As filed with the Securities and Exchange Commission on June 14, 2000
AMENDMENT NO. 1
RITA MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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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Calculation of Registration Fee
Proposed maximum
Amount Proposed maximum aggregate Amount of
Title of each class of securities to be offering price offering registration
to be registered registered per share price(1)(2) fee
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Common Stock, $0.001 par value.. 3,400,000 $13.00 $50,830,000 $13,419.12
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(1) Includes 510,000 shares of common stock issuable upon exercise of the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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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. + |
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SUBJECT TO COMPLETION, DATED JUNE 14, 2000
PROSPECTUS
3,400,000 Shares
[RITA MEDICAL SYSTEMS, INC. LOGO]
Common Stock
We are selling 3,400,000 shares of our common stock. We have granted the underwriters a 30-day option to purchase up to an additional 510,000 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 $11.00 and $13.00 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-procedure CAT scan showing a liver tumor
Graphic 2: Post-procedure CAT scan showing 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 centimeters
Graphic 5: 5 centimeter diameter ablation covering targeted 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........................................................... 22
Business................................................................. 28
Management............................................................... 39
Relationships and Related Party Transactions............................. 48
Principal Stockholders................................................... 52
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 58
United States Tax Consequences to Non-United States Holders.............. 60
Underwriting............................................................. 62
Legal Matters............................................................ 64
Experts.................................................................. 64
Where You Can Find Additional Information................................ 65
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. We have received regulatory clearance for sale in major markets worldwide for the ablation of soft tissue. In addition to soft tissue, our system is specifically cleared by the FDA for unresectable liver lesions, which are lesions which cannot be treated surgically.
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 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 $500 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, which is a procedure in which surgical instruments are inserted into the body through a small incision in the abdomen, 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. It is estimated that nearly 90 percent of all cancers are categorized as solid tumor cancers, which are composed of soft tissue. We believe our system may eventually be used to address many of these tumors.
Liver Cancer Market
Liver cancer is one of the most prevalent and lethal forms of cancer in the world. It is estimated to afflict more than two million new patients worldwide each year. Because of the lack of effective treatment options currently available for these patients, 94 percent of them will die within five years. Surgery is generally considered the "gold standard" treatment option to address liver tumors; however, more than 80 percent of liver cancer patients are unresectable, which means they do not qualify for surgery. Alternative treatment options include chemotherapy, cryosurgery, which involves freezing tumors, percutaneous ethanol injection, which
involves injecting tumors with alcohol and radiation therapy. 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 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 which is a curved set of electrodes in the shape of a fountain at the end of our disposable device 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 effectiveness 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.......................... 3,400,000 shares
Common stock outstanding after this offering.. 13,538,948 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 510,000 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 10,138,948 shares of common stock outstanding as of March 31, 2000 assuming conversion of all convertible preferred stock;
. does not take into account 1,855,616 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2000, at a weighted average exercise price of $1.01 per share;
. does not take into account 253,042 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2000, at a weighted average exercise price of $4.66 per share; and
. does not take into account 293,900 shares available for future issuance under our 1994 equity incentive plan, as of March 31, 2000.
RITA(R) and StarBurst(TM) are our trademarks.
SUMMARY FINANCIAL DATA
The following table sets forth our summary financial data. You should read this information together with the financial statements and notes thereto appearing elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Years Ended December Three Months ended
31, March 31,
------------------------- --------------------
1997 1998 1999 1999 2000
------- ------- ------- --------- ---------
(in thousands, except (unaudited)
per share data)
Statement of Operations
Data:
Sales..................... $ 220 $ 1,137 $ 4,629 $ 837 $ 1,841
Cost of goods sold........ 589 1,523 2,994 690 1,182
------- ------- ------- --------- ---------
Gross profit (loss)...... (369) (386) 1,635 147 659
------- ------- ------- --------- ---------
Operating expenses:
Research and
development............. 2,486 2,729 3,931 737 1,631
Selling, general and
administrative.......... 2,829 3,606 5,452 1,338 2,005
------- ------- ------- --------- ---------
Total operating
expenses............... 5,315 6,335 9,383 2,075 3,636
------- ------- ------- --------- ---------
Loss from operations...... (5,684) (6,721) (7,748) (1,928) (2,977)
Interest and other income
(expense), net........... (176) (28) 238 70 35
------- ------- ------- --------- ---------
Net loss.................. $(5,860) $(6,749) $(7,510) $(1,858) $(2,942)
======= ======= ======= ========= =========
Net loss per share, basic
and diluted.............. $(11.02) $(10.10) $ (9.33) $ (2.39) $ (2.89)
======= ======= ======= ========= =========
Shares used in computing
net loss per share,
basic and diluted........ 532 668 805 779 1,017
Pro forma net loss per
share, basic and
diluted.................. $ (0.90) $ (0.30)
======= =========
Shares used in computing
pro forma net loss per
share, basic and
diluted.................. 8,355 9,951
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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 March 31, 2000 into 8,934,628 shares of common stock as if the stock had been converted immediately upon its issuance.
As of March 31, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
Balance Sheet Data: (in thousands)
Cash, cash equivalents and marketable
securities..................................... $ 12,009 $12,009 $48,753
Working capital................................. 11,999 11,999 48,743
Total assets.................................... 15,930 15,930 52,674
Long-term obligations, net of current portion... 3,325 3,325 3,325
Convertible preferred stock and preferred stock
warrants....................................... 38,515 -- --
Total stockholders' equity (deficit)............ (28,837) 9,678 46,422
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The pro forma balance sheet reflects the automatic conversion of outstanding shares of convertible preferred stock as of March 31, 2000 into 8,934,628 shares of common stock. The pro forma as adjusted balance sheet reflects the sale of 3,400,000 shares of common stock offered hereby at an assumed initial public offering price of $12.00 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. 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 March 31, 2000, we had an accumulated deficit of approximately $31.6 million.
We are currently involved in a patent interference action and a patent opposition action involving RadioTherapeutics Corporation and if we do not prevail in these actions, our business could suffer
In July 1999, the United States Patent and Trademark Office, or the USPTO,
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. 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 first. In March 2000,
RadioTherapeutics Corporation filed an opposition to our European Patent No.
0777445. This patent also covers the curvature of the array at the tip of our
disposable devices. In this opposition, the validity of our issued patent is
being questioned. Final resolution of these matters is not expected 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, if necessary, obtain a license 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. If we do not prevail in the opposition proceeding, our patent protection in Europe could be weakened.
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 are involved in two clinical studies using our system which are expected to produce twelve month or longer follow-up data. Both studies are at an early stage. If the data produced is not favorable, our business could be harmed.
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. 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.
If we are sued for patent infringement, we could be prevented from selling our products and our business could suffer
We are aware of the existence of patents held by competitors in our market which could result in a patent lawsuit against us. In the event that we are subject to a patent infringement lawsuit and if the relevant patents
were upheld as valid and enforceable and we were found to infringe, we could be prevented from selling our products unless we could obtain a license or were able to redesign the product to avoid infringement. If we were unable to obtain a license or successfully redesign our system, we may be prevented from selling our system and our business could suffer.
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;
. significant currency fluctuations which could result in purchase reductions by our distributors due to negative pressure on their gross profit margins;
. 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 41 percent of our international revenues in fiscal 1999. M.D.H.s.r.l. Forniture Ospedaliere, which is our distributor in Italy, accounted for 41 percent of our revenues in fiscal 1998 and 14 percent of our revenues for fiscal 1999. Because international revenues accounted for 64 percent of our total revenues for fiscal 1999 and these two distributors represented 85 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. Payors may refuse to provide reimbursement for procedures covered by general codes because the applicability of the code must be determined on a case-by-case basis. 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 adequately 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. Fixed payment schedules typically permit reimbursement for a procedure rather than a device. If physicians believe that our system will add cost to a procedure but will not add sufficient offsetting economic or clinical benefits, physician adoption could be slowed.
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. 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 hire sufficient additional personnel, purchase additional equipment or are otherwise 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. Because our manufacturing operations are primarily dependent upon manual assembly, if demand for our system increases we will need to hire additional personnel may need to purchase additional equipment. If we are unable to sufficiently staff our manufacturing operations or are otherwise 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 key 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 one of our key suppliers was 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. If a disruption in supply occurred that could not be remedied within twelve months, it could significantly impair our ability to sell our products.
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 eight 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 made minor modifications to our system. Using the guidelines established by the FDA, we have determined that 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 RITA system 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, or if we are unable to negotiate licenses in the future 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 or failure to successfully negotiate future 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 which could result in dilution to our stockholders
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 33 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 Delaware law contain provisions that could discourage a takeover which could prevent or delay a merger that stockholders believe is favorable for the company
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 $36,744,000 from the sale of the 3,400,000 shares of common stock we are offering, based on an assumed initial public offering price of $12.00 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 $42,435,600. We currently intend to use the net proceeds of this offering as follows:
. approximately $25 million to fund business development, including our research and development, clinical research and sales and marketing efforts;
. approximately $5 million to provide working capital; and
. approximately $5 million 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 March 31, 2000:
. 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 3,400,000 shares of common stock offered by us at an assumed initial public offering price of $12.00 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.
March 31, 2000
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands, except share and
per share data)
Long-term obligations, net of current
portion...................................... $ 3,325 $ 3,325 $ 3,325
--------- -------- --------
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............................ 38,515 -- --
--------- -------- --------
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; 1,204,420 shares issued and
outstanding, actual; 10,138,948 shares
issued and outstanding, pro forma;
13,538,948 shares issued and outstanding,
pro forma as adjusted....................... 1 10 14
Additional paid-in capital................... 8,850 47,356 84,096
Deferred stock-based compensation............ (5,873) (5,873) (5,873)
Stockholder note receivable.................. (238) (238) (238)
Accumulated other comprehensive loss......... (7) (7) (7)
Accumulated deficit.......................... (31,570) (31,570) (31,570)
--------- -------- --------
Total stockholders' equity (deficit)...... (28,837) 9,678 46,422
--------- -------- --------
Total capitalization...................... $ 13,003 $ 13,003 $ 49,747
========= ======== ========
|
The actual, pro forma and pro forma as adjusted information set forth in the table excludes:
. 510,000 shares of common stock issuable upon the exercise of the underwriters' over-allotment option;
. 1,855,616 shares of common stock issuable upon the exercise of stock options outstanding, as of March 31, 2000, at a weighted average exercise price of $1.01 per share;
. 253,042 shares of common stock issuable upon the exercise of warrants outstanding, as of March 31, 2000, at a weighted average exercise price of $4.66 per share; and
. 293,900 shares of common stock reserved for issuance under our 1994 equity incentive plan, as of March 31, 2000.
DILUTION
Our net tangible book value as of March 31, 2000 was approximately $9.7 million, or $0.95 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 March 31, 2000 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 3,400,000 shares of common stock by us at an assumed initial public offering price of $12.00 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 March 31, 2000 would have been $46.4 million, or $3.43 per share of common stock. This represents an immediate increase in net tangible book value of $2.48 per share of common stock to existing common stockholders and an immediate dilution in pro forma net tangible book value of $8.57 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 per share............... $12.00
Net tangible book value per share before this offering...... $0.95
Increase in net tangible book value per share attributable
to this offering........................................... 2.48
-----
Pro forma net tangible book value per share after this
offering..................................................... 3.43
------
Dilution per share to new investors........................... $ 8.57
======
|
The following table summarizes, on a pro forma basis as of March 31, 2000, 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.. 10,138,948 75% $39,007,000 49% $ 3.85
New investors.......... 3,400,000 25 40,800,000 51 $12.00
---------- ----- ----------- -----
Total................ 13,538,948 100.0% $79,807,000 100.0%
========== ===== =========== =====
|
The tables and calculations above assume no exercise of the underwriters' over-allotment option to purchase up to an additional 510,000 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 72% 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 3,910,000, or 28% 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 March 31, 2000, there were 1,855,616 shares of common stock issuable upon the exercise of outstanding options at a weighted average exercise price of $1.01 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 audited financial statements 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. The statement of operations data for the three months ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 2000 are derived from our unaudited financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of the results of operations for the period. Historical results are not necessarily indicative of the results of operations to be expected for future periods and the results of interim periods are not necessarily indicative of the results for a full year. 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.
Three
Months Ended
Years Ended December 31, March 31,
------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data) (unaudited)
Statement of Operations
Data:
Sales................... $ $ -- $ 220 $ 1,137 $ 4,629 $ 837 $ 1,841
Cost of goods sold...... -- 589 1,523 2,994 690 1,182
------- ------- ------- ------- ------- ------- -------
Gross profit (loss).... -- (369) (386) 1,635 147 659
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 2,254 2,214 2,486 2,729 3,931 737 1,631
Selling, general and
administrative........ 884 1,732 2,829 3,606 5,452 1,338 2,005
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 3,138 3,946 5,315 6,335 9,383 2,075 3,636
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,138) (3,946) (5,684) (6,721) (7,748) (1,928) (2,977)
Interest and other
income (expense), net.. 76 (24) (176) (28) 238 70 35
------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,062) $(3,970) $(5,860) $(6,749) $(7,510) $(1,858) $(2,942)
======= ======= ======= ======= ======= ======= =======
Net loss per share,
basic and diluted...... $ (5.98) $ (7.74) $(11.02) $(10.10) $ (9.33) $ (2.39) $ (2.89)
======= ======= ======= ======= ======= ======= =======
Shares used in computing
net loss per share,
basic and diluted...... 512 513 532 668 805 779 1,017
Pro forma net loss per
share, basic and
diluted................ $ (0.90) $ (0.30)
======= =======
Shares used in computing
pro forma net loss per
share, basic and
diluted................ 8,355 9,951
|
December 31,
-------------------------------------------- March 31,
1995 1996 1997 1998 1999 2000
------ ------ -------- -------- -------- ---------------------------
(in thousands) (unaudited)
Balance Sheet Data:
Cash, cash equivalents
and marketable
securities............. $1,307 $3,791 $ 147 $ 7,644 $ 12,153 $ 12,009
Working capital......... 683 3,329 (2,276) 7,560 12,437 11,999
Total assets............ 1,989 4,592 1,082 9,009 15,705 15,930
Long-term obligations,
net of current
portion................ 61 40 17 -- 1,854 3,325
Convertible preferred
stock and preferred
stock warrants ........ 5,783 12,331 12,492 28,337 38,516 38,515
Total stockholders'
deficit................ (4,530) (8,501) (14,275) (20,510) (26,991) (28,837)
|
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 such as loans, leasing referrals and deferred purchase plans to facilitate generator placements. We plan to offer current customers our new higher-power generator at a discount to our list price in order to encourage rapid adoption of our second-generation technology. 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, with the full commercial launch of 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. Gross profit margins are affected by production volumes and average selling prices.
In the year ended December 31, 1999, 42% of our operating expenses were related to research and development activities, while 58% 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.
In connection with the grant of stock options to employees and non-
employees, we record deferred stock-based compensation as a component of
stockholders' equity. This stock-based compensation is amortized as charges to
operations over the vesting periods of the options. We recorded amortization of
deferred compensation of $403,000 for the year ended December 31, 1998,
$991,000 for the year ended December 31, 1999 and $921,000 for the quarter
ended March 31, 2000. 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.
We incurred net losses of approximately $7.5 million in 1999. As of March 31, 2000 we had an accumulated deficit of $31.6 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 future.
Our product sales have mainly been to a group of early adopting physicians who treat patients with cancerous tumors 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
Three Months Ended March 31, 2000 and 1999
Sales for the quarter ended March 31, 2000 were $1.8 million as compared to $837,000 in the corresponding period in 1999. Higher unit shipments resulted from increased physician awareness of our technology, expansion of our domestic sales force and increased geographical representation through the appointment of new international distributors during the fourth quarter of 1999 and the first quarter of 2000. During the first quarter of 2000, we initiated a limited launch of our second-generation disposable devices and generators to select United States and international customers.
Cost of goods sold for the quarter ended March 31, 2000 was $1.2 million as compared to $690,000 for the corresponding period in 1999. The growth in cost of goods sold was attributable primarily to higher material, labor, and overhead costs associated with increased unit shipments, including increases in amortization of deferred stock-based compensation of $105,000 in the first quarter of 2000 as compared to $25,000 in the corresponding period in 1999.
Research and development expenses for the three months ended March 31, 2000 were $1.6 million as compared to $737,000 for the corresponding period in 1999. The expense increase was attributable primarily to additional personnel, expenses associated with the development of our second-generation disposable devices and generators, increased clinical program spending as well as increased patent expenses. Amortization of deferred stock-based compensation was $308,000 in the quarter ended March 31, 2000 as compared to $80,000 in the corresponding period of 1999.
Sales, general and administrative expenses for the three months ended March 31, 2000 were $2.0 million as compared to $1.3 million in the corresponding period in 1999. The increase resulted from the addition of sales and clinical support personnel as well as spending associated with the launch of our second- generation disposable devices and generators. General and administrative expenses increased due to added personnel to support our growth in operations. For the quarter ended March 31, 2000, we recorded amortization of deferred stock-based compensation of $508,000 as compared to $115,000 in the corresponding period of 1999.
Interest income for the three months ended March 31, 2000 was $170,000 as compared to $84,000 in the corresponding period of 1999. The increase was primarily attributed to an increase in interest income due to a
higher average outstanding balance of cash and investments resulting from the timing of private equity and debt financings. Interest expense for the three months ended March 31, 2000 was $133,000 as compared to $12,000 for the corresponding period in 1999. The increase was primarily attributable to the loan and security agreement transacted in June 1999 with increases to the revolving credit note and funding of the second term loan in the first quarter of 2000.
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 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 sales are attributable to two of our distributors. In the year ended December 31, 1999, one distributor accounted for 41% of our sales and a second distributor accounted for 14% of our sales.
Cost of goods sold for the year ended December 31, 1999 was $3.0 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. Included in cost of goods sold was amortization of deferred stock-based compensation of $107,000 in 1999 as compared to $25,000 in 1998.
Research and development expenses for the year ended December 31, 1999 were $3.9 million as compared to $2.7 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. In addition, we had increases in the amortization of deferred stock-based compensation to $354,000 in 1999 from $186,000 in 1998. 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 $5.5 million as compared to $3.6 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 loaned generators to a group of prestigious medical centers that agreed to provide references on our system to other hospitals, and selling expenses for 1999 included depreciation charges related to the generators placed at these medical centers. General and administrative expenses increased due to the addition of personnel to support our growth in operations. For the year ended December 31, 1999 we recorded amortization of deferred stock-based compensation of $530,000 as compared to $192,000 in the corresponding period in 1998. 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.
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 $220,000 for the corresponding period in 1997. Sales in 1997 consisted mainly of product sales to our distributor in Italy and the
sale of evaluation units 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 $589,000 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 the year ended December 31, 1998 were $2.7 million as compared to $2.5 million for the corresponding period in 1997. Included in research and development expenses is amortization of deferred stock-based compensation of $186,000 in 1998 as compared to $14,000 in 1997. 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 $3.6 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. Included in selling, general and administrative expenses is amortization of deferred stock-based compensation of $192,000 in 1998 as compared to $25,000 in 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 and for the quarter ended March 31, 2000. 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. Mar.
