Offering Period") commencing in an Offering Period (the "Ongoing Offering Period") then in progress, is lower than was the Fair Market Value of the Shares on the Offering Date for the Ongoing Offering Period, then every participant in the Ongoing Offering Period shall automatically be deemed to have (i) withdrawn from the Ongoing Offering Period at the close of the Purchase Period immediately preceding the New Offering Period, and (ii) enrolled in such New Offering Period. In addition, participants shall automatically be withdrawn as of July 31, 2000 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on August 1, 2000 if the Fair Market Value of the Shares on the IPO Date is greater than the Fair Market Value of the Shares on August 1, 2000, unless a participant notifies the Administrator prior to July 31, 2000 that he or
she does not wish to be withdrawn and re-enrolled under these circumstances. All payroll deductions accumulated in a participant's account as of any withdrawal date pursuant to this Section 11 shall be returned to the participant.
12. Interest. No interest shall accrue on the Contributions of a participant in the Plan.
13. Stock.
(a) Subject to adjustment as provided in Section 19, the maximum number of
Shares which shall be made available for sale under the Plan shall be 425,000
Shares, plus an annual increase on the first day of each of the Company's fiscal
years beginning in 2001 through 2010 equal to the lesser of (i) 650,000 Shares,
(ii) four percent (4%) of the Shares outstanding on the last day of the
immediately preceding fiscal year, or (iii) such lesser number of Shares as is
determined by the Board. If the Board determines that, on a given Purchase Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Purchase Date,
the Board may in its sole discretion provide (x) that the Company shall make a
pro rata allocation of the Shares of Common Stock available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below. The Company may make pro rata allocation of the
Shares available on the Offering Date of any applicable Offering Period pursuant
to the preceding sentence, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.
(b) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
16. Transferability. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable 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 applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20.
RITA MEDICAL SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the RITA Medical Systems, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Offering Period ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Enrollment Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount (together with any other amounts I am contributing under the Plan) must not be less than 1% and not more than 15% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Enrollment Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions during an Offering Period by completing and filing with the Company a new Enrollment Agreement with such increase or decrease taking effect as of the next payroll date, within the Offering Period, if filed at least ten (10) business days prior to such date. Further, I may change the rate of deductions for future Offering Periods by filing a new Enrollment Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period.
5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "RITA Medical Systems, Inc. 2000 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only):
7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
----------------------------------------
(First) (Middle) (Last)
-------------------- ----------------------------------------
(Relationship) (Address)
Social Security #:
---------------- ----------------------------------------
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8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company shall be entitled, to the extent required by applicable law, to withhold from my Compensation any amount necessary to comply with applicable tax withholding requirements with respect to the purchase or sale of shares under the Plan.
9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the
shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to change. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan.
10. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, I agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever I acquired them, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering.
11. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Enrollment Agreement is dependent upon my eligibility to participate in the Plan.
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
RITA MEDICAL SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in the RITA Medical Systems, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Offering Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Enrollment Agreement.
Dated: ___________________
Signature of Employee ___________________
Social Security Number ___________________
EXHIBIT 10.7
The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.
In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:
reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful.
writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.
by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company.
advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;
with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous.
[Signature Page Follows]
The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.
RITA Medical Systems, Inc.
By:_____________________________
Title:__________________________
Address: 967 Shoreline Blvd.
Mountain View, CA 94043
AGREED TO AND ACCEPTED:
Address:
Exhibit 10.8
March 21, 1997
Barry N. Cheskin
43 West 61st Street
Apartment 19N
New York, NY 10023
Dear Barry:
On behalf of Rita Medical Systems, Inc, (the "Company"), I am pleased to offer you the position of President and Chief Executive Officer of the Company. Speaking for myself, as well as the other members of the Company's Board of Directors, we are all very impressed with your credentials and we look forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
a. You will become the President and Chief Executive Officer of the Company, working out of the Company's headquarters office in Mountain View, California. As President and Chief Executive Officer, you will have overall responsibility for the affairs of the Company. You will report directly to the Chairman of the Company's Board of Directors and will be appointed to the Board of Directors (the "Board") at the time you commence service as President and Chief Executive Officer. The Company will use its best efforts to maintain you on the Board throughout your period of employment with the Company as Chief Executive Officer by taking all action necessary to nominate you for election to the Board at each shareholders meeting held during your period of service as Chief Executive Officer at which Board members are to be elected.
b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization,
whether or not for compensation, without the prior written consent of the Board, and you will not directly or indirectly engaged or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria, from serving on boards of charitable organizations or otherwise rendering minor or insubstantial services for any religious or charitable organizations of which you are a member or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock market.