31, 30, 30, 31, 31,
1999 1999 1999 1999 2000
------- ------- ------- ------- -------
(in thousands)
Sales............................ $ 837 $ 1,062 $ 1,197 $ 1,533 $ 1,841
Cost of goods sold............... 690 618 797 889 1,182
------- ------- ------- ------- -------
Gross profit.................... 147 444 400 644 659
Operating expenses:
Research and development........ 737 813 928 1,453 1,631
Selling, general and
administrative................. 1,338 1,334 1,188 1,592 2,005
------- ------- ------- ------- -------
Total operating expenses....... 2,075 2,147 2,116 3,045 3,636
------- ------- ------- ------- -------
Loss from operations............. (1,928) (1,703) (1,716) (2,401) (2,977)
Interest and other income
(expense), net.................. 70 40 38 90 35
------- ------- ------- ------- -------
Net loss......................... $(1,858) $(1,663) $(1,678) $(2,311) $(2,942)
======= ======= ======= ======= =======
Net loss per common share, basic
and diluted..................... $ (2.39) $ (2.11) $ (2.09) $ (2.73) $ (2.89)
======= ======= ======= ======= =======
Shares used in computing net loss
per share, basic and diluted.... 779 789 803 848 1,017
|
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 $37.9 million of convertible preferred stock. To a lesser extent, we also financed our operations through equipment financing and other loans, which totaled $4.4 million in principal outstanding at March 31, 2000. As of March 31, 2000, we had $9.8 million of cash and cash equivalents, $2.2 million of marketable securities and $12.0 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. This increase in use of cash for operating activities was 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. As of March 31, 2000, we had drawn down two term loans of $1.5 million each and $1.0 million 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 March 31, 2000 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 March 31, 2000, we had two term loans of $1.5 million each outstanding which bear interest at 13.36% and 14.33% and a revolving credit facility of $1.0 million outstanding which bears interest at 2% above the prime rate.
All of our sales and purchases are denominated 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
RITA develops, manufactures and markets innovative products which use radiofrequency energy to address solid cancerous or benign tumors. Our proprietary system includes radiofrequency generators and a family of disposable needle electrode devices which deliver controlled thermal energy to targeted tissue. The tissue is heated to a high enough level to cause cell death. Our initial focus is on the treament of liver cancer. Prior to the introduction of the RITA system, patients with unresectable liver tumors had few treatment alternatives. We believe our system offers them a viable alternative. Our products are cleared for sale in major markets worldwide.
Since our initial product launch, we have sold over 10,000 disposable devices. Our total sales were $4.6 million in 1999, $1.1 million in 1998 and $220,000 in 1997.
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 $500 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.
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 90 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 94 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 60 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 cancer 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 therapy.
Surgery
While surgery is considered the "gold standard" treatment option to address liver tumors, more than 80 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. Further, one-year recurrence rates following surgery range from 12 to 60 percent and when tumors recur, 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, with one-year local recurrence rates of approximately 10 percent, 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 and has a reported one-year local recurrence rate of approximately 13 percent, 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. Our disposable device cauterizes the tissue along the needle tract, which we believe kills any residual cancer cells that might be removed from the tumor.
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 options available to effectively address their unresectable liver tumors. In the future, our system may offer patients with other types of tumors a better 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.
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.
----------------------------------------------------------------------
Model 70 Designed to create a Commercially available
scalable two to three since mid-1999
centimeter ablation.
Compatible with the
Model 500 generator.
----------------------------------------------------------------------
StarBurst Designed to create a Planned availability in
scalable two to three 2000
centimeter ablation.
Compatible with the
Model 1500 generator.
----------------------------------------------------------------------
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
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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 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 and to collect procedural information for the patient's record. 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 14 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 breast, kidney and prostate. 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 in the 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 15 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 referral programs.
We plan to drive physician adoption by increasing awareness of the RITA system among potential users. We have established relationships with leading physicians at prominent cancer and other leading medical institutions, many of whom we believe are now strong advocates of our products. To increase adoption of our system, 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, cryosurgery, percutaneous ethanol injections and radiation therapy. 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 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.
If companies that currently sell products which utilize radiofrequency energy enter our market, competition could increase.
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. Our U.S. patents expire between 2012 and 2018. Our European-wide patents expire in 2015 and our Japanese patents expire in 2015.
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 single patent claim previously issued to us is being called into question. This patent claim covers the curved array technology at the tip of our disposable devices. 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. This European patent also covers the array technology of the tip of our disposable devices.
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. Establishment of specific codes could facilitate reimbursement because payors are automatically required to provide reimbursement as long as specific diagnostic criteria are met. 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. Our business has been successful in countries where we have not yet obtained specific reimbursement codes. However, in countries where specific reimbursement codes are strictly required, reimbursement has been denied on that basis. 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.
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 us 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 eight medical device reports with the FDA related to skin burns primarily caused by a ground pad, 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 which include the European Economic Area, Japan, Korea, Canada, Australia and New Zealand. 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.
Scientific Advisory Board
We have established a scientific advisory board for the purpose of obtaining clinical feedback on our products as well as market data and new product development feedback. Our scientific advisory board is chaired by Dr. Steven Rosenberg, Chief of Surgery, National Cancer Institute, National Institute of Health.
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 the option to renew the sublease for two additional six-month periods. We believe that our existing facilities are adequate to meet our current and foreseeable requirements for the next 12 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 disputes described in "Risk Factors--We are currently involved in a patent interference action and a patent opposition action and if we do not prevail in these actions, our business could suffer." The patent interference proceeding is pending before the Board of Patent Appeals and Interferences of the United States Patent and Trademark Office, the USPTO. On July 16, 1999 the USPTO declared an interference between a claim of one of our issued patents and claims of a patent application controlled by RadioTherapeutics Corporation. The principal parties in the proceeding are RadioTherapeutics and RITA. The factual basis underlying the claim is the determination by the commissioner of the USPTO that our patent and the RadioTherapeutics patent application interfere. In the interference proceeding, RadioTherapeutics seeks to invalidate our patent claim and to establish the patentability of the claims in their patent application. We seek to maintain the priority of our patent claim. The European opposition is pending before the European Patent Office and was instituted on March 2, 2000. The principal parties are RadioTherapeutics and RITA. The factual basis underlying the claim is the allegation by RadioTherapeutics that our European patent is not valid. In the opposition, RadioTherapeutics seeks to have our patent declared invalid and to have our patent cancelled. We are defending our patent and seek to defend it as issued. In addition to these patent proceedings, 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
John Gilbert..................... 63 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.
John Gilbert has served as a member of our board of directors since May 2000. From 1992 to July 1999 he served as Vice Chairman of Keravision, Inc., a medical device company. Prior to that, Mr. Gilbert retired from Johnson & Johnson in 1992 after 30 years where he served as Vice President of Sales at Ethicon, Inc., Vice President of Johnson & Johnson International and Vice Chairman of Iolab Corporation. Mr. Gilbert holds a B.S. from Texas A&M University.
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 seven 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 John Gilbert, 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, Barry Cheskin, 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 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 March 16, 1999, the vesting start date. Mr. Russell was granted options to purchase common stock under the 1994 incentive stock plan on two occasions. In October 1994 Mr. Russell was granted 7,500 shares at an exercise price of $.80 and 1/48th of such shares will vest each month after July 1, 1994, the vesting start date. In January 1997, Mr. Russell was granted 7,656 shares at an exercise price of $.50 and 1/48th of such shares will vest each month after October 10, 1994, the vesting start date. On May 17, 2000, Mr. Gilbert was granted options to purchase 25,000 shares of common stock under the 1994 incentive stock plan at an exercise price of $3.33 and 1/48th of such shares will vest each month beginning on May 17, 2000.
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. Mr. Halsted is a General Partner at Morgan Stanley Dean Witter Venture Partners and, until January 2000, Mr. 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 most highly compensated executive officers, each of whose total annual compensation exceeded $100,000 in 1999.
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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(1) Mr. Cheskin received a $42,000 housing allowance, a $9,000 auto allowance, and a $26,075 relocation reimbursement. In lieu of his 1999 cash bonus, the board of directors allowed Mr. Cheskin to continue to receive his housing allowance through December 31, 2000.
(2) Mr. Steckel received a $30,000 signing bonus of which $10,000 was earned in 1999.
(3) Mr. Johnson received a $15,000 signing bonus which was earned in 1999.
(4) Mr. 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 this individual during the year.
Individual Grants
-----------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to for Option 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 $1,130,239 $1,799,717
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(1) This stock option, which was granted under our 1994 plan vests in accordance with the following schedule: 50% of the total number of shares of common stock vested on May 5, 1997 and 1/48 began vesting on May 5, 1999, and shall continue to vest as long as Mr. Cheskin remains an employee with, consultant to, or director of RITA.
(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 $12.00 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 1,367,119 120,425 197,651 $1,324,675 $2,232,904
Marilynne Solloway...... -- -- 44,693 62,571 491,623 688,182
Daniel Balbierz......... -- -- 44,687 62,562 491,623 688,281
Ronald Steckel.......... -- -- 34,965 58,275 384,615 641,025
Russell Johnson......... -- -- 31,875 58,125 350,625 639,375
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(1) Assumes that the fair market value at the time of exercise was equal to the assumed initial public offering price of $12.00 per share.
(2) The value of unexercised in-the-money options held at December 31, 1999 represents the total gain which an option holder would realize if he or she exercised all of the in-the-money options held at December 31, 1999, and is determined by multiplying the number of shares of common stock underlying the options by the difference between an assumed initial public offering price of $12.00 per share and the per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise of the option.
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.
In addition, we have entered into change of control agreements with our officers that provide the following benefits upon the sale or merger of RITA. These benefits will not apply if we commence substantive discussions with a potential acquiror prior to November 26, 2000. In the event that we consummate a change of control transaction, 50 percent of any unvested options held by our officers shall become fully vested and immediately exercisable and repurchase rights retained by us with respect to 50 percent of the restricted stock held by our officers shall immediately lapse. In addition, on each one month anniversary following the effective date of a change of control transaction, 1/12th of the remaining unvested options held by our officers shall become fully vested and immediately exercisable and repurchase rights retained by us with respect to 1/12th of any remaining restricted stock held by our officers shall immediately lapse.
If the officer is involuntarily terminated within twelve (12) months of the change of control transaction, all unvested options held by our officers shall become fully vested and immediately exercisable and all repurchase rights retained by us with respect to the restricted stock held by our officers shall immediately lapse. If the officer voluntarily resigns or is terminated for cause after the change of control, then the officer is not entitled to any acceleration of the vesting of options or lapse of repurchase rights with respect to restricted stock.
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 us 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 employees 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 structure. 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 by the board of directors, the directors' plan will terminate in 2010.
The directors' plan provides that each person who becomes a non-employee 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 non-employee director who has been a member of the board of directors for at least six months will be granted a nonstatutory stock option to purchase 5,000 shares of common stock. Members of the board who were non-employee directors on the date of this offering shall receive a nonstatutory stock option to purchase an additional 2,000 shares of common stock. 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 on the date of grant and will generally be nontransferable. If a non-employee 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 structure. 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 1,855,616 shares of common stock were outstanding under the 1994 plan at a weighted average exercise price of $1.01 per share, 708,932 shares had been issued upon exercise of outstanding options or pursuant to restricted stock purchase agreements, and 293,900 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
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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 at an exercise price of $4.58 per share issued to Sequoia Capital VI in October 1997;
. a warrant for 200 shares of Series E preferred stock at an exercise price of $4.58 per share issued to Sequoia 1995, L.L.C. in October 1997;
. a warrant for 250 shares of Series E preferred stock at an exercise price of $4.58 per share issued to Sequoia Technology Partners in October 1997;
. a warrant for 21 shares of Series E preferred stock at an exercise price of $4.58 per share issued to Delphi BioInvestments II, L.P. in October 1997;
. a warrant for 4,183 shares of Series E preferred stock at an exercise price of $4.58 per share issued to Delphi Ventures II, L.P. in October 1997; and
. a warrant for 4,205 shares of Series E preferred stock at an exercise price of $4.58 per share 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."
On August 2, 1994, we entered into a cross-license agreement with VIDAMed, whose founder Stuart Edwards was also one of our founders. Under this agreement, we granted VIDAMed an exclusive royalty-free license to use our technology for certain applications in exchange for an exclusive license to use VIDAMed's technology for certain applications. Until August 2, 2004 or until our payments total $500,000, we are required to pay VIDAMed a royalty of 2.5% of net sales on products developed incorporating the VIDAMed technology.
On January 25, 2000, we granted the following officers options to purchase common stock at an exercise price of $1.00 per share:
. Barry Cheskin was granted 68,983 shares;
. Daniel Balbierz was granted 33,000 shares;
. Russell Johnson was granted 21,000 shares;
. Marilynne Solloway was granted 33,000 shares; and
. Ronald Steckel was granted 18,000 shares.
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 a performance-based bonus determined in accordance with achievement of 1999 company and individual objectives in the form of grants of options or restricted stock out of the 1994 incentive stock plan. Following retirement of the 1994 incentive stock plan in connection with this offering, any future grants made from a similar bonus program, if any shall be made out of the 2000 plan. The 1999 bonus program was administered by our Chief Financial Officer. Eligibility to participate was based on the requirement that the employee be employed by us for no less than three months prior to December 31, 1999, and continued to be employed on the date of grant. Employees and officers were eligible to earn up to 10% of the number of options or restricted common stock, as the case may be, that they held as of December 31, 1999. Each officer who was granted restricted stock under this program was permitted to purchase the stock immediately upon grant, subject to the company's right of repurchase. This repurchase right lapses as to 25% of the stock each year on the anniversary dates following January 1, 2000, the vesting start date. In addition, each officer granted stock under this program has executed 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 January 1, 2000, the vesting start date.
The awards granted under the stock bonus programs, up to an additional 10%
of the number of options the individual employee or officer held at the end of
the year, were based on the following criteria for both employees and officers:
one half was based on our performance to objectives, the achievement of which,
and the corresponding percentage allocation, was determined by our compensation
committee in consultation with our Chief Executive Officer. In addition, for
employee stock bonuses, the other half of the bonus was based on each
employee's performance, as determined by his or her immediate supervisor and
our Chief Executive Officer. For our officers the other half of the bonus was
based on each officer's performance, as determined by our Chief Executive
Officer and our compensation committee.
On March 24, 2000, all employees as of October 1, 1999 were granted stock options at an exercise price of $1.67 per share under the employee stock bonus plan and the following officers were sold restricted stock under the officer bonus plan at a price of $1.67 per share:
. Daniel Balbierz purchased 12,624 shares;
. Barry Cheskin purchased 49,500 shares;
. Russell Johnson purchased 11,100 shares;
. Marilynne Solloway purchased 14,028 shares; and
. Ronald Steckel purchased 11,124 shares.
This restricted stock was paid through the issuance of full recourse promissory notes, which bear interest at the rate of 8% per annum, compounded semiannually, on the unpaid balance of such principal sum. The principal and interest under these notes 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 date when vesting begins, or the date of termination of the employment of the officer or services of the director. These shares are subject to repurchase by us at the original issuance price in the event of the termination of employment or consulting relationship with us. This right of repurchase lapses in regards to 1/4th of the shares each annual anniversary beginning on January 1, 2001.
On March 24, 2000, in connection with their initial hire we granted the following officers options to purchase common stock at an exercise price of $1.67 per share:
. Vicki Hacker was granted 96,000 shares; and
. David Martin was granted 180,000 shares.
On May 17, 2000, we granted John Gilbert options to purchase 25,000 shares of common stock at an exercise price of $3.33 per share.
Nissho Iwai Corporation is both a 5% stockholder of ours and our distribution partner 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed 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.
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 13,538,948 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
Options
Percent of Common Stock Number of Exercisable
Beneficially Owned Shares Within 60
Number of Shares ------------------------------ Subject to Days of
Name and Address of of Common Stock Repurchase March 31,
Beneficial Owner Beneficially Owned Before Offering After Offering by us(1) 2000
------------------------ ------------------ --------------- -------------- ---------- -----------
Janet Effland(2)........ 1,963,635 19.4% 14.5% -- --
Scott Halsted(3)........ 1,636,362 16.1 12.1 -- --
Barry Cheskin........... 519,794 5.0 3.8 49,500 170,297
Gordon Russell(4)....... 97,375 1.0 * -- 15,156
Daniel Balbierz......... 75,608 * * 12,624 62,984
Marilynne Solloway...... 74,019 * * 14,028 10,829
Ronald Steckel.......... 73,051 * * 11,124 46,927
Russell Johnson......... 69,975 * * 11,100 25,875
Vincent Bucci........... 17,750 * * -- 8,750
All directors and
executive officers as a
group (10 persons)..... 4,497,569 44.4 33.2 -- 340,818
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(1) Our right to repurchase these shares shall lapse as to 1/4th of these shares on each annual anniversary beginning January 1, 2001.
(2) 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.
(3) 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.
(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. 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% 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% 14.5%
2100 Geng Road, Suite 150
Palo Alto, California 94303
Entities affiliated with
Morgan Stanley
Dean Witter Venture
Partners(2)............... 1,636,362 16.1 12.1
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Entities affiliated with
BankAmerica Ventures(3).... 872,727 8.6 6.4
950 Tower Lane, Suite 700
Foster City CA 94404
Entities affiliated with
Sequoia Capital(4)......... 827,718 8.2 6.1
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Entities affiliated with
Delphi Ventures(5)......... 701,048 6.9 5.2
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Mohr, Davidow Ventures III,
L.P.(6).................... 701,053 6.9 5.2
2775 Sand Hill Road, Suite
240
Menlo Park, CA 94025
Entities affiliated with
Nissho Iwai
Corporation(7)............. 535,696 5.3 4.0
c/o Nissho Iwai American
Corporation
44 Montgomery Street, Suite
2150
San Francisco, CA 94104
Barry Cheskin(8)............ 519,794 5.0 3.8
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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. The other general partners of APA Excelsior V, L.P., the P/A Fund III, L.P. and Patricof Private Investment Club II, L.P are Gregory M. Case, Robert M. Chefitz, Thomas P. Hirschfeld, George M. Jenkins, David A. Landau, Alan J. Patricof, George D. Phipps, Lori G. Rafield, Ph.D, Salem D. Shuchman and Paul A. Vais. In addition, the P/A Fund III, L.P. is co-managed by Adams Capital Management whose general partners are Joe Adams and William Hulley. 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 and is the only general partner who controls these funds. 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. The general partners of both Bank of America Ventures and BA Venture Partners IV are Kate Mitchell, Robert Obuch, Rory O'Driscoll, Louis Bock, Mark Brooks and John Dougery.
(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. The general partners of Sequoia Capital VI are Pierre Lamond, Douglas Leone, J. Thomas McMurray, Michael Moritz, Mark Stevens, Thomas F. Stephenson and Donald T. Valentine. The general partners of Sequoia Technology Partners VI are Douglas, Leone, J. Thomas McMurray, Michael Moritz, Mark Stevens and Thomas F. Stephenson.
(5) Includes 2,308 shares and 698,740 shares held by Delphi BioInvestments II, L.P. and Delphi Ventures II, L.P., respectively. The general partners of Delphi BioInvestments II, L.P. and Delphi Ventures II, L.P. are James J. Bochnowski, David L. Douglass and Donald J. Lothrop.
(6) Mohr, Davidow Ventures III, L.P. is managed by WLPJ Partners whose general partners are William J. Davidow, Lawrence G. Moore, Jr., Nancy J. Schoendors and Jonathan D. Selber.
(7) Includes 317,514 shares and 218,182 shares hold by Nissho Iwai Corporation and Nissho Iwai American Corporation, respectively.
(8) Includes 49,500 shares 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 as to 1/4th of these shares on each annual anniversary beginning January 1, 2001. 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.
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 1,855,616 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 17 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 8,934,628 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 13,538,948 outstanding shares of common stock or 14,048,948 shares if the underwriters exercise the over-allotment option in full. Of these shares, the 3,400,000 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 3,400,000 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.
. Beginning 180 days after the effective date, approximately all of the remaining 10,138,948 shares will be eligible for sale.
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-United States 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
---- ---------
Salomon Smith Barney Inc. .........................................
FleetBoston Robertson Stephens Inc. ...............................
----
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 seven percent of the common shares 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................................................. $ $
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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 $1,200,000. 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. Legal matters with respect to information contained in the prospectus under the captions "Risk Factors -- 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, "Product introductions may be delayed or canceled as a result of the FDA regulatory process which could cause our sales to be below expectations," and "Business--Government Regulation" will be passed upon for us by Olson, Frank and Weeda, P.C., 1400 Sixteenth Street, N.W., Suite 6400, Washington, D.C. 20036. 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 at an exercise price of $1.00 per share.
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 and Comprehensive Loss............................ 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 and comprehensive loss, 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
------------------ March 31, March 31,
1998 1999 2000 2000
-------- -------- --------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents........ $ 5,322 $ 7,067 $ 9,772
Marketable securities............ 2,322 5,086 2,237
Accounts receivable, net of
allowance for doubtful accounts
of $29, $54 and $63 at December
31, in 1998 and 1999 and March
31, 2000, respectively.......... 288 1,149 1,434
Inventories, net................. 252 845 883
Prepaid assets and other current
assets.......................... 558 616 600
-------- -------- --------
Total current assets........... 8,742 14,763 14,926
Property, plant and equipment,
net.............................. 248 875 939
Other assets...................... 19 67 65
-------- -------- --------
Total assets................... $ 9,009 $ 15,705 $ 15,930
======== ======== ========
Liabilities, Convertible Preferred
Stock and Stockholders' Equity
(Deficit)
Current Liabilities:
Accounts payable................. $ 210 $ 892 $ 779
Accrued liabilities.............. 964 956 1,067
Current portion of term loan..... -- 312 818
Current portion of capital lease
obligations..................... 8 166 263
-------- -------- --------
Total current liabilities...... 1,182 2,326 2,927
Long-term notes payable........... -- 1,091 1,987
Revolving term loan............... -- 532 1,002
Capital lease obligations, net of
current portion.................. -- 231 336
-------- -------- --------
Total liabilities.............. 1,182 4,180 6,252
-------- -------- --------
Commitments and contingency (Note
5)
Convertible preferred stock,
$0.001 par value;
Authorized: 13,725 shares at
December 31, 1998 and 15,166
shares at December 31, 1999 and
March 31, 2000
Issued and outstanding: 6,398
shares at December 31, 1998,
8,580 shares at December 31,
1999 and March 31, 2000
(unaudited) and none pro forma
(Liquidation value: $38,383).... 27,964 37,911 37,910 $ --
Preferred stock warrants (Note
6).............................. 373 605 605 --
-------- -------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value
Authorized: 30,000 shares
Issued and outstanding: 778
shares at December 31, 1998,
927 shares at December 31,
1999, 1,204 shares at March
31, 2000 (unaudited) and
10,139 shares pro forma
(unaudited).................... 1 1 1 10
Additional paid-in capital....... 1,538 2,862 8,850 47,356
Deferred stock-based
compensation.................... (933) (1,146) (5,873) (5,873)
Stockholder note receivable...... -- (73) (238) (238)
Accumulated other comprehensive
income (loss)................... 2 (7) (7) (7)
Accumulated deficit.............. (21,118) (28,628) (31,570) (31,570)
-------- -------- -------- --------
Total stockholders' equity
(deficit)..................... (20,510) (26,991) (28,837) $ 9,678
-------- -------- -------- ========
Total liabilities, convertible
preferred stock and warrants
and stockholders' equity
(deficit)..................... $ 9,009 $ 15,705 $ 15,930
======== ======== ========
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
Years Ended December Three Months Ended
31, March 31,
------------------------- ---------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(unaudited)
Sales......................... $ 220 $ 1,137 $ 4,629 $ 837 $ 1,841
Cost of goods sold (inclusive
of stock-based compensation
of $0, $25 and $107 in 1997,
1998 and 1999, respectively,
and $25 and $105 for the
three months ended March 31,
1999 and 2000 respectively... 589 1,523 2,994 690 1,182
------- ------- ------- ------- -------
Gross profit (loss)......... (369) (386) (1,635) 147 659
------- ------- ------- ------- -------
Operating expenses:
Research and development
(inclusive of stock-based
compensation of $14, $186 and
$354 in 1997, 1998 and 1999,
respectively, and $80 and
$308 for the three months
ended March 31, 1999 and
2000, respectively).......... 2,486 2,729 3,931 737 1,631
Selling, general and
administrative (inclusive of
stock-based compensation of
$25, $192 and $530 in 1997,
1998 and 1999, respectively,
and $115 and $508 for the
three months ended March 31,
1999 and 2000,
respectively)................ 2,829 3,606 5,452 1,338 2,005
------- ------- ------- ------- -------
Total operating expenses.... 5,315 6,335 9,383 2,075 3,636
------- ------- ------- ------- -------
Loss from operations.......... (5,684) (6,721) (7,748) (1,928) (2,977)
Interest income............... 40 342 446 84 170
Interest expense.............. (138) (359) (212) (12) (133)
Other income (expense), net... (78) (11) 4 (2) (2)
------- ------- ------- ------- -------
Net loss...................... (5,860) (6,749) (7,510) (1,858) (2,942)
Other comprehensive income
(expense):
Change in unrealized gain
(loss) on marketable
securities................. -- 2 (9) -- --
------- ------- ------- ------- -------
Comprehensive loss............ $(5,860) $(6,747) $(7,519) $(1,858) $(2,942)
======= ======= ======= ======= =======
Net loss per common share,
basic and diluted............ $(11.02) $(10.10) $ (9.33) $ (2.39) $ (2.89)
======= ======= ======= ======= =======
Shares used in computing net
loss per share, basic and
diluted...................... 532 668 805 779 1,017
Pro forma net loss per share,
basic and diluted
(unaudited).................. $ (0.90) $ (0.30)
======= =======
Shares used in computing pro
forma net loss per share,
basic and diluted
(unaudited).................. 8,355 9,951
|
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 and the three months ended March 31, 2000
(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)
Stock options
exercised.............. 277 -- 340 (165) 175
Deferred stock-based
compensation........... 5,648 (5,648) --
Amortization of deferred
stock-based
compensation........... 921 921
Net loss................ (2,942) (2,942)
----- --- ------ ------- ----- --- -------- --------
Balances, March 31, 2000
(unaudited)............ 1,204 $1 $8,850 $(5,873) $(238) $(7) $(31,570) $(28,837)
===== === ====== ======= ===== === ======== ========
|
The accompanying notes are an integral part of these financial statements.
RITA Medical Systems, Inc. Statements of Cash Flows
(in thousands)
Three Months Ended
Year Ended December 31, March 31,
------------------------- --------------------
1997 1998 1999 1999 2000
------- ------- ------- --------- ---------
(unaudited)
Cash flows from operating
activities:
Net loss.................... $(5,860) $(6,749) $(7,510) $ (1,858) $ (2,942)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 251 621 399 61 172
Preferred stock issued for
interest payable.......... -- 15 -- -- --
Issuance of common stock
for services received..... -- -- 2 -- --
Allowance for doubtful
accounts.................. -- 29 25 7 9
Provision for obsolete
inventory................. -- 52 105 132 8
Amortization of stock-
based compensation........ 39 403 991 220 921
Changes in operating
assets and liabilities:
Accounts receivable...... (110) (207) (886) (389) (294)
Inventory................ (130) (174) (698) (250) (46)
Prepaid and other
current assets.......... 110 (525) 26 328 (99)
Accounts payable and
accrued liabilities..... (37) 524 674 (37) (2)
------- ------- ------- --------- ---------
Net cash used in
operating activities.. (5,737) (6,011) (6,872) (1,786) (2,273)
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment.................. (225) (120) (441) (55) --
Purchase of short-term
investments................ -- (3,853) (7,061) (877) (707)
Maturities of short-term
investments................ -- 1,532 4,290 676 3,556
Notes receivable and other
assets..................... (30) 152 (48) -- 2
------- ------- ------- --------- ---------
Net cash provided by (used
in) investing
activities................ (255) (2,289) (3,260) (256) 2,851
------- ------- ------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
common stock............... 37 108 45 2 175
Proceeds from issuance of
preferred stock............ -- 15,128 9,947 -- (1)
Proceeds from borrowings of
long-term debt............. 2,333 500 1,500 -- 1,500
Proceeds from revolving term
loan....................... -- -- 532 -- 470
Payments on capital lease
obligations................ (22) (31) (147) (33) (17)
Payments on long-term debt.. -- (2,230) -- -- --
------- ------- ------- --------- ---------
Net cash provided by
financing activities...... 2,348 13,475 11,877 (31) 2,127
------- ------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... (3,644) 5,175 1,745 (2,073) 2,705
Cash and cash equivalents at
beginning of year............ 3,791 147 5,322 5,322 7,067
------- ------- ------- --------- ---------
Cash and cash equivalents at
end of year.................. $ 147 $ 5,322 $ 7,067 $ 3,249 $ 9,772
======= ======= ======= ========= =========
Supplemental disclosures of
cash flow information:
Cash paid for taxes......... $ 1 $ 1 $ 2 $ 1 $ 3
Cash paid for interest...... 138 103 183 12 113
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............. -- -- 557 395 259
|
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 interim results
The accompanying interim financial statements and the related notes as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows as of March 31, 2000 and for the three months ended March 31, 1999 and 2000. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000.
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.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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.
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.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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 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, basic
and diluted..................................... 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
===== ===== =====
|
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.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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
==== ====
|
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 1998. Additionally, certain investors of the
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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 and warrants to purchase 25,000 shares of Series C 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 $4.5833 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.
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 $4.5833 per share (Note 6).
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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 Book Liquidation
1998 Authorized Shares Value Value
---- ---------- ------ ------- -----------
Series A............................... 1,500 745 $ 5,773 $ 5,811
Series B............................... 2,500 1,415 1,416 1,489
Series C............................... 2,500 1,064 5,132 5,318
Series D............................... 425 225 2,205 2,250
Series E............................... 6,800 2,949 13,438 13,515
------ ----- ------- -------
13,725 6,398 $27,964 $28,383
====== ===== ======= =======
Shares Issued
and
Outstanding
Number of -------------- Minimum
Shares Book Liquidation
1999 Authorized Shares Value Value
---- ---------- ------ ------- -----------
Series A............................... 1,242 745 $ 5,773 $ 5,811
Series B............................... 2,359 1,415 1,416 1,489
Series C............................... 1,845 1,064 5,132 5,318
Series D............................... 375 225 2,205 2,250
Series E............................... 9,345 5,131 23,385 23,515
------ ----- ------- -------
15,166 8,580 $37,911 $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. Dividends for the Series D and Series E Stockholders become cumulative on December 31, 2000 if the Company's common stock is not traded on a stock exchange.
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 $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
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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. The conversion terms of Series A, Series C and Series D Preferred Stock were modified based on price based anti-dilution rights in the articles of incorporation.
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. The aggregate fair value of the warrants, as determined using the Black-Scholes method, was $20,020. 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 aggregate fair value of these warrants of $321,920 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.
In connection with a September 1998 capital lease agreement, the Company issued warrants to purchase 10,909 shares of Series E preferred stock at $4.5833 per share. These warrants expire in September 2006. The aggregate fair value of these warrants was $31,273 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.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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, 42,546 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 $1.41
Additional shares reserved........... 455
Options granted...................... (743) 743 234 0.31
Options exercised.................... (64) (37) 0.58
Options canceled..................... 26 (26) (17) 0.65
---- ----- ------
Balances, December 31, 1997............ 420 851 459 0.54
Additional shares reserved........... 600
Options granted...................... (769) 769 769 1.00
Options exercised.................... -- (196) (106) 0.54
Options canceled..................... 64 (64) (38) 0.59
---- ----- ------
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) 0.94
---- ----- ------
Balances, December 31, 1999............ 65 1,462 1,251 0.86
Additional shares reserved........... 900
Options granted...................... (710) 710 1,011 1.42
Options exercised.................... -- (277) (340) 1.23
Options canceled..................... 39 (39) (39) 1.00
---- ----- ------ -----
Balances, March 31, 2000 (unaudited)... 294 1,856 $1,883 $1.01
==== ===== ======
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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
$0.5000.................. 386 7.06 years $0.5000 301 $0.5000
$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
===== ===
|
The options outstanding and currently exercisable by exercise price and at March 31, 2000 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 4.19 years $0.0133 1 $0.0133
$0.5000.................. 362 6.79 years $0.5000 309 $0.5000
$0.8000.................. 86 5.57 years $0.8000 86 $0.8000
$1.0000.................. 1,066 9.14 years $1.0000 326 $1.0000
$1.6667.................. 341 9.98 years $1.6667 0 $1.6667
----- ---
1,856 722
===== ===
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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.
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%
|
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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, and $220,000 and $921,000 for the three month periods ended March 31, 1999 and 2000.
NOTE 8--INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of deferred tax assets are as follows (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.
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 one of the founders 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.
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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%
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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%
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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
RITA Medical Systems, Inc. Notes to Financial Statements--(Continued)
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 high-power generator is an advance in tissue ablation technology, allowing the physician to create a 5 centimeter diameter 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's record.
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 centimeter StarBurst XL, our newest device, features our space-filling 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
3,400,000 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.......................................... $ 450,000
Accounting fees and expenses..................................... $ 350,000
Blue Sky qualification fees and expenses......................... $ 5,000
Transfer Agent and Registrar fees................................ $ 15,000
Miscellaneous fees and expenses.................................. $ 65,101
----------
Total.......................................................... $1,200,000
==========
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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 for cash the following unregistered securities which were exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering:
(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 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.
(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.
II-1
(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, 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 1,855,616 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 Schedule
(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 Delaware 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 and an Amendment to the Bylaws.
+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 Sixth Amended and Restated Shareholder Rights Agreement dated May 26,
2000 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(a) Master Lease Agreement with Brown Mountain View Joint Venture dated
July 12, 1994 and extension of Master Lease Agreement dated May 12,
1999.
10.6(b) Standard Sublease Agreement with Computer LANscapes, Inc. (now
Cohesive Technology Solutions, Inc.) dated January 13, 1997,
extension to Sublease Agreement dated June 22, 1999, Addendum Number
One to Sublease dated January 21, 1997 and Addendum Number Two to
Sublease Agreement dated February 19, 1999.
+10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors.
+10.8 Employment Agreement with Barry Cheskin dated March 21, 1997.
+10.9 Employment Agreement with Ronald Steckel dated May 26, 1998.
+10.10 Employment Agreement with David Martin dated February 11, 2000.
10.11 Form of Change of Control Agreement entered into between the Company
and it officers.
*10.12 Distribution Agreement with Nissho Iwai Corporation for Japan dated
December 1, 1997.
*10.13 Distribution Agreement with Nissho Iwai Corporation for South Korea
dated March 12, 1999.
*10.14 Distribution Agreement with MDH s.r.1. Forniture Ospedaliere for
Italy and Switzerland dated December 21, 1998.
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.
|
+ Previously filed.
* Material has been omitted pursuant to a request for confidential treatment and such material has been filed separately with the SEC.
II-3
(b) Financial Statement Schedule
Report of Independent Accountants........................................ S-1 Schedule II -- Valuation and Qualifying Accounts......................... S-2 |
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.
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 amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Menlo Park, State of California, on June 14, 2000.
RITA MEDICAL SYSTEMS, INC.
/s/ Barry Cheskin
By: _________________________________
Barry Cheskin
President and Chief Executive
Officer
|
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 June 14, 2000
___________________________________ Executive Officer
Barry Cheskin and Director (Principal
Executive
Officer)
/s/ Marilynne Solloway Chief Financial Officer June 14, 2000
___________________________________ (Principal
Marilynne Solloway Financial and
Accounting Officer)
* Director June 14, 2000
___________________________________
Gordon Russell
* Director June 14, 2000
___________________________________
Scott Halsted
* Director June 14, 2000
___________________________________
Janet Effland
* Director June 14, 2000
___________________________________
Vincent Bucci
|
* Power of attorney.
/s/ Marilynne Solloway *By_______________________ |
Marilynne Solloway Attorney-
in-Fact
II-5
Report of Independent Accountants
To the Board of Directors and Stockholders of RITA Medical Systems, Inc.
Our audits of the financial statements referred to in our report dated April 10, 2000 appearing in the Form S-1 of RITA Medical Systems, Inc. also included an audit of the financial statement schedule listed in Item 16(b) of this Form S-1. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
PricewaterhouseCoopers LLP
San Jose, California
April 10, 2000
RITA Medical Systems, Inc.
Schedule II--Valuation & Qualifying Accounts
(in thousands)
Charged Balance
Balance to Costs at End
Beginning and of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- -------
Year Ended December 31, 1997:
Allowance for doubtful accounts....... $ -- $ -- $-- $ --
Inventory reserve..................... $ -- $ -- $-- $ --
Valuation allowance on deferred tax
assets............................... $ 3,391 $2,475 $-- $ 5,866
Year Ended December 31, 1998:
Allowance for doubtful accounts....... $ -- $ 31 $ (2) $ 29
Inventory reserve..................... $ -- $ 52 $-- $ 52
Valuation allowance on deferred tax
assets............................... $ 5,866 $3,129 $-- $ 8,995
Year Ended December 31, 1999:
Allowance for doubtful accounts....... $ 29 $ 27 $ (2) $ 54
Inventory reserve..................... $ 52 $ 144 $(39) $ 157
Valuation allowance on deferred tax
assets............................... $ 8,995 $2,485 $-- $11,480
Three Months Ended March 31, 2000
(unaudited):
Allowance for doubtful accounts....... $ 54 $ 9 $-- $ 63
Inventory reserve..................... $ 157 $ 26 $(18) $ 165
Valuation allowance on deferred tax
assets............................... $11,840 $ 808 $-- $12,648
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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 Delaware 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 and an Amendment to the Bylaws.