2. Start Date. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company within forty-five (45) days after execution of this agreement. The date you actually commence employment with the Company will be designated as your Start Date.
3. Proof of Right to Work. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
4. Compensation.
a. Base Salary. You will be paid a monthly salary of $16,666.67, which is equivalent to $200,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company).
b. Bonus. You will be eligible to receive an incentive bonus of up to thirty percent (30%) of your annual base salary, pro-rated for the portion of the fiscal year ending December 31, 1997 which transpires from and after your actual Start Date. Payment of the bonus will be at the discretion of the Board and will be based on achievement of mutually agreeable objectives to be determined by you and the Board within ninety (90) days after your Start Date. You will also be eligible to earn incentive bonuses in future years of up to thirty percent (30%) of your then current rate of annual base salary, again based on achievement of mutually-agreed upon objectives and your continued employment.
c. Annual Review. Your base salary will be reviewed at the end of each calendar year as part of the Company's normal salary review process.
5. Stock Options.
a. Initial Grant. The Board has authorized the following stock option grant (the "Initial Option") under the Company's 1994 Incentive Stock Option Plan (the "1994 Plan") which will become effectively immediately upon your Start Date. The option will provide you with the right to purchase that number of shares of the Company's Common Stock ("Shares") which represent seven percent (7%) of the Company's capital stock outstanding on your Start Date, calculated on a fully diluted basis, taking into account all outstanding convertible
securities, warrants, options and similar instruments and the number of shares of Common Stock which remain available for future option grant or issuance under the 1994 Plan. The option will have an exercise price equal to the fair market value per share of Common Stock on your Start Date (currently the fair market value per share is $0.30). The option will be immediately exercisable for fifty percent (50%) of the total option shares as fully-vested shares and will become exercisable for the balance of those shares in a series of twenty-four (24) successive equal monthly installments upon your completion of each month of service with the Company, whether as an employee, non-employee Board member or independent consultant, over the twenty-four (24)-month period measured from the second anniversary of your Start Date. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1994 Plan and the Stock Option Agreement between you and the Company.
b. Anti-Dilution Protection. In the event the Company raises additional capital through one or more equity issuances effected after your Start Date other than through the exercise or conversion of securities taken into account in calculating your initial seven percent (7%) interest or through an initial public offering of the Company's common stock, your seven percent (7%) equity interest shall be protected through the first $7,500,000 of such equity capital, calculated on an aggregate basis. In no event shall your seven percent (7%) equity interest be diluted below five percent (5%). In addition, your initial seven percent (7%) equity interest will be protected against any dilution attributable to any increase in the number of shares of the Company's capital stock authorized for issuance under the 1994 Plan (or any successor or additional employee stock option plan) effected prior to the initial public offering of the Company's common stock. Your anti-dilution protection will be provided through a series of additional option grants ("Anti-Dilution Options") made to you under the 1994 Plan at each time a dilutive event is consummated after your Start Date. Each Anti-Dilution Option will have an exercise price per share equal to the fair market value of the Common Stock at the time a dilutive event is consummated and will become exercisable for the option shares in accordance with the same vesting schedule in effect for your Initial Option (i.e., immediate vesting in fifty percent (50%) of the option shares and vesting in the balance of the shares over the twenty-four (24) month period measured from the second anniversary of your Start Date). No such anti-dilution protection will be provided you in connection with the initial public offering of the Common Stock or any subsequent issuance of securities effected thereafter.
c. Change in Control Protection. In the event (i) the Company sells all or substantially all of its assets, (ii) the Company merges with another entity pursuant to which shareholders of the Company immediately prior to the merger own less than fifty percent (50%) of the voting securities of the surviving entity or (iii) the Company's securities holders sell securities possessing fifty percent (50%) or more of the total combined voting power of the Company's outstanding securities, then immediately prior to the closing of such sale/merger transaction, your Initial Option and each Anti-Dilution Option will become exercisable for seventy-five percent (75%) of your then invested option shares. The balance of the shares subject to each such option will vest, at the rate of 2.0833% of the total number of shares for which that option was originally granted, upon your completion of each additional month of service with the Company or the successor entity following the sale/merger transaction.
d. Tax Gross-Up. Should the accelerated vesting of your option shares, either at the time of the sale/merger transaction pursuant to paragraph 5.c or your subsequent termination of employment pursuant to paragraph 8, trigger an excess parachute payment under Section 280(G) of the Internal Revenue Code in connection with a sale/merger transaction consummated before any of the Company's securities have become tradable on an established securities market, then the Company shall provide you with a full tax-gross-up with respect to your parachute tax liability under Section 4999 of the Internal Revenue Code.
e. Company Repurchase Rights. Should any of the following events
("Repurchase Event") occur during the first twenty-four (24) months of your
employment: (i) you voluntarily leave the Company's service other than for Good
Reason or (ii) your employment is terminated by the Company for Misconduct, then
the Company will have the following repurchase rights with respect to up to
fifty percent (50%) of the shares purchased or purchasable under your paragraph
5.a and 5.b stock options:
- The number of shares which the Company may repurchase will be equal to fifty percent (50%) of the total number of shares subject to all your paragraph 5.a and 5.b options if the Repurchase Event occurs before you have completed six (6) months of service. The number of the shares repurchasable by the Company will decrease to thirty seventy and one-half percent (37.5%) of that total upon your completion of six (6) months of service and will decline by an additional 2.0833% of your total option shares upon your completion of each of the next eighteen (18) months of service so that the Company's repurchase rights will terminate as to all your option shares upon your completion of twenty-four (24) months of service measured from your Start Date.
- The amount payable per repurchased share by the Company will be equal to the fair market value per share of the Company's common stock at the time of the repurchase (as determined in good faith by the Board) in the event of a clause (i) Repurchase Event and will be equal to the option exercise price paid per share in the event of a clause (ii) Repurchase Event.
- The Company's repurchase rights under this paragraph 5.e will immediately terminate upon a sale/merger transaction under paragraph 5.c which triggers the accelerated vesting of your option shares.
f. Subsequent Option Grants. Subject to the discretion for the Board, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board shall determine as of the date of any such grant.
6. Benefits.
a. Insurance Benefits. The Company will provide you and your eligible dependents with standard medical and dental insurance benefits. You will also be eligible to
participate in al other benefit programs available to the Company's executives, including group-term life insurance coverage and the long-term disability income plan, to the extent you satisfy the applicable eligibility requirements. In addition, the Company currently indemnifies all officers and directors to the maximum extent permitted by law, and you will be requested to enter into the Company's standard form of Indemnification Agreement (in the form attached as Exhibit A) giving you such protection. Pursuant to the Indemnification Agreement, the Company will agree to advance any expenses for which indemnification is available to the extent allowed by applicable law.
b. Vacation. You will be entitled to four (4) weeks paid vacation per year, pro-rated for the remainder of this calendar year.
c. Auto Allowance. The Company will pay you a monthly automobile allowance of Seven Hundred Fifty Dollars ($750.00).
d. Relocation Expenses. In connection with your relocation from New York to Northern California, the Company will, to the extent required to avoid out-of-pocket cost to you, reimburse you for up to six (6) months of rental payments on your New York apartment ($2,500 per month for a maximum of six (6) months). In connection with your purchase of a residence in Northern California, the Company will also provide you with a housing subsidy of Thirty-Five Hundred Dollars ($3,500) per month for the first twenty-four (24) months of your employment with the Company. In addition, the Company will reimburse you for the following expense ("Relocation Expenses"):
- all reasonable relocation expenses, including house-hunting trips, moving of household goods and automobile and other reasonable out-or-pocket expenses, including expenses incurred in any second move you may have to make from any apartment or other temporary lodgings you rent upon your relocation to your new permanent residence (but excluding home decorating expenses, differences in mortgage rates, differences in costs of comparable housing, etc.), closing costs and fees including up to 1.5 mortgage points, up to a maximum aggregate reimbursable amount of Thirty Five Thousand Dollars ($35,000);
- reasonable temporary living expenses not to exceed three (3) months, and
- The cost of up to four (4) trips in the aggregate between New York and San Francisco by either you or your spouse in the event your spouse is unable to relocate immediately with you.
All amounts received by you for relocation expense reimbursement under this Paragraph 6.d will be reported as taxable income to you in the year received as required by applicable tax law. However, the Company will reimburse you on a "gross-up" basis for the income tax effect of your non-deductible reimbursed Relocation Expenses so that you will not incur any out-of-pocket cost with respect to those latter expenses.