+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 Sixth Amended and Restated Shareholder Rights Agreement dated May 26,
2000 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(a) Master Lease Agreement with Brown Mountain View Joint Venture dated
July 12, 1994 and extension of Master Lease Agreement dated May 12,
1999.
10.6(b) Standard Sublease Agreement with Computer LANscapes, Inc. (now
Cohesive Technology Solutions, Inc.) dated January 13, 1997,
extension to Sublease Agreement dated June 22, 1999, Addendum Number
One to Sublease dated January 21, 1997 and Addendum Number Two to
Sublease Agreement dated February 19, 1999.
+10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors.
+10.8 Employment Agreement with Barry Cheskin dated March 21, 1997.
+10.9 Employment Agreement with Ronald Steckel dated May 26, 1998.
+10.10 Employment Agreement with David Martin dated February 11, 2000.
10.11 Form of Change of Control Agreement entered into between the Company
and it officers.
*10.12 Distribution Agreement with Nissho Iwai Corporation for Japan dated
December 1, 1997.
*10.13 Distribution Agreement with Nissho Iwai Corporation for South Korea
dated March 12, 1999.
*10.14 Distribution Agreement with MDH s.r.1. Forniture Ospedaliere for
Italy and Switzerland dated December 21, 1998.
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.
|
+ Previously filed.
* Material has been omitted pursuant to a request for confidential treatment and such material has been filed separately with the SEC.
1
[Draft -- 6/9/00]
EXHIBIT 1.1
RITA Medical Systems, Inc.
[ ] Shares/1/
Common Stock
($.001 par value)
Underwriting Agreement
New York, New York
, 2000
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
RITA Medical Systems, Inc., a corporation organized under the
laws of Delaware (the "Company"), proposes to sell to the several
underwriters named in Schedule I hereto (the "Underwriters"), for whom you
(the "Representatives") are acting as representatives, [ ]
shares of Common Stock, $.001 par value ("Common Stock") of the Company
(said shares to be issued and sold by the Company being hereinafter called
the "Underwritten Securities"). The Company also proposes to grant to the
Underwriters an option to purchase up to [ ] additional shares
of Common Stock to cover over-allotments (the "Option Securities"; the
Option Securities, together with the Underwritten Securities, being
hereinafter called the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the
terms Representatives and Underwriters shall mean either the singular or
plural as the context requires. Certain terms used herein are defined in
Section 17 hereof.
2 As part of the offering contemplated by this Agreement, Salomon Smith Barney Inc. has agreed to reserve out of the Securities set forth opposite its name on the Schedule II to this Agreement, up to [ ] shares, for sale to the Company's employees, officers, and directors and other parties associated with the Company (collectively, "Participants"), as set forth in the Prospectus under the heading "Underwriting" (the "Directed Share Program"). The Securities to be sold by Salomon Smith Barney Inc. pursuant to the Directed Share Program (the "Directed Shares") will be sold by Salomon Smith Barney Inc. pursuant to this Agreement at the public offering price. Any Directed Shares not orally confirmed for purchase by any Participants by the end of the business day on which this Agreement is executed will be offered to the public by Salomon Smith Barney Inc. as set forth in the Prospectus.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(a) The Company has prepared and filed with the Commission a registration statement (file number ) on Form S-1, including a related preliminary prospectus, for registration under the Act of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including a related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission either (1) prior to the Effective Date of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (2) after the Effective Date of such registration statement, a final prospectus in accordance with Rules 430A and 424(b). In the case of clause (2), the Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the rules thereunder to be included in such registration statement and the Prospectus. As filed, such amendment and form of final prospectus, or such final prospectus, shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date (as defined herein) and on any date on which Option Securities are purchased, if such date is not the Closing Date (a "settlement date"), the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Act and the rules thereunder; on the Effective Date and at the Execution Time, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date of any filing pursuant
3 to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement, or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of California, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Registration Statement and Prospectus (and any amendment or supplement thereto), and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification.
(d) The Company does not have any subsidiaries.
(e) The Company's authorized equity capitalization is as set forth in the Prospectus and the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus; the outstanding shares of Common Stock have been duly and validly authorized and issued and are fully paid and nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the Securities are duly quoted, and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution, on the Nasdaq National Market; the certificates for the Securities comply with the requirements of Delaware law; the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Securities; and except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any Securities for, shares of capital stock of or ownership interests in the Company are outstanding.
(f) There is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required; and the statements in the Prospectus insofar as such statements summarize legal matters, agreements, documents, or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings.
(g) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable in accordance with its terms.
4 (h) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Prospectus.
(j) Neither the issue and sale of the Securities nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to (1) the charter or bylaws of the Company, (2) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company is a party or bound or to which its property is subject or (3) any statute, law, rule, regulation, judgment, order or decree applicable to the Company of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its properties.
(k) Except as disclosed in the Prospectus, no holders of securities of the Company have rights to the registration of such securities under the Registration Statement.
(l) The historical financial statements and schedules of the Company included in the Prospectus and the Registration Statement present fairly in all material respects the financial condition, results of operations and cash flows of the Company as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The selected financial data set forth under the caption "Selected Financial Data" in the Prospectus and Registration Statement fairly present, on the basis stated in the Prospectus and the Registration Statement, the information included therein.
(m) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or its property is pending or, to the best knowledge of the Company, threatened that (1) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (2) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of
5 business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(n) The Company owns or leases all such real property as are necessary to the conduct of its operations as presently conducted.
(o) The Company is not in violation or default of (1) any provision of its charter or bylaws, (2) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject, or (3) any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its properties, as applicable, except, in the case of clauses (2) and (3) above, for such violations or defaults, which would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company.
(p) PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and delivered their report with respect to the audited consolidated financial statements and schedules included in the Prospectus, are independent public accountants with respect to the Company within the meaning of the Act and the applicable published rules and regulations thereunder.
(q) There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance by the Company or sale by the Company of the Securities.
(r) The Company has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(s) No labor problem or dispute with the employees of the Company exists or is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, contractors or customers, that could have a material adverse effect on the
6 condition (financial or otherwise), prospects, earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(t) The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the business in which it engages; all policies of insurance and fidelity or surety bonds insuring the Company or its respective businesses, assets, employees, officers and directors are in full force and effect; the Company is in compliance with the terms of such policies and instruments in all material respects; and there are no claims by the Company under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(u) The Company possesses all licenses, certificates, permits and other authorizations issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its respective businesses, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(v) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (1) transactions are executed in accordance with management's general or specific authorizations; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (3) access to assets is permitted only in accordance with management's general or specific authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(w) The Company has not taken, directly or indirectly, any action that has constituted or that was designed to or might reasonably be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
7 (x) The Company (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received and is in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its businesses and (iii) to its knowledge, has not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). The Company has not been named as a "potentially responsible party" under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
(y) In the ordinary course of its business, the Company periodically reviews the effect of Environmental Laws on the business, operations and properties of the Company in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(z) The Company has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974 ("ERISA") and the regulations and published interpretations thereunder with respect to each "plan" (as defined in Section 3(3) of ERISA and such regulations and published interpretations) in which employees of the Company are eligible to participate and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and such regulations and published interpretations. The Company has not incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA.
(aa) The Company owns, possesses, licenses or has other rights to use, on reasonable terms, all patents, patent applications, trade and service marks, trade
8
and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual
property (collectively, the "Intellectual Property") necessary for the
conduct of the Company's business as now conducted or as proposed in
the Prospectus to be conducted. With respect to such Intellectual
Property, other than as described in the Prospectus (exclusive of any
supplement thereto) under the headings "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," "--Because the medical device
industry is characterized by competing intellectual property, we may
be sued for violating the intellectual property rights of others,"
"Business-Patents and Proprietary Technology" and "--Legal
Proceedings," (1) there are no rights of third parties to any such
Intellectual Property; (2) there is no material infringement by third
parties of any such Intellectual Property; (3) there is no pending or
threatened action, suit, proceeding or claim by others challenging the
Company's rights in or to any such Intellectual Property, and the
Company is unaware of any facts which would form a reasonable basis
for any such claim; (4) there is no pending or threatened action,
suit, proceeding or claim by others challenging the validity or scope
of any such Intellectual Property, and the Company is unaware of any
facts which would form a reasonable basis for any such claim; (5)
there is no pending or threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of
others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim; (6) there is no U.S. patent or
published U.S. patent application which contains claims that dominate
or may dominate any Intellectual Property described in the Prospectus
as being owned by or licensed to the Company or that interferes with
the issued or pending claims of any such Intellectual Property; and
(7) there is no prior art of which the Company is aware that may
render any U.S. patent held by the Company invalid or any U.S. patent
application held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office.
(bb) The statements contained 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," "--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," "--Product introductions or modifications may be delayed or cancelled as a result of the FDA regulatory process which could cause our revenues to be below expectations," "--Our certificate of incorporation and bylaws and Delaware law contain provisions that would discourage a takeover," "Business--Patents and Proprietary Technology," "--Government Regulation," "--Legal Proceedings," "Management--Employment Agreements," "Stock Plans," "Description of Capital Stock," "Shares Eligible for Future Sale" and "United States Tax Consequence to Non-United States Holders", insofar as such statements summarize legal matters, agreements,
9 documents, or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings.
(cc) The Company has such permits, licenses, franchises, authorizations and clearances ("Permits") of governmental or regulatory authorities, including, without limitation, the Food and Drug Administration (the "FDA") of the U.S. Department of Health and Human Services and/or any committee thereof, as are reasonably necessary to own, lease and operate its properties and to conduct its business in the manner described in the Prospectus, subject to such qualifications as may be set forth in the Prospectus, except where such failure to receive such Permits would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto); subject to such qualifications as may be set forth in the Prospectus, the Company has fulfilled and performed all its material obligations with respect to the Permits, and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any Permit, subject in each case to such qualification as may be set forth in the Prospectus. Except as described in the Prospectus, none of the Permits contains any restriction that is materially burdensome to the Company.
(dd) Except to the extent disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), the clinical, pre-clinical and other studies and tests conducted by or on behalf of or sponsored by the Company or in which the Company or the Company's products under development have participated that are described in the Prospectus or the results of which are referred to in the Prospectus were and, if still pending, are being conducted in accordance with standard medical and scientific research procedures. The descriptions of the results of such studies and tests are accurate and complete in all material respects and fairly present the data derived from such studies and tests, and the Company has no knowledge of any other studies or tests the results of which are inconsistent with or otherwise call into question the results described or referred to in the Prospectus. Except to the extent disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), the Company has operated and currently is in compliance in all material respects with all applicable FDA rules, regulations and policies. Except to the extent disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), the Company has not received any notices or other correspondence from the FDA or any other governmental agency requiring the termination, suspension or modification of any clinical or pre- clinical studies or tests that are described in the Prospectus or the results of which are referred to in the Prospectus.]
(ee) The Company (1) does not have any material lending or other relationship with any bank or lending affiliate of Salomon Smith Barney Holdings Inc. or any other underwriter and (2) does not intend to use any of the proceeds
10
from the sale of the Securities hereunder to repay any outstanding debt owed to any affiliate of Salomon Smith Barney Holding Inc. or any other underwriter.
(ff) The Company has not offered, or caused the Underwriters to offer, Securities to any person pursuant to the Direct Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the company or its products.
Furthermore, the Company represents and warrants to Salomon Smith Barney Inc. that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States.
Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[ ] per share, the amount of the Underwritten Securities set forth opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to [ ] Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Company setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.
11
3. Delivery and Payment. Delivery of and payment for the Underwritten Securities and the Option Securities (if the option provided for in Section 2(b) hereof shall have been exercised on or before the third Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on [ ], 2000 , or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. Delivery of the Underwritten Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the third Business Day prior to the Closing Date, the Company will deliver the Option Securities (at the expense of the Company) to the Representatives, at 388 Greenwich Street, New York, New York, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. If settlement for the Option Securities occurs after the Closing Date, the Company will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant
12
to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will promptly
advise the Representatives (1) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (2) when
the Prospectus, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b) or when any Rule
462(b) Registration Statement shall have been filed with the
Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have
been filed or become effective, (4) of any request by the Commission
or its staff for any amendment of the Registration Statement, or any
Rule 462(b) Registration Statement, or for any supplement to the
Prospectus or for any additional information, (5) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (6) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Securities for sale in any jurisdiction or the institution or
threatening of any proceeding for such purpose. The Company will use
its best efforts to prevent the issuance of any such stop order or the
suspension of any such qualification and, if issued, to obtain as soon
as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act or the rules thereunder, the Company promptly will (1) notify the Representatives of any such event, (2) prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance; and (3) supply any supplemented Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement or statements of the Company which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the Underwriters signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Pro spectus and any supplement thereto as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may
13
designate and will maintain such qualifications in effect so long as required for the distribution of the Securities; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise dispose of, (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company) directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other shares of Common Stock or any securities convertible into, or exercisable, or exchangeable for, shares of Common Stock; or publicly announce an intention to effect any such transaction, for a period of 180 days after the date of the Underwriting Agreement, provided, however, that the Company may issue and sell Common Stock pursuant to any employee stock option plan, stock ownership plan or dividend reinvestment plan of the Company in effect at the Execution Time and the Company may issue Common Stock issuable upon the conversion of securities or the exercise of warrants outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the following matters: (1) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus, and each amendment or supplement to any of them; (2) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (3) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp or transfer taxes in connection with the original issuance and sale of the Securities; (4) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (5) the registration of the Securities under the Exchange Act and the quoting of the Securities on the
14
Nasdaq National Market; (6) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such registration and qualification); (7) any filings required to be made with the National Association of Securities Dealers, Inc. (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such filings); (8) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Securities; (9) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company; and (10) all other costs and expenses incident to the performance by the Company of its obligations hereunder.
(i) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. Salomon Smith Barney Inc. will notify the Company as to which Participants will need to be so restricted. The Company will direct the removal of such transfer restrictions upon the expiration of such period of time.
(j) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with Salomon Smith Barney Inc. that the Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
6. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than (1) 6:00 PM New York City time on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date or (2) 9:30 AM on the Business Day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Prospectus, or any supplement
15
thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have requested and caused Venture Law Group, counsel for the Company, to have furnished to the Representatives their opinion, dated the Closing Date and addressed to the Representatives, to the effect that:
(1) the Company is duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification;
(2) the Company's authorized equity capitalization is as set forth in the Prospectus; the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus; the outstanding shares of Common Stock have been duly and validly authorized and issued and are fully paid and nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the Securities have been approved to be included for quotation on the Nasdaq National Market upon issuance as contemplated by this Agreement; the certificates for the Securities are in valid and sufficient form and conform in all material respects to the requirements of Delaware law; the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding;
(3) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or its property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto), or to be filed as an exhibit thereto, which is not described or filed as required; and the statements included in the Prospectus insofar as such statements summarize legal matters, agreements, documents, or proceedings
16
discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings;
(4) the Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus (other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the rules thereunder; and such counsel has no reason to believe that on the Effective Date or the date the Registration Statement was last deemed amended the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date and on the Closing Date included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion);
(5) this Agreement has been duly authorized, executed and delivered by the Company;
(6) the Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as defined in the Investment Company Act of 1940, as amended;
(7) no consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated in this Agreement and in the Prospectus and such other approvals (specified in such opinion) as have been obtained;
(8) neither the issue and sale of the Securities, nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, (i) the charter or bylaws of the Company, (ii) the terms of any indenture, contract, lease, mortgage,
17
deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company is a party or bound or to which its or their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its properties; and
(9) Except as disclosed in the Prospectus, no holders of securities of the Company have rights to the registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of California or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. References to the Registration Statement or Prospectus in this paragraph (b) include any amendments or supplements thereto at the Closing Date.
(c) The Representatives shall have received from Cravath, Swaine & Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any amendment or supplement thereto) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a certificate of the Company, signed by the President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, any amendments to the Registration Statement, the Prospectus, any supplements to the Prospectus and this Agreement and that:
(1) the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;
(2) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and
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(3) since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto), there has been no material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto).
(e) The Company shall have requested and caused PricewaterhouseCoopers LLP to have furnished to the Representatives, at the Execution Time and at the Closing Date, letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the applicable rules and regulations adopted by the Commission thereunder and that they have performed a review of the unaudited interim financial information of the Company for the 3-month period ended March 31, 2000, and as at March 31, 2000, in accordance with Statement on Auditing Standards No. 71 and stating in effect that:
(1) in their opinion the audited financial statements and financial statement schedules included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the Commission;
(2) on the basis of a reading of the latest unaudited financial statements made available by the Company and its subsidiaries; their limited review in accordance with standards established under Statement on Auditing Standards No. 71, of the unaudited interim financial information for the 3-month period ended March 31, 2000, and as at March 31, 2000, as indicated in their report dated , 2000, carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and audit and compensation committees of the Company; and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries as to transactions and events subsequent to December 31, 1999, nothing came to their attention which caused them to believe that:
(i) any unaudited financial statements included in the Registration Statement and the Prospectus do not comply as to form in all material respects with applicable accounting requirements of the Act and with the related rules and regulations adopted by the Commission with respect to registration statements on Form S-1; and said unaudited financial statements are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial
19
statements included in the Registration Statement and the Prospectus;
(ii) with respect to the period subsequent to March 31, 2000, there were any changes, at a specified date not more than five days prior to the date of the letter, in the working capital of the Company and its subsidiaries or total assets of the Company or decreases in the stockholders' equity of the Company as compared with the amounts shown on the December 31, 1999, balance sheet included in the Registration Statement and the Prospectus, or for the period from April 1, 2000, to such specified date there were any decreases, as compared with the corresponding period in the preceding quarter, in revenues, or increases, as compared with the corresponding period in the preceding quarter, in loss from operations, net loss or basic and diluted loss per share for the Company and its subsidiaries, except in all instances for changes, decreases or increases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives;
(iii) the information included in the Registration
Statement and Prospectus in response to Regulation S-K, Item
301 (Selected Financial Data), Item 302 (Supplementary
Financial Information) and Item 402 (Executive Compensation)
is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
(iv) the unaudited amounts included under "Prospectus Summary--Summary Financial Data" and "Selected Financial Data" do not agree with the amounts set forth in the unaudited financial statements for the same periods or were not determined on a basis substantially consistent with that of the corresponding amounts in the audited financial statements included in the Registration Statement and the Prospectus; and
(3) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Prospectus, including the information set forth under the captions "Prospectus Summary," "Capitalization," Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Prospectus, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation.
20
References to the Prospectus in this paragraph (e) include any supplement thereto at the date of the letter.
The Company shall have received from PricewaterhouseCoopers LLP (and furnished to the Representatives) a report with respect to a review of unaudited interim financial information in the Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company for the four quarters ending March 31, 2000 in accordance with Statement on Auditing Standards No. 71.
(f) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(e) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company, whether
or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto) the effect of which, in any case referred to
in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(g) The Company shall have requested and caused Wilson Sonsini Goodrich & Rosati, a Professional Corporation, patent counsel to the Company, and Olsson, Frank and Weeda, P.C., regulatory counsel to the Company, to have furnished to the Representatives their opinions, dated the Closing Date and addressed to the Representatives, in forms satisfactory to the Representatives.
(h) Prior to the Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Repre sentatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to the Closing Date by the Representatives. Notice of such cancelation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered at the offices of Cravath, Swaine & Moore, counsel for the Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, on the Closing Date.
21
7. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally through Salomon Smith Barney Inc. on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Securities as originally filed or in any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have.
(b) The Company agrees to indemnify and hold harmless Salomon Smith Barney Inc., the directors, officers, employees and agents of Salomon Smith Barney Inc. and each person, who controls Salomon Smith Barney Inc. within the meaning of either the Act or the Exchange Act ("Salomon Smith Barney Inc. Entities"), from and against any and all losses, claims, damages and liabilities to which they may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the prospectus wrapper material prepared by or with the consent of the Company for distribution in foreign jurisdictions in connection with the Directed Share Program attached to the Prospectus or any preliminary prospectus, or arise out of or are based upon
22
the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein, when considered in conjunction with the Prospectus or any applicable preliminary prospectus, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of the securities which immediately following the Effective Date of the Registration Statement, were subject to a properly confirmed agreement to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, provided that, the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of Salomon Smith Barney Inc. specifically for inclusion therein.
(c) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth in the last paragraph of the cover page regarding delivery of the Securities and, under the heading "Underwriting", (i) the list of Underwriters and their respective participation in the sale of the Securities, (ii) the sentences related to concessions and reallowances and (iii) the paragraph related to stabilization, syndicate covering transactions and penalty bids in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above
unless and to the extent it did not otherwise learn of such action and such
failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for
the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right
to employ separate counsel (including local counsel), and the indemnifying
party shall bear the
23
reasonable fees, costs and expenses of such separate counsel if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 8(b) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for
Salomon Smith Barney Inc., the directors, officer, employees and agents of
Salomon Smith Barney Inc., and all persons, if any, who control Salomon
Smith Barney Inc. within the meaning of either the Act or the Exchange Act
for the defense of any losses, claims, damages and liabilities arising out
of the Directed Share Program.
(e) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of
24
the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), 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 not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Under writers) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Company's Common Stock shall have been suspended by the Commission or the Nasdaq National Market or trading in securities generally on the New York Stock Exchange or the Nasdaq National Market shall have been suspended or limited or
25
minimum prices shall have been established on such Exchange or the Nasdaq National Market, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors, employees, agents or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to RITA Medical Systems, Inc., 967 N. Shoreline Blvd., Mountain View, CA 94043, attention: Barry Cheskin and confirmed to Venture Law Group, A Professional Corporation, 2000 Sand Hill Road, Menlo Park, CA 94025, attention: Mark B. Weeks.
13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated.
26
"Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration State ment, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in paragraph 1(a) above and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to in paragraph 1(a) above, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the Act.
"Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
27
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and the several Underwriters.
Very truly yours,
RITA Medical Systems, Inc.
By: ___________________________
Name: Barry Cheskin
Title: President and Chief
Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Fleet Boston Robertson Stephens Inc.
By: Salomon Smith Barney Inc.
By: _______________________
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
|
28
Number of Underwritten
Securities to be
Underwriters Purchased
------------ ----------------------
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
|
Total . . . . . . . . .
29
Salomon Smith Barney Inc.
Total . . . . . . . . .
EXHIBIT A
[Letterhead of officer, director or major shareholder of Corporation]
, 2000
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed Underwriting Agreement (the "Underwriting Agreement"), between RITA Medical Systems, Inc., a California corporation (the "Company"), and each of you as representatives of a group of Underwriters named therein, relating to an underwritten public offering of Common Stock, $0.001 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned will not, without the prior written consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or otherwise dispose of, (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Securities and Exchange Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder with respect to, any shares of capital stock of the Company or any securities convertible into, or exercisable or exchangeable for such capital stock, or publicly announce an intention to effect any such transaction, for a period of 180 days after the date of the Underwriting Agreement. The foregoing sentence shall not apply to
(a) shares of Common Stock disposed of as bona fide gifts, provided that
the subsequent recipients are subject to an agreement similar to this
agreement that is reasonably acceptable to Salomon Smith Barney Inc., (b)
transactions relating to shares of Common Stock and other securities
acquired in open market transactions after the completion of the public
offering, and (c) shares purchased in the reserve share program; provided,
however, that if the undersigned is a[n] (i) officer, (ii) director or
(iii) shareholder that beneficially owns, directly or indirectly, more than
5% of the outstanding Common Stock before or after the acquisition of
Common Stock in the manner described in clauses (b) and (c) above, the
undersigned may not transfer shares of Common Stock acquired in the manner
described in clauses (b) or (c).
If for any reason the Underwriting Agreement shall be terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth above shall likewise be terminated.
Yours very truly,
(Signature)
(Printed Name)
------------------ COMPARISON OF FOOTNOTES ------------------
-FOOTNOTE 1-
/ Plus an option to purchase from the Company, up to [ ] additional Securities to cover over-allotments.
------------------ COMPARISON OF HEADERS ------------------
-HEADER 1-
-HEADER 2-
Header Discontinued
------------------ COMPARISON OF FOOTERS ------------------
-FOOTER 1-
[NYCorp; 1052952.3:4775d: 06/09/00-4:38p]
-FOOTER 2-
[Form 01]
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RITA MEDICAL SYSTEMS, INC.
ARTICLE I
ARTICLE II
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.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows:
(ii) If, upon completion of the distributions required by
Section 2(a)(i), assets or surplus funds remain in this corporation, the holders
of Series B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the remaining assets of
(iv) After the distributions described in Sections 2(a)(i),
(ii) and (iii) have been paid, the remaining assets of the corporation available
for distribution to shareholders shall be distributed equally per share to the
holders of Common Stock.
(i) if traded on a securities exchange, the value shall be deemed to be the average of the last sale prices of the securities on such exchange over the 30-day period ending three (3) business days prior to the closing;
(ii) if actively traded over-the-counter, the value shall be deemed to be the average of the last sale prices over the 30-day period ending three (3) business days prior to the closing; and
(iii) if there is no active public market, the value shall be the fair market value thereof as mutually determined by the corporation and the holders of not less than a majority of the outstanding shares of Preferred Stock, provided that if the corporation and the holders of a majority of the outstanding shares of Preferred Stock are unable to reach agreement,
then by independent appraisal by an investment banker hired and paid by the corporation, but acceptable to the holders of a majority of the outstanding shares of Preferred Stock.
1. all shares of Preferred Stock and Common Stock issued and outstanding on the date this document is filed with the California Secretary of State and all shares of Common Stock issued or issuable upon conversion of Preferred Stock;
2. the warrants dated December 1, 1996, July 30, 1997, October 22, 1997 and January 13, 1998 to purchase Preferred Stock and the Preferred Stock issuable upon exercise of such warrants, and the Common Stock issuable upon conversion of the Preferred Stock issuable upon exercise of such warrants; and
3. all shares of Common Stock or other securities issued or issuable to officers, directors, consultants or employees of the corporation up to an aggregate of 4,764,080 shares which are approved by the Board of Directors. All outstanding shares of Excluded Stock (including shares issuable upon conversion of the Preferred Stock) shall be deemed to be outstanding for all purposes of the computations of subparagraph 4(e)(ii) below.
If the corporation shall issue any Common Stock or securities exercisable for or convertible into Common Stock, other than "Excluded Stock" as defined above, without consideration or for a consideration per share less than the Conversion Price for Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as applicable, in effect immediately prior to the issuance of such Common Stock (excluding stock dividends, subdivisions, split-ups, combinations, dividends or recapitalizations which are covered by Sections 4(e)(iii), (iv), (v) and (vi)), the Conversion Price per share of the Series A Preferred, the Conversion Price per share of the Series B Preferred, the Conversion Price per share of the Series C Preferred, the Conversion Price per share of the Series D Preferred, or the Conversion Price per share of the Series E Preferred, as applicable in effect after each such issuance shall thereafter (except as provided in this Section 4(e)) be adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock, or deemed to have been issued pursuant to subdivision (3) of this clause (ii) and to clause (i)(A) above) immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, plus
(y) the consideration received by the corporation upon such issuance, by
(B) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock or
deemed to have been issued pursuant to subdivision (3) of this clause (ii) and to clause (i)(A) above) immediately prior to such issuance plus the additional shares of Common Stock or securities exercisable for or convertible into Common Stock issued in such issuance (but not including any additional shares of Common Stock deemed to be issued as a result of any adjustment in the Conversion Price resulting from such issuance).
For purposes of any adjustment of the Conversion Price pursuant to clause (ii) above, the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor after deducting any discounts or commissions paid or incurred by the corporation in connection with the issuance and sale thereof.
(3) In the case of the issuance of (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible into or exchangeable for Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities (other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subdivisions (1) and (2) above), if any, received by the corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price per share for the Series A Preferred, the Conversion Price per share for the Series B Preferred, the Conversion Price per share for the Series C Preferred, the Conversion Price per share for the Series D Preferred or the Conversion Price per share for the Series E Preferred, as applicable, shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon (x) the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change or (y) the options or rights related to such securities not converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and
(D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price per share for the Series A Preferred, the Conversion Price per share for the Series B Preferred, the Conversion Price per share for the Series C Preferred, the Conversion Price per share for the Series D Preferred or the Conversion Price per share for the Series E Preferred, as applicable, shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertible or exchangeable securities, as the case may be, been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be.
(iii) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or in any right to acquire Common Stock or by a subdivision or split-up of shares of Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of such series of Preferred Stock shall be increased in proportion to such increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, on the effective date of such combination, the Conversion Price of each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of such series of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(v) In case the corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), or other securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the corporation convertible into or exchangeable for Common Stock), then, in each such case, the holders of shares of Preferred Stock shall, concurrent with the distribution to holders of Common Stock, receive a like distribution based upon the number of shares of Common Stock into which each series of Preferred Stock is convertible.
(vi) In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the corporation (other than as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the corporation with or into another person (other than a consolidation or merger in which the corporation is the continuing entity), or of the sale or other disposition of all or substantially all the properties and assets of the corporation, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the corporation or otherwise to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into Common Stock. The provisions of this clause (vi) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions.
(vii) All calculations under this Section 4 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be.
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in such Conversion Price.
The Company may not authorize any shares of Series D Preferred Stock in addition to those authorized hereunder nor may this paragraph be amended without the prior consent of the holders of a majority of the outstanding Series D Preferred Stock.
the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
(a) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than 50% of the voting power of the corporation is disposed of;
(b) change the rights, preferences, privileges or restrictions of the Preferred Stock;
(c) increase or decrease the aggregate number of authorized shares of
Preferred Stock, other than an increase as provided in either subdivision (b) of
Section 405 or subdivision (c) of Section 902 of the California Corporations
Code;
(d) change the stated minimum or maximum number of authorized directors in the Company's bylaws;
(e) declare or pay dividends on Common Stock;
(f) create a new class or series of shares having rights, preferences or privileges prior to or on parity with the shares of such class or series or increase the rights, preferences or privileges or the number of authorized shares of any class having rights, preferences or privileges prior to or on parity with the shares of such class or series;
(g) Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock otherwise than by conversion in accordance with Section 4 hereof; or
subsidiary pursuant to agreements under which the corporation has the option to repurchase such shares at a cost or at cost plus interest upon the occurrence of certain events, such as the termination of employment; and
So long as at least 1,000,000 shares of Series E Preferred Stock are outstanding, this corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series E Preferred Stock, voting together as a single class, change the rights, preferences, privileges or restrictions of the Series E Preferred Stock.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
********
The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by the Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware.
Executed at Mountain View, California on the 13th day of June, 2000.
/s/: Barry Cheskin ------------------ Barry Cheskin, President /s/: Mark B. Weeks ------------------ Mark B. Weeks, Secretary |
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RITA MEDICAL SYSTEMS, INC.
The undersigned, Barry Cheskin and Mark B. Weeks, hereby certify that:
1. They are the duly elected and acting President and Secretary, respectively, of RITA Medical Systems, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on April 27, 2000 under the name of RITA Medical Systems, Inc.
3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is RITA Medical Systems, Inc. (the "Corporation").
ARTICLE II
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.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
Upon the effective date of the filing of this Certificate of Incorporation, each five (5) shares of the Corporation's outstanding capital stock shall be converted and reconstituted into three (3) shares of capital stock (the "Stock Split"). No further adjustment of any preference or price set forth in this Article IV shall be made as a result of the Stock Split, as all share amounts per share and per share numbers set forth in this Certificate of Incorporation have been appropriately adjusted to reflect the Stock Split.
(A) The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is One Hundred Two Million (102,000,000) shares, each with a par value of $0.001 per share. One Hundred Million (100,000,000) shares shall be Common Stock and Two Million (2,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate pursuant to the applicable law of the state of Delaware and within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
This Article VI shall become effective only when the Corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code (the "Effective Time").
On or prior to the date on which the Corporation first provides notice of an annual meeting of the stockholders following the Effective Time, the Board of Directors of the Corporation shall divide the directors into three classes, as nearly equal in number as reasonably possible, designated Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders or any special meeting in lieu thereof following the Effective Time, the terms of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders or any special meeting in lieu thereof following the Effective Time, the terms of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders or any special meeting in lieu thereof following the Effective Time, the terms of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders or special meeting in lieu thereof, directors elected to succeed the directors of the class whose terms expire at such meeting shall be elected for a full term of three years.
Prior to the Effective Time, the provisions of the preceding paragraph shall not apply, and all directors shall be elected at each annual meeting of stockholders or any special meeting in lieu thereof to hold office until the next annual meeting or special meeting in lieu thereof.
Notwithstanding the foregoing provisions of this Article VI, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or
removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Subject to the rights of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. Any director, or the entire Board of Directors, may be removed from office, with or without cause, by the holders of a majority of the Voting Stock.
ARTICLE VII
No stockholder will be permitted to cumulate votes at any election of directors. This provision shall become effective only when the Corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code.
ARTICLE VIII
No action shall be taken by the stockholders of the Corporation other than at an annual or special meeting of the stockholders, upon due notice and in accordance with the provisions of the Bylaws of the Corporation (the "Bylaws"), and no action shall be taken by the stockholders by written consent.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE X
(A) Except as otherwise provided in the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock of the Corporation entitled to vote. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal Bylaws.
(B) The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
(C) Advance notice of stockholder nominations for the election of directors or of business to be brought by the stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws.
ARTICLE XI
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the Corporation.
ARTICLE XII
The Corporation shall have perpetual existence.
ARTICLE XIII
(A) To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with the approval of a corporation's stockholders, further reductions in the liability of a corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended.
(B) Any repeal or modification of the foregoing provisions of this Article XIII shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification.
ARTICLE XIV
(A) To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise
permitted by Section 145 of the General Corporation Law of Delaware, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this Article XIV shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification."
* * *
The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware.
Executed at Mountain View, California on the ____ day of ___________, _____.
/s/: Barry Cheskin ------------------ Barry Cheskin, President /s/: Mark B. Weeks ------------------ Mark B. 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
----
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
|
TABLE OF CONTENTS
(continued)
8.11 Stock Transfer Agreements......................................18
8.12 Registered Stockholders........................................18
ARTICLE IX - AMENDMENTS......................................................18
|
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 |
CERTIFICATE OF AMENDMENT OF BYLAWS
RITA MEDICAL SYSTEMS, INC.
The undersigned, Mark B. Weeks, hereby certifies that:
1. He is the duly elected and incumbent Secretary of RITA Medical Systems, Inc. (the "Company").
2. By resolutions of the Board of Directors of the Company duly adopted by written consent dated May 26, 2000 the second sentence of Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows:
"The exact number of directors shall be seven (7) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders."
3. The matters set forth in this certificate are true and correct of my own knowledge.
Effective Date: May 26, 2000
/s/ Mark B. Weeks ------------------------------ Mark B. Weeks, Secretary |
Exhibit 4.1
COMMON STOCK [LOGO OF RITA MEDICAL] COMMON STOCK
RMS
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 76774E 10 3
|
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE, OF
RITA MEDICAL SYSTEMS, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF the Corporation has caused this certificate to be signed in facsimile by its duly authorized officers and a facsimile of its corporate seal.
Dated:
/s/ Mark B. Weeks /s/ Barry Cheskin
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
[INCORPORATED SEAL OF RITA MEDICAL SYSTEMS, INC.]
|
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
RITA MEDICAL SYSTEMS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH CLASS OF STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF CLASSES OF PREFERRED STOCK IN SERIES.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT-as tenants by the entireties ------ -------
JT WROS-as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to
tenants in common Minors Act
----------
(State)
|
Additional abbreviations may also be used though not in the above list.
For value received,________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________Attorney
to transfer the said Shares on the Books of the within-named Coporation with
full power of substitution in the premises.
Dated:____________________________
SIGNATURE(S) GUARANTEED:___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
EXHIBIT 5.1
June 14, 2000
RITA Medical Systems, Inc.
967 North Shoreline Blvd.
Mountain View, CA 94043
Registration Statement on Form S-1 (File No. 333-36160)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-36160) (the "Registration Statement") filed by you with the Securities and Exchange Commission on May 3, 2000, as amended by Amendment No. 1 to the Registration Statement filed June 14, 2000 in connection with the registration under the Securities Act of 1933 of shares of your Common Stock (the "Shares"). As your legal counsel in connection with this transaction, we have examined the proceedings taken and we are familiar with the proceedings proposed to be taken by you in connection with the sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states where required, the Shares when issued and sold in the manner described in the Registration Statement will be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group |
EXHIBIT 10.1
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,
The Company covenants and agrees as follows:
(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.
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.
(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.
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.
(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.
(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.
(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.
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.
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.
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.
(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 John Gilbert;
(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.
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.
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.
[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.
INVESTORS:
By:_______________________________
(signature)
Print Name:_______________________
Title:____________________________
SIGNATURE PAGE TO SHAREHOLDER RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.