7. Confidential Information and Invention Assignment Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date.
8. Severance Agreement.
a. Severance Benefits. In the event (i) your employment is terminated by the Company or its successor for any reason other than Misconduct or (ii) you resign for Good Reason, you will be entitled to the following severance benefits:
- You will receive continuation of your base salary for up to twelve
(12) months following the date of your termination or resignation (the
"Severance Period"). In the event you commence full-time employment during
the Severance Period, the Company's obligation to pay any severance shall
cease at the time of such employment. For purposes of this paragraph,
"full-time employment" shall be defined as at least 35 hours per week of
compensated labor, including, but not limited to, consulting or other
contract work.
During the Severance Period the Company shall pay for your purchase of continued health care coverage for you and your eligible dependents upon your election to receive such continued health benefits under COBRA; any additional COBRA coverage to which you and your dependents may be entitled following the expiration of the Severance Period will be at your own cost.
The shares subject to each of your outstanding stock options will immediately vest in full. If the Company has not yet effected the initial public offering of its Common Stock, then you will have until the earlier of (i) the end of the one (1)-year period following your termination date or (ii) the expiration of the ten (10)-year option term in which to exercise those options.
b. Definitions. For purposes of this letter agreement, the following definitions will be in effect:
You will be deemed to have resigned for Good Reason if such resignation occurs by reason of (i) a change in your position with the Company which materially reduces your duties or level of responsibility, (B) a reduction in the level of your base compensation by more than fifteen percent (15%) or (C) a relocation of your place of employment by more than fifty (50) miles.
Your employment will be deemed to have been terminated for Misconduct if such termination occurs by reason of your commission of any act of fraud, embezzlement or dishonesty, your unauthorized user or disclosure
by you of confidential information or trade secrets of the Company, or any other gross negligence or intentional misconduct on your part which adversely affects or is likely to adversely affect the business or affairs of the Company in a material manner.
9. Confidentiality of Terms. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this letter agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice and may disclose such terms to the extent required by law.
10. Governing Law/Successors and Assigns. The provisions of this letter agreement shall, in all respects, be governed by the laws of the State of California applicable to agreements executed and to be wholly performed within the State of California. The provisions of this letter agreement shall inure to the benefit of, and shall be binding upon, the Company and its successors and assigns, and you, the personal representative of your estate and your heirs and legatees. Should th Board or the Company's shareholders authorize any reorganization of the Company prior to your actual Start Date, then the Company will structure such reorganization so that the successor entity will assume all obligations and commitments of the Company hereunder, and you will accordingly be allowed to commence your employment with such successor entity in accordance with all the terms and provisions of this letter agreement.
11. At-Will Employment. Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability other than any severance benefits to which you are entitled under Paragraph 8 of this letter agreement.
We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a singed and dated copy of the Confidentiality Agreement.
In the event it is determined by the Board, upon consultation with Company management and the Company's independent auditors, that the enforcement of paragraph 5.c of this letter agreement, which allows for the partial acceleration of vesting of stock options upon the effective date of a sale or merger of the Company, would preclude accounting for any proposed business combination of the Company as a pooling of interests, and the Board otherwise desires to approve such a proposed business transaction which requires as a condition to the closing of such transaction that it be accounted for as a pooling interests, then such paragraph 5.c of this letter agreement shall be null and void. For purposes of this paragraph, the Board's determination shall require the unanimous approval of the non-employee Board members.
This letter, together with the Confidentiality Agreement and Indemnification Agreement, set forth the terms of your employment with the Company and supersede any prior
representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. This offer to you will expire and be of no further force or effect at the close of business on March 24, 1997, unless you accept this offer prior to that time.
Very truly yours,
RITA MEDICAL SYSTEMS, INC.
By: /s/ J. Thomas McMurray
-----------------------------
J. Thomas McMurray
Title: Chairman of the Board
|
ACCEPTED AND AGREED:
BARRY N. CHESKIN
/s/ Barry N. Cheskin -------------------- Signature March 21, 1997 -------------------- Date |
Enclosure: Confidential Information and Invention Assignment Agreement
Exhibit 10.9
May 26, 1998
Ronald Steckel
1353 Abbott Avenue
Campbell, CA 95008
Dear Ron:
On behalf of RITA Medical Systems, Inc. (the "Company"), I am pleased to offer you the position of Vice President, Operations. Speaking for myself, as well as the other members of the Company's management team, we are all very impressed with your credentials and we look forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
a. You will become the Vice President, Operations working out of the Company's office in Mountain View, California. As Vice President, Operations, you will have overall responsibility for matters relating to the manufacturing and manufacturing engineering areas in the Company. You will report to the Company's President and Chief Executive Officer.
b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.