COMMON HOLDERS:
SIGNATURE PAGE TO SHAREHOLDER RIGHTS AGREEMENT
SCHEDULE OF INVESTORS
Edward D. & Susan M. Atz
301 Greentree Parkway
Libertyville, IL 60048
David Campbell
873 Santa Cruz Avenue, Suite 207
Menlo Park, CA 94025
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
Costella Kirsch
873 Santa Cruz Avenue, Suite 207
Menlo Park, CA 94025
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
Venture Lending
A Division of Cupertino National Bank & Trust
3 Palo Alto Square, Suite 150
Palo Alto, CA 94306
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
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 10.3
RITA MEDICAL SYSTEMS, INC.
2000 STOCK PLAN
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, its Subsidiaries or their respective successors. For purposes of this Plan, a change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status.
(z) "Reporting Person" means an Officer, Director, or greater than 10% stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.
If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an Option or Stock Purchase Right in order to satisfy the exercise or purchase price for such Option or Stock Purchase Right 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. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan.
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights or any combination thereof 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 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;
(viii) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and
(ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; and
(x) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs.
(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 and set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, is a Ten Percent Holder, 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 other Employee, 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 that is:
(A) granted prior to the date, if any, on which the Common Stock becomes a Listed Security, to a person who, at the time of the grant of such Option, is a Ten Percent Holder, 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, prior to the date, if any on which the Common Stock becomes a Listed Security, to any other person, the per share Exercise Price shall be no less than 85% of the Fair Market Value on the date of grant, if required by the Applicable Laws and, if not so required, shall be such price as it determined by the Administrator; or
(C) granted on or after the date, if any, on which the Common Stock becomes a Listed Security to any person, the per Share exercise price shall be such price as determined by the Administrator; provided, however, that if the person is, at the time of grant of such option, a Named Executive of the Company, the per share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code; or
(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.
(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 (subject to the provisions of Section 153 of the Delaware General Corporation Law), (4) cancellation of indebtedness, (5) other Shares that (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 or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (6) 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 and any applicable income or employment taxes, (7) any combination of the foregoing methods of payment, or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted under the Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
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 the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 9(b) 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,
not withstanding 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 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares that 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.
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 the Optionee was entitled to exercise it at the
date of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate. No termination shall be deemed to occur and this
Section 10(b) shall not apply if (i) the Optionee is a Consultant who becomes an
Employee, or (ii) the Optionee is an Employee who becomes a Consultant.
(i) Notwithstanding Section 10(b) above, in the event of termination of an Optionee's Continuous Service Status as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), such Optionee may, but only within six months from 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 the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.
(a) As a condition of the exercise of an Option or Stock Purchase Right granted under the Plan, the Participant (or in the case of the Participant's death, the person exercising the Option or Stock Purchase Right) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise of 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.
(d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Participant 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 Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(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 a Participant under Section 12(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 a Participant 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 Participant shall receive the full number of Shares with respect to which the Option is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the applicable Tax Date.
of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of such transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option or the Stock Purchase Right at such time (after giving effect to any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 13).
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.
RITA MEDICAL SYSTEMS, INC.
2000 STOCK PLAN
((Optionee))
((OptioneeAddress1))
((OptioneeAddress2))
Board Approval Date: ((BoardApprovalDate))
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): ((GrantDate))
Exercise Price Per Share: ((ExercisePrice))
Total Number of Shares Granted: ((NoofShares))
Total Exercise Price: ((TotalExercisePrice))
Type of Option: ((NoSharesISO)) Shares Incentive Stock
Option
((NoSharesNSO)) Shares Nonstatutory
Stock Option
Expiration Date: ((Term))/((ExpirDate))
Vesting Commencement Date: ((VestingCommenceDate))
Vesting/Exercise Schedule: So long as your employment or consulting
relationship with the Company continues,
the Shares underlying this Option shall
vest and become exercisable in
accordance with the following schedule:
___________ of the Shares subject to the
Option shall vest and become exercisable
on the ________ month anniversary of the
Vesting Commencement Date and _______ of
the total number of Shares subject to
the Option shall vest and become
exercisable each month thereafter.
|
Termination Period: Option may be exercised for three (3)
months after termination of employment
or consulting relationship except as set
out in Section 5 of the Stock Option
Agreement (but in no event later than
the Expiration Date). Optionee is
responsible for keeping track of these
exercise periods following termination
for any reason of his or her service
relationship with the Company. The
Company will not provide further notice
of such periods.
Transferability: This Option may not be transferred.
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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 RITA Medical Systems, Inc. 2000 Stock Plan and the Stock Option Agreement, both of which are attached and made a part of this document.
In addition, you agree and acknowledge that your rights to any Shares underlying the Option will be earned only as you provide services to the Company over time, that the grant of the Option is not as consideration for services you rendered to the Company prior to your Vesting Commencement Date, and that nothing in this Notice or the attached documents confers upon you any right to continue your employment or consulting relationship with the Company for any period of time, nor does it interfere in any way with your right or the Company's right to terminate that relationship at any time, for any reason, with or without cause.
RITA Medical Systems, Inc.
_________________________________ By:________________________________
((Optionee)) Name:______________________________
Title:_____________________________
_________________________________
Print Name
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RITA MEDICAL SYSTEMS, INC.
2000 STOCK PLAN
Notwithstanding the above, if designated as an Incentive Stock Option, in the event that the Shares subject to this Option (and all other Incentive Stock Options granted to Optionee by the Company or any Parent or Subsidiary, including under other plans of the Company) that first become exercisable in any calendar year have an aggregate fair market value (determined for each Share as of the date of grant of the option covering such Share) in excess of $100,000, the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory Stock Option, in accordance with Section 5(c) of the Plan.
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Section 5 below, subject to the limitations contained in this Section 3.
(iii) In no event may this Option be exercised after the Expiration Date of the Option as set forth in the Notice.
(ii) As a condition to the exercise of this Option and as further set forth in Section 12 of the Plan, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the vesting or exercise of the Option, or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) The Company is not obligated, and will have no liability for failure, to issue or deliver any Shares upon exercise of the Option unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. This Option may not be exercised until such time as the Plan has been approved by the stockholders 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 221 of Title 12 of the Code of Federal Regulations 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 the Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares.
(a) cash or check; or
(b) following the date, if any, upon which the Common Stock is a Listed Security, delivery of a properly executed exercise notice together with irrevocable instructions to a broker approved by the Company to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price.
entitled to exercise this Option as of the Termination Date, or if Optionee does not exercise this Option within the Termination Period set forth in the Notice or the termination periods set forth below, the Option shall terminate in its entirety. In no event, may any Option be exercised after the Expiration Date of the Option as set forth in the Notice.
in the year of exercise. If Shares issued upon exercise of an Incentive Stock Option are held for at least one year after exercise and are disposed of at least two years after the Option grant date, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares issued upon exercise of an Incentive Stock Option are disposed of within such one-year period or within two years after the Option grant date, 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 (i) the fair market value of the Shares on the date of exercise, or (ii) the sale price of the Shares.
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.
To: RITA Medical Systems, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
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Grant Number: _____________________________________________ Date of Purchase: _____________________________________________ Number of Shares: _____________________________________________ Purchase Price: _____________________________________________ Method of Payment of Purchase Price: _____________________________________________ |
Social Security No.: _____________________________________________________
The shares should be issued as follows:
Name: _____________________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
|
Signed: _____________________________________________
Date: _____________________________________________
EXHIBIT 10.6(a)
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
1. Basic Provisions ("Basic Provisions"):
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
1.4 Early Possession: N/A ("Early Possession Date") (See Paragraphs 3.2 and 3.3 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. (See Paragraph 4.2)
1.8 Permitted Use: General office administration, research and development of the medical device industry and warehousing. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.)
1.11 Guarantor: The obligations of the Lessee under this Lease are to be guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda: Attached hereto are Addenda consisting of Exhibits A & B.
2. Premises:
2.1 Letting: Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less.
2.2 Condition: Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the Premises, including, without limitation, the roof, structural elements of the Building and all building systems serving the Premises, including, without limitation, electrical, plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a noncompliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non- compliance with this warranty within thirty days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. Notwithstanding the foregoing, non-conformance of the roof with the foregoing warranty shall be remedied by Landlord upon notice, at any time during the term.
2.3 Compliance with Covenants, Restrictions and Building Code: Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within twelve (12) months following the Commencement Date, correction of that noncompliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises: Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease.
2.5 Operating Expense History: Lessor has provided to Lessee a true and correct breakdown of current operating expenses relating to the Premises for which Lessee shall be responsible in addition to Base Monthly Rent, and Lessor warrants and represents that the current operating expenses for the Premises, limited to real property taxes, landscaping and insurance costs for the Premises, is approximately five and six-tenths cents ($0.056) per square foot of space.
3. Term:
3.1 Term: The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession: If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term.
4. Rent:
4.1 Base Rent: Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time as provided herein to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lease.
4.2 Base Rent Adjustment: Consumer Price Index. It is agreed that on
February 14th, 1997, the Base Rent provided for in Paragraph 1.5 on the Lease
shall be adjusted in accordance with the following formula based on the Consumer
Price Index ("CPI") for All Urban Consumers, subgroup "All Items", San Francisco
- Oakland, California Metropolitan Area (1982-84 = 100) published by the Bureau
of Labor Statistics, U.S. Department of Labor (the "Index") published nearest
but prior to the date tenant took possession of the premises (the "Beginning
Index") and the Index which is published nearest but prior to February 14, 1997
(the "Adjustment Index"). The CPI adjusted base rent shall be calculated by
multiplying the base
rent provided for in Paragraph 1.5 of the lease by a fraction, the numerator of which is the Adjustment Index and the denominator of which is the Beginning Index. In no event, however, shall the adjusted basic rent decrease below the basic rental provided for in Paragraph 1.5 of the lease or any subsequent adjustment hereof, nor shall it be less than four percent (4%) or greater than eight percent (8%) per annum. On such adjustment, the parties shall execute an amendment to the lease stating the new (adjusted) base rent. If the Index is changed so that the base year of the Index differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised.
5. Security Deposit: Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under the Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease.
6. Use:
6.1 Use: Lessee shall use and occupy the Premises only for the purposes set forth in paragraph 1.8, or any other use which is comparable thereto and for no other purpose unless approved in writing by Lessor, which approval shall not be unreasonably withheld. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that unreasonably disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances:
(a) Reportable Uses Require Consent: The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials
expected to be on the Premises is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by products or fraction thereof. Lessee shall not engage in any activity in on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor which consent shall not be unreasonably withheld or delayed and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or injury and/or liability therefor. Lessor hereby deems those Hazardous Substances set forth on Exhibit "A" to be ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use. Lessor hereby consents to the existence, use, manufacture, storage and transportation of such Hazardous Substances in, on and about the Premises during the Term of this Lease in compliance with Applicable Laws, and acknowledges that the same shall not constitute a Reportable Use under this Lease. If Lessee's use of the Premises changes at any time during the Lease Term from the Permitted Use identified at Paragraph 1.8 hereof, Lessee immediately shall notify Lessor of the change in use and whether any changes are required to the information contained on Exhibit "B"
(b) Duty to Inform Lessor: If Lessee knows or has reasonable cause to believe that a Hazardous Substance or a condition involving or resulting from same has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor; Lessee shall immediately give written notice of such fact to Lessor. Lessee shall within Lessee's possession or control also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving Premises.
(c) Indemnification: Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgements, costs, claims, liens, expenses, penalties, permits, and attorney's and consultant's fees during the Lease Term arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for
Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to the effects of any contamination or injury to person property or the environment created or suffered by Lessee and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved required by law and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law: Except as otherwise provided in this Lease, Lessee shall at Lessee's sole cost and expense fully, diligently and in a timely manner comply with all "Applicable Law" which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record permits the requirements of any applicable fire insurance underwriter or rating bureau relating to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within ten (10) business days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance: Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, upon one (1) business day's prior written notice and subject to Lessee's reasonable security precautions, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections.
6.5 Lessor's Representation and Indemnity: Lessor represents and warrants that, to the best of Lessor's knowledge, prior to and as of the Commencement Date, there have been
and are no Hazardous Substances located on, under, in or about the Premises, or the soil, groundwater or surface water thereof. Except to the extent resulting from the release, discharge or emission of Hazardous Substances in violation of Applicable Law on or about the Premises during the term by Lessee, its agents, employees, contractors or invitees, Lessee is released from and shall not be responsible for, and Lessor shall indemnify, defend, protect and hold Lessee, its employees, agents, shareholders, licensees, invitees, officers and directors, harmless from and against, any claims, actions, losses, costs, damages, liabilities or expenses (including, without limitation, reasonable attorneys', experts' and consultants' fees, investigation and laboratory fees) (collectively, "Claims"), arising out of or in connection with any Hazardous Substance (including, without limitation, asbestos) present at any time on, under, in or about the Premises, soil, groundwater or surface water thereof, caused by or resulting from (i) the acts or omissions of Lessor, its agents, employees, contractors or invitees; and (ii) the acts or omissions of any previous tenant of Lessor, or the tenant's agents, employees, contractors or invitees. In addition, except to the extent resulting from the release, discharge or emission of Hazardous Substances on or about the Premises in violation of Applicable Law during the term of this Lease by Lessee, its agents, employees, contractors or invitees, Lessee also is released from and shall not be responsible for any Claims arising out of or in connection with Hazardous Substances present on, under, in or about the Premises caused by any person other than Lessor or its previous tenants (or their agents, employees, contractors or invitees), including, without limitation, caused by migration, dumping or other third party source. Lessor's indemnification and warranty under this Paragraph shall survive termination of this Lease.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations:
7.1 Lessee's Obligations:
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), and except to the extent required as a result of the negligence or willful misconduct of Lessor or Lessor's employees, agents, licensees or invitees, Lessee shall, at Lessee's sole cost and expense and at all times keep the Premises and every part thereof in good order, condition and repair excluding structure elements of the Premises, the roof structure, exterior walls and foundation of the Premises (whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detector systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitation sewer system) in violation of hazardous substances laws. Lessee, in keeping the Premises in good order, condition and repair shall exercise and perform good maintenance practices.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations: Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises) 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations:
(a) Definitions; Consent Required: The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises installed at Lessee's sole expense. The term "Trade Fixtures" shall mean Lessee's machinery and equipment installed at Lessee's sole expense that can be removed without doing material damage to the Premises that cannot be repaired. The term "Alterations" shall mean any modification of the improvements on the Premises from that which provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion installed at Lessee's sole expense. Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations or Alterations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof, and the cost thereof in any one instance does not exceed $25,000.00.
(b) Consent: Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents, given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent special consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the terms of this Lease shall be done in good and workmanlike manner, with good and sufficient materials, and in compliance with Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specification therefor. Lessor may (but with no obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $25,000.00 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one quarter times the estimated cost of such Alteration or Utility Installation.
(c) Indemnification: Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee and for use on the Premises, which claims are or may be secured by an mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim, or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one quarter times the amount of such contested lien claim or demand indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration:
(a) Ownership: Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises.
(b) Removal: Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration: Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear, acts of God, casualties, condemnation, Hazardous Substances (other than those stored, used or disposed of by Lessee in or about the Premises), and Alterations
or Utility Installations which Lessor states in writing may be surrendered at the termination of the Lease, excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practices by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance, removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, all as may then be required by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to obligation to repair and restore the Premises per this Lease.
8. Insurance; Indemnity:
8.1 Payment For Insurance: Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made Lessee to Lessor within fifteen (15) business days following receipt of an invoice for any amount due.
8.2 Liability Insurance:
(a) Carried by Lessee: Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving, or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured Managers or Lessors of Premises Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor: In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee, Lessee shall not be named as an additional insured therein.
8.3 Property Insurance Building, Improvements and Rental Value:
(a) Building and Improvements: The Insuring Party shall obtain and keep in force during the term of this lease a policy or policies in the name of Lessor, with loss payable to Lessor but naming Lessee as an additional insured) and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood unless required by a Lender), including coverage for any additional cost resulting from debris removal and reasonable amounts of coverage for the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) Rental Value: The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender (s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) Tenant's Improvements: If the Lessor is the Insuring Party, the Lessor shall not be required to Insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations.
8.4 Lessee's Property Insurance: Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessee's option, by endorsement to a
policy already carried, maintain insurance coverage on all Lessee's personal property, Lessee Owned Alterations and Utility Installations and the Tenant Improvements in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies: Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation: The parties hereto release each other and their respective agents, employees, successors, assignees and subtenants from all liability for injury to any person or damage to any property that is caused by or results from a risk which is actually insured against, which is required to be insured against under this Lease, or which would normally be covered by the standard form of "all risk-extended coverage" casualty insurance, without regard to the negligence or willful misconduct of the entity so released. Each party shall use its best efforts to cause each insurance policy it obtains to provide that the insurer thereunder waives all right of recovery by the way of subrogation as required herein in connection with any injury or damage covered by the policy. If such insurance policy cannot be obtained with such waiver of subrogation, or if such waiver of subrogation is only available at additional cost and the party for whose benefit the waiver is not obtained does not pay such additional cost, then the party obtaining such insurance shall immediately notify the other party of that fact.
8.7 Indemnity: Except for Lessor's negligence or willful misconduct and/or breach of express warranties or other provisions of this Lease by Lessor or Lessor's agents, employees, contractors or invitees, and subject to Paragraph 8.6 above, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the use of the Premises by Lessee the negligence or willful misconduct of Lessee, its agents, contractors, employees or invitees, and out of any Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonable satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability: Except to the extent caused by the negligence or willful misconduct of Lessor, its agents, employees, contractors or invitees, Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invites, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Except to the extent caused by the negligence or willful misconduct of Lessor, its agents, employees, contractors, or invitees, Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
8.9 Lessor's Indemnity: Except to the extent caused by the negligence or willful misconduct of Lessee, its agents, employees, contractors, or invites, Lessor shall indemnify, protect, defend and hold harmless Lessee from any and all damages, liabilities, claims, judgements, actions, attorneys' fees, consultants' fees, cost and expenses arising from the negligence or willful misconduct of Lessor or its employees, agents, contractors or invites; any violation of Applicable Law; or the breach of Lessor's obligations or representations under this Lease.
9. Damage or Destruction:
9.1 Definitions:
(a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the Premises the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction.
(c) "Insured Loss" shall mean damage or destruction to improvements on the Premises which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation.
9.2 Partial Damage Insured Loss: If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's a Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect.
9.3 Partial Damage - Uninsured Loss: If a Premises Partial Damage that is not an insured loss occurs, Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date of the damage or destruction. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of said notice to given written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's commitment in such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction: Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by an authorized public authority), this Lease shall terminate as of the date of such Premises Total Destruction, whether or not the damage or destruction in an Insured Loss or was caused by a negligent or willful act of Lessee.
9.5 Insured Casualty: Lessor shall not have the right to terminate this Lease if damage to or destruction of the Premises results from a casualty ordinarily covered by insurance required to be carried by Lessor under this Lease.
9.6 Uninsured Casualty: In the case of damage which is not required to be
covered by insurance, Lessor shall not have the right to terminate this Lease
(i) if the damage is relatively minor (e.g., repair or restoration would take
fewer than one hundred twenty (120) days or would cost less than ten percent
(10%) of the replacement cost of the Building); or (ii) if Lessee agrees to pay
the cost of repair in excess of a pre-agreed base amount.
9.7 Damage at the End of Lease Term: If the Premises are damaged by any peril during the last twelve (12) months of the Lease Term, and in the reasonable opinion of the Lessor's architect or construction consultant, the restoration of the Premises cannot by substantially completed within sixty (60) days, either party shall have the option to terminate this Lease, which option may be exercised only by delivery to the other party of a written notice of election to terminate within thirty (30) days after the date of such damage; provided, however, that Lessor may not terminate this Lease pursuant to this Paragraph 9.7 if Lessee, at the time of such damage, has an express written option to extend further the Term of this Lease and Lessee exercises such option so to extend further the Lease Term within thirty (30) days following the delivery to Lessee of Lessor's written termination notice.
9.8 Lessee's Right to Terminate: Lessor shall notify Lessee within thirty
(30) days after any damage to or destruction of the Premises, the length of time
Lessor reasonably estimates to be necessary for repair or restoration. Lessee
shall have the right to terminate this Lease within fifteen (15) days after the
receipt of such notice if restoration or repair of the Premises will take more
than ninety (90) days.
9.9 Construction Standard: If this Lease is not terminated by Lessor or Lessee pursuant to this Paragraph, Lessor shall restore the Premises and all tenant improvements installed by Lessor to the condition in which they existed immediately prior to the destructive event.
9.10 Abatement of Rent: Rent shall be temporarily abated proportionately during any period when, by reason of any damage or destruction, Lessee reasonably determines that there is substantial interference with Lessee's use of the Premises, having regard to the extent to which Lessee may be required to discontinue Lessee's use of the Premises. Such abatement shall commence upon the date of such damage or destruction and end upon substantial completion by Lessor of the repair or reconstruction which Lessor is obligated or undertakes to do. Lessee shall not be entitled to any compensation or damages from Lessor for loss of the use of the Premises, damage to Lessee's personal property or any inconvenience occasioned by such damage, repair or restoration.
9.11 Termination - Advance Payments: Upon termination of this Lease pursuant to this Paragraph 9, a prorata adjustment shall be made concerning any advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease.
9.12 Waive Statutes: Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes:
10.1 (a). Payment of Taxes: Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2 applicable to the Premises during the term of the Lease. All such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installments upon Lessor's request, Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover a period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration if Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
10.2 Definition of "Real Property Taxes": As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income, gift, transfer, conveyance or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge or increase thereon imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, but shall exclude any such tax, fee, levy, assessment or charge, or any increases in the foregoing caused by or relating to a voluntary or involuntary change in ownership or other conveyance of the Premises.
10.3 Joint Assessment: If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes, all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuation assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith shall be conclusive.
10.4 Personal Property Taxes: Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days prior to delinquency thereof as detailed in a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities: Lessee shall pay for all water, gas, heat, light, power, telephone trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.
12. Assignment and Subletting:
12.1. Lessor's Consent Required:
(a) Lessee shall not voluntarily or by operations of law assign, transfer, mortgage, or otherwise transfer or encumber (collectively "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36.
(b) Lessee may, without Lessor's prior written consent and without
any participation by Lessor in assignment and subletting proceeds, sublet the
Premises or assign the Lease to: (i) a subsidiary, affiliate, division or
corporation controlling, controlled by or under common control with Lessee; or
(ii) a successor corporation related to Lessee by merger, consolidation, non-
bankruptcy reorganization, or government action. For the purpose of this Lease,
a sale or transfer of Lessee's capital stock through any public exchange shall
not be deemed an assignment, subletting, or any other transfer of this Lease or
the Premises requiring Lessor's consent. Lessee shall notify Lessor in writing
within ten (10) days after any of the foregoing assignments or sublets has
become effective.
(c) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c)
12.2 Terms and Conditions Applicable to Assignment and Subletting:
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this lease.
(c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent subletting and assignments of the sublease or any amendments or modifications thereto so long as lessor notifies Lessee or anyone else liable on the Lease or sublease and obtain their consent and such action shall not relieve such persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination and to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including, but not limited to, the intended usage and/or required modification of the Premises if any, together with a non-refundable deposit of $500.00 as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with provisions of an assignment or sublease to which Lessor has specifically consented in writing.
12.3 Additional Terms and Conditions Applicable to Subletting: The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublease, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor unless received by Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of the Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.
12.4 Lessor's Response: If Lessor's consent to any assignment or subletting shall not be given or withheld within twenty (20) business days following Lessee's request for consent, such consent shall be deemed given.
13. Default; Breach; Remedies:
13.1 Default; Breach: A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such a Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraph 13.2 and/or 13.3.
(a) The abandonment of the Premises without payment of Rent or performance of Lessee's other obligations hereunder.
(b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and where due when such failure continues for three (3) days after receipt of written notice by Lessee from Lessor or the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any other obligation under this Lease where such failure continues for a period of ten (10) days following receipt of written notice thereof by Lessee.
(c) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereafter that are to be observed, complied with or performed by Lessee other than those described in subparagraphs (a) or (b) above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(d) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S) 101 or any
successor statue thereto (unless, in the case of a
petition filed against Lessor or same is dismissed within sixty (60) days),
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at, the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within sixty
(60) days; or (iv) the attachment, executed by other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is discharged within sixty (60) days;
provided, however, in the event that any provision of this subparagraph (d) is
contrary to any applicable law. This provision shall be of no force or effect,
and not affect the validity of the remaining provisions.
(e) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder intentionally and materially false.
13.2 Remedies: If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessor (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn more than three (3) times in any year, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check in the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1 with or without further notice, demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event, Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that the Lessee proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the amount of award exceeds
the amount of such rental loss that the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by the Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of time would be likely to
result therefrom, including but not limited to the cost of recovering possession
of the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorney's fees, and that portion of the
leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such
proceeding the unpaid rent and damages that are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(a), (b) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(a), (b), or (d). In such case, the applicable grace period under subparagraphs 13.1(a), (b), or (d) and the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainee and a Breach of this Lease entitling Lessor to the remedies provided for in this lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations of Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises is located.
(d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof prior to such termination or by reason of Lessee's use of the Premises.
13.3 Inducement Recapture in Event Of Breach: Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon occurrence of a monetary Breach of this Lease, more than three (3) times during the term by Lessee, as defined in Paragraph 13.1(a), any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessee under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breech by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiates the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing to Lessor at the time of such acceptance.
13.4 Late Charges: Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after receipt by Lessee of written notice from Lessor that such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary. Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 Breach by Lessor: Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall be thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that the nature of Lessor's obligation is such that more than thirty (3) days after such notice are reasonably required for its performance, then Lessor shall be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. If Lessor should fail to make payment of any amount payable by Lessor to third parties, or fall to perform any of its other obligations hereunder, and if such failure continues for thirty (30) days following written notice from Lessee (unless the nature of Lessor's obligation is such that more than thirty (30) days is required for performance and Lessor commences such performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion), Lessee shall have the right, in addition to any other rights or remedies it may have under this Lease, or at law or in equity, to cure such default; provided however, in case of emergency, where immediate action is necessary to protect persons or property, Lessee shall have the right to effect such cure immediately, without prior notice to Lessor, but shall notify Lessor of the action taken as soon thereafter as is reasonably practicable. All costs incurred by Lessee in effecting such cure, together with interest thereon at the rate of two percent (2%) plus the "prime rate" charged by Bank of America NT & SA or the highest rate permitted by law, whichever is less ("Interest Rate"), from the date such costs were incurred until paid, shall be reimbursed to Lessee by Lessor within thirty (30) days after Lessor's receipt of a statement therefor.
14. Condemnation: If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of power (all of which are herein called "condemnation"). This Lease shall terminate as to the part so taken as of the date the
condemning authority takes title or possession, whichever first occurs. If the portion of the Premises taken by condemnation materially impairs Lessee's use and occupancy of the Premises in Lessee's reasonable opinion, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days and Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises, and Rent shall be further equitably abated during any restoration of the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade fixtures, Utility Installations, Alterations, personal property and the "bonus value" of the Lease. In the event that this Lease in not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation, repair any damage to the Premises caused by such condemnation, except the extent that Lessee has been reimbursed therefor by the condemning authority and Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair to the extent that Lessee has been reimbursed therefor by the condemning authority.
15. [Intentionally left blank.]
16. Tenancy Statement:
16.1 Each Party (as "Responding Party") shall within ten (10) business days after written notice from the other Party (the "Requesting Party") execute, and deliver to the Requesting Party a statement in writing certifying: (1) that none of the terms or provisions of this Lease have been changed (or, if they have been changed, stating how they have been changed); (2) that this Lease has not been canceled or terminated; (3) the last date of payment of Base Rent and other charges and the time period covered by such payment; and (4) that, to the party's actual current knowledge; the other party is not in default under this Lease (or, if the other party is claimed to be in default, stating why).
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such available financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purpose herein set forth.
17. Lessor's Liability: The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor, provided that the transferee or assignee assumes in writing all of Lessor's obligations under this Lease. Nothing contained herein shall, however, release Lessor from any obligations accruing during such Lessor's ownership or possession of the Premises. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability: The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. Interest on Past-Due Obligations: Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per
annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. Notwithstanding anything to the contrary contained in this Lease, for each late payment, (i) Lessee shall not be required to pay interest pursuant to this Paragraph 19 if Lessee has paid a late charge pursuant to Paragraph 13.4 hereof for such late payment; and (ii) Lessee shall not be required to pay any such late charge if Lessee has made an interest payment pursuant to this Paragraph 19.
20. Time of Essence: Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined: All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer: This Lease and the exhibits attached hereto contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.
23. Notices:
23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may, by written notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers: No waiver by Lessor or Lessee of the Default or Breach of any term, covenant or condition hereof by Lessee or Lessor shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee or Lessor of the same or of any other term, covenant or condition hereof Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be constructed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. Recording: Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover: Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease.
27. Cumulative Remedies: No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. Covenants and Conditions: All provisions of this Lease to be observed or performed by Lessee and Lessor are both covenants and conditions.
29. Binding Effect; Choice of Law: This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the court in which the Premises are located.
30. Subordination; Attornment: Non-Disturbance:
30.1 Subordination: Provided that the ground Lessor, Lender, or other
holder of the interest to which this Lease would be subordinated executes a
recognition and non-disturbance agreement reasonably acceptable to Lessee which
(i) provides that this Lease shall not be terminated so long as no Breach by
Lessee exists under this Lease; and (ii) recognizes all of Lessee's rights
hereunder, this Lease and any Option granted hereby shall be subject and
subordinate to any ground lease, mortgage, deed of trust, or other hypothecation
or security device (collectively, "Security Device"), now or hereafter placed by
Lessor upon the real property of which the Premises are part, to any and all
advances made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof Lessee agrees that the
Lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Lessor under this Lease, but
that in the event of Lessor's default with respect to any such obligation,
Lessee will give any Lender whose name and address has been furnished Lessee in
writing for such purpose notice of Lessor's default and allow such Lender thirty
(30) days following receipt of such notice, the cure of said default before
invoking any remedies Lessee may have by reason thereof. If any Lender shall
elect to have this Lease and/or any Options granted hereby superior to the lien
of its Security Device and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 Attornment: Subject to the non-disturbance provisions of paragraph 30.3 and such recognition and attornment agreement, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, provided that such Lender or other party assumes in writing all of Lessor's obligations under this Lease, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Lessor or with respect to events occurring prior to acquisition of ownership unless such Lender had previously consented to the same; or (iii) be bound by prepayment of more than one month's rent unless the same was paid to such Lender.
30.3 Non-Disturbance: With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.
30.4 Self-Executing: Upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and non-disturbance agreement as is provided for herein.
31. Attorney's Fees: If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whereby compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs: Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of emergency, and otherwise at reasonable times upon one (1) business day's prior notice, subject to Lessee's reasonable security measures, for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or
liability to Lessee. Lessor, however, at all times shall minimize any interference with Lessee's operations at the Premises.
33. Auctions: Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
34. Signs: Lessee shall have the right to erect and install building and monument signage at Lessee's expense; provided however, that Lessee first obtains all necessary governmental approvals therefor. Lessee shall remove all such signage at Lessee's expense promptly upon the expiration or sooner termination of this Lease. The installation of any sign on the Premises by or for Lessee shall be subject to provision of Paragraph 7 (Maintenance, Repairs, Utility Installation, Trade Fixtures and Alteration).
35. Termination; Merger: Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate of the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or more of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. Consents:
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent, approval, designation, determination or judgment, of a Party is required, such consent, approval, designation, determination or judgment shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to the Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor.
(b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify hereafter any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as then reasonable with reference to the particular matter for which consent is being given.
37. Quiet Possession: Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.
38. Options:
38.1 Definition: As used in this Paragraph 38 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor.
38.2 Options Personal To Original Lessee: Each Option granted to Lessee in this Lease may only be assigned concurrently with an assignment of this Lease. The Options, if any, herein granted to Lessee are not assignable separately or apart from this Lease, and no Option may be separated from this Lease in any manner, by reservation or otherwise.
38.3 Multiple Options: In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised.
38.4 Effect of Default on Options:
(a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, during the time the Lessee is in Breach of this Lease.
(b) The period of time within which an Option maybe exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 38.4(a).
39. Security Measures: Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises. Lessee, its agents and invitees and their property from the acts of third parties.
40. Reservations: Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights , dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee or increase Lessee's cost of such use of occupancy or Lessee's obligations hereunder. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
41. Performance Under Protest: If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum of any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
42. Authority: If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
43. Conflict: Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. Any conflict between this form of the Lease and any Addenda, Work Letter of Exhibits shall be controlled by the Latter. This Lease is meant to supersede a previous Lease between the Lessor and VidaMed, Inc. The substance of this Lease is meant to be identical to the previous Lease.
44. Offer: Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto.
45. Multiple Parties: Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee.
46. Lessee Improvements: Lessor shall pay for and complete interior improvements "Tenant Improvements" mutually agreed upon as shown on attached Exhibit B.
47. Truck Access: Lessee will allow passage of semi-truck deliveries to Abbott Critical Care Systems, Hospital Products Division of Abbott Laboratories and Illness Corp., an average of five times per business day through the parking lot.
48. Right to Inspect Books and Records: Notwithstanding anything to the contrary contained in this Lease, within thirty (30) days after receipt by Lessee of Lessor's statement of operating expenses for any prior calendar year during the Term, Lessee or its authorized representative shall have the right to inspect the books of Lessor during the business hours of Lessor at Lessor's office in the Building, or, at Lessor's option, such other location as Lessor reasonably may specify, for the purpose of verifying the information contained in the statement. Unless Lessee asserts specific errors within thirty (30) days after receipt of the statement, the statement shall be deemed correct as between Lessor and Lessee, except as to individual components subsequently determined to be in error by a future audit.
49. Option to Extend: Notwithstanding anything to the contrary contained in this Lease:
(a) Grant of Option: Lessor hereby grants to Lessee one (1) option
("Option") to extend the term of this Lease, for an additional term of five (5)
years, commencing when the then existing Term expires, upon the terms and
conditions set forth in this Paragraph.
(b) Exercise of Option: Lessee may exercise such option by giving Lessor written notice of its intention not less than one hundred eighty (180) days' notice prior to the expiration of the then-existing term of the Lease.
(c) Extended Term Rent: If the Option is exercised, the monthly rent for the Premises shall be the then current fair market monthly rent ("Fair Market Rent") for the Premises as of the commencement date of the applicable extended term, as determined by the agreement of the parties, or, if the parties cannot agree term, then the Fair Market Rent shall be determined by three competent Real Estate Professionals mutually agreeable to the parties. All other terms and conditions contained in this Lease, as the same may be amended from time to time by the parties in accordance with the provisions of this Lease, shall remain in full force and effect and shall apply during the Option Term.
(d) Rescission: Notwithstanding anything to the contrary contained in
this Paragraph, if the monthly rent for an Option period is determined by
appraisal and if Lessee does not, in its discretion, approve the rental amount
established by the appraisal, Lessee may rescind its exercise of the Option by
giving Lessor written notice of its election to rescind within ten (10) days
after the receipt of all appraisals. If Lessee rescinds its exercise of the
Option, the (i) this Lease shall terminate on the sixtieth (60th) day after
Lessee's notice of rescission or on the date this Lease would have otherwise
terminated absent Lessee's exercise of the Option, whichever date is later; and
(ii) Lessee shall pay all costs and expenses of the appraisal.
50. Right of First Refusal: If at any time during the Term, as extended, Lessor shall solicit or receive a bona fide offer in writing ("Offer") from a third party to purchase the Premises, Lessee shall have a right of first refusal ("Right of First Refusal") to purchase the Premises upon the same terms and conditions as set forth in the Offer. Lessor, promptly following Lessor's receipt of the Offer, Shall deliver written notice to Lessee specifying the terms and conditions contained in the Offer. Lessee shall exercise its Right of First Refusal by providing Lessor with written notice of its exercise within twenty (20) business days after the date of receipt of Lessor's notice regarding the Offer. If Lessee exercises its Right of First Refusal within the twenty (20) business-day period, Lessor and Lessee promptly shall execute an amendment to this Lease relating to the Premises, which includes the terms and conditions set forth in the Offer. If Lessee fails to provide Lessor with its written notice of exercise within the twenty (20) business day period, then Lessee shall be deemed to have elected not to exercise its Right of First Refusal with respect to the particular Offer at issue. Notwithstanding the foregoing, if Lessor negotiates with the proposed purchaser terms materially more favorable then those offered to Lessee but rejected, Lessor shall be required to submit the more favorable terms to Lessee for its review. Lessee shall have seven (7) business days after receipt of the more favorable terms to accept or reject the Premises. If Lessee rejects the more favorable terms, Lessor shall be free to enter a purchase agreement with the proposed purchaser. Lessee's Right of First Refusal; shall be continuous during the Term of this Lease and any extension thereof. Lessee's rejection of any particular Offer shall not relieve Lessor of its obligation to again offer the Premises to Lessee at any time that the Premises subsequently becomes available.
51. Construction of Tenant Improvements: At Lessor's sole cost and expense, Lessor shall construct the improvements ("Tenant Improvements") described in that certain letter from Vance M. Brown & Sons, Inc. to VidaMed Inc., dated July 13, 1994, attached hereto as Exhibit "B" and incorporated by reference herein. The Tenant Improvements shall be constructed in accordance with such attached plans and specifications, in a good and workmanlike manner, free of defects and using new materials and equipment of good quality and
in compliance with all Applicable Law (including, without limitation, the Americans with Disabilities Act of 1990). Within thirty (30) days after the Commencement Date, Lessee shall have the right to submit a written "punchlist" to Lessor, setting forth any defective items to be corrected. Notwithstanding anything to the contrary contained in this Lease or in the foregoing, Lessee's acceptance of the Premises or submission of a "punchlist" shall not be deemed a waiver of Lessee's right to have defects in the Tenant Improvements or the Premises repaired at Lessor's sole expense. Lessee shall give notice to Lessor whenever any such defect becomes reasonably apparent, and Lessor shall repair such defect as soon as practicable. Lessor also hereby assigns to Lessee all warranties with respect to the Tenant Improvements, including, without limitation, warranties which would reduce Lessee's maintenance obligations hereunder, and shall cooperate with Lessee to enforce such warranties.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELAY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE, IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BY CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures.