2. Start Date. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on June 29, 1998. You have agreed to be available on a limited basis prior to that time, consistent with your current commitments, to aid in the transition.
3. Proof of Right to Work. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
4. Compensation.
a. Base Salary. You will be paid a monthly salary of $12,500.00 which is equivalent to $150,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy.
b. One-Time Bonus. You will receive a one-time cash bonus of $30,000 payable as follows: $10,000 within 30 days of your start date; then $5,000 at each quarterly anniversary of your start date, ending at the completion of your first year of employment.
c. Bonus. You will be eligible to participate in the Company management bonus program if and when such a program is developed and approved by the Board of Directors.
d. Annual Review. Your base salary will be reviewed as part of the Company's normal salary review process.
5. Stock Options.
a. Initial Grant. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase a number of shares of the Company's Common Stock ("Shares") which will represent 1% of the fully diluted capitalization of the Company immediately upon the completion of the Series E financing, with an exercise price equal to the fair market value on the date of the grant. The grant amount is estimated to be 136,500 shares, based on the projected closing capitalization of the Series E round, though this amount may be adjusted to exactly reflect the 1% figure. These option shares will vest at the rate of 1/8 of the total after the first six months of employment and then 1/48 of the total per month, such that the options will would become fully vested at the end of four years. Vesting will, of course, depend on your continued employment with the Company. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1994 Incentive Stock Option Plan and the Stock Option Agreement between you and the Company. This option is subject to the approval of the Company's Board of Directors.
b. Subsequent Option Grants. Subject to the discretion of the Company's Board of Directors, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant.
6. Benefits.
a. Insurance Benefits. The Company will provide you with standard medical and dental insurance benefits.
b. Vacation. You will be entitled to 3 weeks paid vacation per year, pro-rated for the remainder of this calendar year. Vacation accrues according to Company policy as described in the employee handbook. At this time the following schedule applies: five (5) hours accrue per pay period from your date of hire. During the first six months, no vacation may be taken unless a special exception has been granted.
7. Confidential Information and Invention Assignment Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date.
8. Severance Agreement. If your employment is terminated by the Company or its successor for any reason other than cause, as determined by the Company's Board of Directors, you will be entitled to receive continuation of your base salary payable in two equal payments per month for up to six (6) months following the date of termination of your employment (the "Severance Period"). This salary continuation is conditioned on your confirmation, to the Company's satisfaction, that you are actively seeking full-time employment. In the event you commence full-time employment during the Severance period, the Company's obligation to pay any severance shall cease at the time of such employment. For purposes of this paragraph, "full-time employment" shall be defined as at least 35 hours per week of compensated labor, including consulting or other contract work.
9. Confidentiality of Terms. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice.
10. At-Will Employment. Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability.
We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. This offer will expire unless signed by you by May 29, 1998.
Very truly yours,
RITA MEDICAL SYSTEMS, INC.
By: /s/ Barry N. Cheskin ------------------------ Title: President and C.E.O. |
ACCEPTED AND AGREED:
RONALD STECKEL
/s/ Ronald Steckel ------------------ Signature May 26, 1998 |
Date
Enclosure: Confidential Information and Invention Assignment Agreement
Exhibit 10.10
February 11, 2000
David L. Martin
20 Highcrest Lane
So. San Francisco, CA. 94080
Dear Dave:
On behalf of RITA Medical Systems, Inc. (the "Company"), I am pleased to offer you the position of Vice President, Global Sales. Speaking for myself, as well as the other members of the Company's management team, we are all very impressed with your credentials and we look forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
a. You will become the Vice President, Global Sales, working out of the Company's office in Mountain View, California. You will report to the President and CEO.
b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.
2. Start Date. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on or before March 15, 2000.
3. Proof of Right to Work. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
4. Compensation.
a. Base Salary. You will be paid a monthly salary of $13,750.00 which is equivalent to $165,000 on an annualized basis. Your salary will be payable in two equal payments on the 15th and the last day of the month.
b. Sales Bonus. You will receive a sales bonus based on achieving the Company's sales targets. These targets and your bonus will be mutually agreed upon on an annual basis. For the calendar year 2000, you will receive a commission of 0.5% of sales up to $9.5 million in revenue and 2.0% of sales above $9.5 million in revenue. Commissions will be paid monthly in the first paycheck following the end of the month in which the commission is earned. In addition, you will be paid an annual bonus of $25,000 upon achieving the Company's stretch sales goals.
c. One-Time Bonus. You will receive a one-time cash bonus of $50,000, payable in two equal installments at the completion of 3 months and 12 months of employment.
5. Stock Options.
a. Initial Grant. In connection with the commencement of your employment, the Company will recommend that the Board of Directors grant you an option to purchase 300,000 shares of the Company's Common Stock ("Shares") with an exercise price equal to the fair market value on the date of the grant. These option shares will vest at the rate of 1/8 of the total after the first six months of employment and then 1/48 of the total per month, such that the options will become fully vested at the end of four years. Vesting will, of course, depend on your continued employment with the Company. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1994 Incentive Stock Option Plan and the Stock Option Agreement between you and the Company. This option is subject to the approval of the Company's Board of Directors.
b. Subsequent Option Grants. Subject to the discretion of the Company's Board of Directors, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant. In addition, you will participate in any annual employee stock bonus plan for which you are eligible.
6. Benefits.
a. Insurance Benefits. The Company will provide you with medical, dental and long-term disability insurance benefits.
b. Vacation. You will be entitled to 3 weeks paid vacation per year,
pro-rated for the remainder of this calendar year. Vacation accrues as follows:
five (5) hours accrue per pay period from your date of hire. During the first
six months, no vacation may be taken unless a special exception has been
granted.
c. 401K Retirement Plan. You will be eligible to participate in the Company's employee-contribution 401K Retirement Plan beginning on the first January 1 or July 1 following one month of employment.
7. Salary Continuation. Following the six-month anniversary of your employment with the Company, if you are involuntarily terminated other than for cause, you will be paid continuation of your base salary for a period of up to twelve months or until you secure other employment, whichever is earlier. Salary continuation will be paid on regular Company paydays.
8. Confidential Information and Invention Assignment Agreement. Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution, and delivery to an officer of the Company, of the Company's Confidential Information and Invention Assignment Agreement, a copy of which is enclosed for your review and execution (the "Confidentiality Agreement"), prior to or on your Start Date.
9. Confidentiality of Terms. You agree to follow the Company's strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding compensation, or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice.
10. At-Will Employment. Your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability.
We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. This offer will expire unless signed by you by February 14, 2000.
(SIGNATURE PAGE FOLLOWS)
Very truly yours,
RITA MEDICAL SYSTEMS, INC.
By: /s/ Barry Cheskin
---------------------
Title: President & CEO
|
ACCEPTED AND AGREED:
DAVID L. MARTIN
/s/ David Martin --------------------- Signature February 11, 2000 Date |
Enclosure: Confidential Information and Invention Assignment Agreement
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated April 10, 2000, relating to the financial statements of RITA Medical Systems, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 2, 2000
|
EXHIBIT 23.3
CONSENT OF WILSON SONSINI GOODRICH & ROSATI, A PROFESSIONAL CORPORATION
We consent to the use of our name in the second paragraph under the caption "Experts" in the prospectus, which constitutes part of the Registration Statement for the Common Stock of RITA Medical Systems, Inc. on Form S-1. We further consent to the aforementioned use of our name in any amendments to the aforementioned Registration Statement.
WILSON SONSINI GOODRICH & ROSATI
/s/ Wilson Sonsini Goodrich & Rosati
Palo Alto, California
May 1, 2000
|
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | DEC 31 1999 |
| CASH | 7,067 |
| SECURITIES | 5,086 |
| RECEIVABLES | 1,203 |
| ALLOWANCES | (54) |
| INVENTORY | 845 |
| CURRENT ASSETS | 14,763 |
| PP&E | 2,246 |
| DEPRECIATION | (1,371) |
| TOTAL ASSETS | 15,705 |
| CURRENT LIABILITIES | 2,326 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 38,516 |
| COMMON | 1 |
| OTHER SE | 1,636 |
| TOTAL LIABILITY AND EQUITY | 15,705 |
| SALES | 4,629 |
| TOTAL REVENUES | 4,629 |
| CGS | 2,887 |
| TOTAL COSTS | 9,490 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 212 |
| INCOME PRETAX | (7,510) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (7,510) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (7,510) |
| EPS BASIC | (9.33) |
| EPS DILUTED | (9.33) |