Executed at Palo Alto, CA Executed at Zomed/Mountain View, CA
----------------------------- ----------------------------
On February 13, 1995 On February 13, 1995
----------------------------------- ----------------------------------
By: LESSOR By: LESSEE
The Brown Mountain View Joint Venture ZoMed International
------------------------------------- ------------------------------------
By: /s/: Allan Brown By: /s/: Hugh R. Sharkey
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Name Printed: Allan Brown Name Printed: Hugh R. Sharkey
Title: Managing Joint Venturer Title: Executive Vice President
Address: 2747 Park Boulevard Address: 967 N. Shoreline Boulevard
Palo AIto.CA 94304 Mountain View, CA 94043
Phone: (4l5) 321-8432 Phone: (415) 390-8500
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EXHIBIT "B"
Vance M. Brown & Sons, Inc.
General Contractors
2747 Park Boulevard
Palo Alto, California 94306
(415) 321-8432
July 13, 1994
VIDAMED
1380 Willow Road
Menlo Park, CA 94025
RE: Preliminary Cost Estimate Qualifications
All work is based on Zomed/Scionex floor plan, 1 sheet dated 7/1/94
Remove approximately 9000 SF of carpet; remove approximately 10 lineal feet of wall; remove one sink and cabinet for relocation to kitchen/dining room.
Construct 480 lineal feet of 10 ft. high metal stud and gypsum board wall. Gypsum wallboard will have a light skip trowel finish to match existing walls. Metal studs will be 3 5/8" 25 gauge and will be installed 24" on center.
Install new backing for cabinetry; install fire extinguishers; install backing for door frames.
Install relocated cabinet with sink in kitchen/dining room. Install new plastic laminate top on cabinet. Includes cabinet under sink in Tissue Lab.
Furnish and install sound insulation in wall cavities of conference room dividing wall and in new kitchen walls.
Furnish and install 13 each 3090 and 2 each 6090 prefinished plain sliced red oak doors in bronze anodized aluminum frames; Schlage L series mortised hardware; plan bearing
butts; dome stops. Furnish and install 3 each 2090 sidelites and 4 each 4040 fixed windows in bronze anodized aluminum frames. Includes all glass lites as shown in doors and view panels.
Furnish and install glass for sidelites and fixed glass windows. Remove one single glass door and retrofit existing storefront with one pair of 6090 glass doors to match building standards.
Paint all walls latex semi gloss enamel to match existing wall paint finish.
Remove ceiling tiles for HVAC ducting rework; replace damaged ceiling tiles; install Vinyl rock ceiling tiles in the Tissue Lab and the Clean Room.
Furnish and install the following: Flexco welded anti static sheet vinyl in Tissue Lab and Clean Room; Armstrong 1/8" gauge Standard Excelon VCT; 30 ounce direct glue down commercial grade carpet throughout offices; 4" rubber top set base.
Add and relocate fire sprinklers as necessary due to new construction.
12. Plumbing:
Sawcut slab, replace concrete and install new sinks as shown on floor plan. Sinks will be outfitted with vents, hot and cold water piping and faucets.
Modify HVAC zoning as necessary due to new wall and office layout; install new programmable T-Stats; comfort balance HVAC upon completion of work.
Furnish and install - 18 additional new lay-in lights; 14 dual level switches; 28 duplex outlets; 6 fourplex outlets; (4) 20 amp. 110 volt circuits; 16 telephone/data outlets.
Full time jobsite supervision; janitorial clean-up; jobsite clean-up; chemical toilet; telephone jobsite expense; design fees; miscellaneous.
Exclusions:
-- Security, telephone and data wiring.
-- Furniture partitions.
-- Office equipment.
-- Fit-up of owner furnished equipment.
End of Qualifications.
BROWN MOUNTAIN VIEW JOINT VENTURE
3197 Park Boulevard
Palo Alto, California 94306
May 12, 1999
Mr. Ronald T. Steckel, Vice President, Operations
Rita Medical Systems, Inc.
967 North Shoreline Boulevard
Mountain View, CA 94043
Subject: Extension of Lease of 967 North Shoreline Boulevard, Mountain View, CA
Dear Ron:
1) Beginning date: August 15, 1999
2) Ending date: August 14, 2004
3) Basic rental: $40,770.00 per month
4) Additional Security Deposit: $27,270.00 (Due upon execution of this lease extension.)
5) Mid-term Base Rent Adjustment: February 14, 2002 with beginning index to be the index published nearest but prior to August 15, 1999.
6) Lessee's sublease to Cohesive Technology Solutions, Inc. or its subsequent merger entity is approved by Lessor.
7) Lessor shall contract with Therma Inc. to bring HVAC up to good operating condition at a cost of $8,090.00 at its sole expense.
8) Lessor asserts that the roof is in good condition and is still under warranty by Innovative Roof Services.
9) Lessor shall employ Vance Brown, Inc. to touch up exterior paint at a cost of $525.00 at is sole expense.
10) Lessor shall employ Vance Brown, Inc. to seal coat and restripe the parking lot at a cost of $9,245.00 at its sole expense.
11) Lessor shall provide Lessee the sum of $12,000.00 to pay for interior painting, acoustic ceiling repairs, interior lighting repairs and carpet replacement as per quote (Exhibit A) and prior to the beginning of the extension on August 15, 1999.
All other terms of the original lease shall remain the same except that any reference to Real Estate Brokers, Real Estate Commissions and Construction of Tenant Improvements shall not apply to this lease extension. Paragraph 47 of the original lease refers to semi-truck deliveries by or for Abbott Laboratories or Subsidiary Companies. The right of passage shall now belong to GET Manufacturing, although, they are not currently using this right.
Please sign your acceptance of this Extension of Lease in the space provided below and return one copy to us.
Sincerely, Acceptee: Brown Mountain View Joint Venture Rita Medical Systems, Inc. /s/: Allan F. Brown /s/: Ronald T. Steckel Allan F. Brown Ronald T. Steckel Managing Joint Venture Vice President, Operations Date: May 27, 1999 Date: June 1, 1999 |
Exhibit 10.6(b)
STANDARD SUBLEASE
1. Parties. This Sublease, dated, for reference purposes only, January 13, 1997, is made by and between Rita Medical Systems Inc. therein called "Sublessor") and Computer LANscapes, therein called "Sublessee").
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Clara State of California, commonly known as 967 Shoreline Blvd.,
Mountain View, California, and described as that +/- 6,104 square foot portion
of that larger +/- 18,000 square foot free standing R&D building. See Exhibit
A. Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. Term.
3.1 Term. The term of this Sublease shall be for approximately 30.5 months commencing on February 1, 1997 and ending on August 15, 1999 unless sooner terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if for any reason Sublessor cannot deliver possession of the Premises to Sublessee on said date, Sublessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Lease or the obligations of Sublessee hereunder or extend the term hereof but in such case Sublessee shall not be obligated to pay rent until possession of the Premises is tendered to Sublessee, provided, however, that if Sublessor shall not have delivered possession of the Premises within sixty (60) days form said commencement date. Sublessee may, at Sublessee's option, by notice in writing to Sublessor within ten (10) days thereafter, cancel this Sublease, in which event the parties shall be subject to all provisions hereof, such occupancy shall not advance the termination date and Sublessee shall pay rent for such period at the initial monthly rates set forth below.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal monthly payments of $10,682 in advance, on the 1st day of each month of the term hereof. Sublessee shall pay Sublessor upon the execution hereof $10,682 as rent for the month of March. Rent for any period during the term hereof which is for less than one (1) month shall be a pro-rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing.
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution hereof $10,682.00 as security for Sublessee's faithful performance of Sublessee's obligations hereunder. If Sublessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum
to which Sublessor may become obligated by reason of Sublessee's default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion of said deposit, Sublessee shall within ten (10) days after written demand therefore deposit cash with Sublessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep said deposit separate from its general accounts. If Sublessee performs all of Sublessee's obligations hereunder, said deposit, or so much thereof as has not therefore been applied by Sublessor, shall be returned, without payment of interest or other increment for its use to Sublessee (or at Sublessor's option to the last assignee, if any, of Sublessee's interest hereunder) at the expiration of the term hereof and after Sublessee has vacated the Premises. No trust relationship is created herein between Sublessor and Sublessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for consulting, application training, and service of computer systems and other legally related uses.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its existing state, but without regard to the use for which Sublessee will use the Premises, does not violate any applicable building code regulation or ordinance at the time that this Sublease is executed. In the event that it is determined that this warranty has been violated, then it shall be the obligation of the Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole cost and expense, rectify any such violation. In the event that Sublessee does not give to Sublessor written notice of the violation of this warranty within one (1) year from the commencement of the term of this Sublease, it shall be conclusively deemed that such violation did not exist and the correction of the same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at Sublessee's expense, comply promptly with all applicable statues, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term or any part of the term hereof regulating the use by Sublessee of the Premises. Sublessee shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant of the building containing the Premises, which shall tend to disturb such other tenants.
6.3 Condition of Premises. Except as provided in paragraph 6.2(a) Sublessee hereby accepts the Premises in their condition existing as of the date of the execution hereof, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Premises, and accepts this Sublease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business.
7. Master Lease.
7.1 Sublessor is the lessee of the Premises by virtue of a lease, hereinafter referred to as the "Master Lease", a copy of which is attached hereto marked Exhibit I, dated July 12, 1994 wherein The Brown Mt. View Joint Venture, is the lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contraindicated by this Sublease in which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word "Lessor" is used it shall be deemed to mean the Sublessor herein and wherever in the Master Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the termination of this Sublease, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom: 7.1 A&B, 8.1, 8.2b, C, 9.7, 10.1, 10.2, 10.3, 11, 13.3, 16.1, 16.2, 19, 25, 38, 46, 49, 50, 51, 1.3, 1.5, 1.6, 1.7, 3.1, 3.2, 4.1, 4.2, 5, 8.2(a), 8.3, 8.4.
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The obligations that Sublessee has not assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and from all liability, judgments, costs, damages, claims or demands arising out of Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full force and effect and that no default exists on the part of any party to the Master Lease.
8. Assignment of Sublease and Default.
8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's interest in this Sublease and all rentals and income arising therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default shall occur in the performance of Sublessor's Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sublessor shall default in the performance of its obligations to Master Lessor then Master Lessor may, at its option, receive and collect, directly from Sublessee, all rent owing and to be owed under this Sublease. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the rents from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of any written notice from the Master Lessor stating that a default exists in the performance of Sublessor's obligations under the Master Lease, to pay to Master Lessor the rents due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request form Master Lessor, and that Sublessee shall pay such rents to Master Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such rents to paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within ten (10) days of the date hereof, Master Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then this Sublease, nor the Master Lessor's consent, shall not be effective unless, within twenty (20) days of the date hereof said guarantors sign this Sublease thereby giving guarantors consent to this Sublease and the term thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor or its obligations or alter the primary liability of Sublessor to pay the rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease.
(c) The consent of this Sublease shall not constitute a consent to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor nor any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease but Master Lessor shall not be liable for any prepaid rents nor any security deposit paid by Sublessee, nor shall Master Lessor be liable for any other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten (10) days after service of such notice of default on Sublessee. If such default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor.
10. Brokers Fee.
10.1 Upon execution hereof by all parties, Sublessor shall pay to Colliers Parrish International, Inc./McMillan Moore & Buchanan, a licensed real estate broker, therein called "Broker"), a fee as set forth in a separate agreement between Sublessor and Broker, or in the event there is no separate agreement between Sublessor and Broker, the sum of $N/A for brokerage services rendered by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of first refusal granted by Sublessor herein, or any option or right substantially similar thereto, either to extend the term of this Sublease, to renew this Sublease, to purchase the Premises, or to lease or purchase adjacent property which Sublessor may own or in which Sublessor has an interest, or if Broker is the procuring cause of any lease, sublease, or sale pertaining to the Premises or any adjacent property which Sublessor may own or in which Sublessor has an interest, then as to any of said transactions Sublessor shall pay to Broker a fee, in cash, in accordance with the schedule of Broker in effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a transaction to which Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if Sublessee shall exercise any option or right of first refusal granted to Sublessee by Master Lessor in connection with this Sublease, or any option or right substantially similar thereto, either to extend the Master Lease, to renew the Master Lease, to purchase the Premises or any part thereof, or to lease or purchase adjacent property which Master Lessor may own or in which Master Lessor has an interest, or if Broker is the procuring cause of any other lease or sale entered into between Sublessee and Master Lessor pertaining to the Premises, any part thereof or any adjacent property which Master Lessor owns or in which it has an interest, then as to any of said transactions Master Lessor shall pay to Broker a fee, in cash, in accordance with the schedule of Broker in effect at the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and payable upon the exercise of any option to extend or renew, as to any extension or renewal; upon the execution of any new lease, as to a new lease transaction or the exercise of a right of first refusal to lease; or at the close of escrow, as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master Lessor's interest in the Master Lease, by accepting an assignment thereof shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 10. Broker shall be deemed to be a third party beneficiary of this paragraph 10.
11. Attorney's Fees. If any party or the Broker named herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial and appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the Court. The provision of this paragraph shall inure to the benefit of the Broker named herein who seeks to enforce a right hereunder.
12. Additional Provisions.
1. This is a full service rent, to include property taxes, insurance, utilities, and outside maintenance.
2. The month of February shall be free.
3. Sublessee, nor its agents or contractors are to be permitted to use or store hazardous materials on subject property during the Sublease term or any extensions thereafter.
4. Sublessee to be granted a first right of refusal on the adjacent space. Terms for said space shall be the same as the terms and conditions on which a third party is willing to lease the refusal space. However, in no event shall the rent be less than the Sublessee's current rent. Lessee must give Sublessor written notice of its interest to exercise, 3 days from date of Sublessees receipt of the offer. Failure to do so will be deemed sub-lessee's waiver of its right.
5. Sublessee shall be granted the use of 25 non exclusive parking spaces.
6. Sublessor to deliver the premises "as is". All Tenant Improvements costs shall be borne by the Sublessee, and performed by licensed contractors, subject to all government codes and permits, prior to construction. Sublessor must approve all plans for any Sublessee Tenant Improvement work, prior to Commencement of work, including Sublessee's intended signage.
If this Sublease has been filled in it has been prepared for submission to your attorney for his approval. No representation or recommendation is made by Colliers Parrish International, Inc. or its agents or employees as to the legal sufficiency, legal effect, or tax consequences of this Sublease or the transaction relating
thereto,
Executed at RITA MEDICAL SYSTEMS Rita Medical Systems, Inc.
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on 1/21/97 By /s/: Edward Gough
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address 967 N. Shoreline Blvd. By
------------------------ ____________________________________
Mountain View, CA 94043 "Sublessor" (Corporate Seal)
------------------------
Executed at COMPUTER LANSCAPES, INC. Computer LANscapes Inc.
------------------------ ---------------------------------------
on 1/17/97 By /s/: Alex Roosakos
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address 785 Castro Street #C By
------------------------ ____________________________________
Mountain View, CA 94041 "Sublessee" (Corporate Seal)
------------------------
Executed at _____________________ _______________________________________
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on ______________________________ By ____________________________________
address _________________________ By ____________________________________
"Master Lessor" (Corporate Seal)
Executed at _____________________ _______________________________________
on ______________________________ By ____________________________________
address _________________________ By ____________________________________
__________________________________ "Guarantors"
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EXHIBIT A
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, July 12, 1994 is made by and between The Brown Mountain View Joint Venture ("Lessor") and ZoMed International, a California Corporation ("Lessee"), (collectively the "Parties," or individually a "Party").
1.3 Term: Five (5) years and 0 months ("Original Term") commencing August 15, 1994 ("Commencement Date") and ending August 14, 1999 ("Expiration Date"). If the Commencement Date has not occurred for any reason whatsoever (other than due to a Lessee delay) on or before August 15, 1994, then in addition to Lessee's other rights or remedies, the date Lessee is otherwise obliged to commence payment of rent shall be delayed by one day for each day that the Commencement Date is delayed beyond August 15, 1994. (see Paragraph 3 for further provisions.)
1.4 Early Possession: N/A ("Early Possession Date") (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: ___________ per month ("Base Rent"), payable on the fifteenth (15th) day of each month commencing September 15, 1994 - Lessee shall receive Free Base rent (exclusive of operating expenses) for August 15 - September 14, 1994. (See paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. (See Paragraph 4.2)
1.6 Base Rent Paid Upon Execution: ______________ Base Rent for the period September 15, 1994 through October 14, 1994.
1.7 Security Deposit: Security Deposit). (See Paragraph 5 for further provisions.)
1.8 Permitted Use: General office administration, research and development of the medical device industry and warehousing. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties: al represents the Lessor
exclusively ("Lessor's Broker"); and XXXXiates represents the Lessee exclusively
("Lessee's Broker"). (See Paragraph 15 for further provisions.)
1.11 Guarantor: The obligations of the Lessee under this Lease are to be guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda: Attached hereto are Addenda consisting of Exhibits A & B.
2. Premises.
2.1 Letting: Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less.
2.2 Condition: Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the Premises, including, without limitation, the roof, structural elements of the Building and all building systems serving the Premises, including, without limitation, electrical, plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non- compliance with this warranty within thirty days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. Notwithstanding the foregoing, non-conformance of the roof with the foregoing warranty shall be remedied by Landlord upon notice, at any time during the term.
2.3 Compliance with Covenants, Restrictions and Building Code:
Lessor warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
dues not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraphs 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non- compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within twelve (12) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises: Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease.
2.5 Operating Expense History: Lessor has provided to Lessee a true and correct breakdown of current operating expenses relating to the Premises for which Lessee shall be responsible in addition to Base Monthly Rent, and Lessor warrants and represents that the current operating expenses for the Premises, limited to real property taxes, landscaping and insurance costs for the Premises, is approximately five and six-tenths cents ($0.056) per square foot of space.
3. Term.
3.1 Term: The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession: If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term.
4. Rent.
4.1 Base Rent: Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time as provided herein to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar months involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lease.
4.2 Base Rent Adjustment: Consumer Price Index. It is agreed that on February 14th, 1997, the Base Rent provided for in Paragraph 1.5 on the Lease shall be adjusted
in accordance with the following formula based on the Consumer Price Index ("CPI") for All Urban Consumers, subgroup "All Items", San Francisco - Oakland, California Metropolitan Area (1982-84=100) published by the Bureau of Labor Statistics, U.S. Department of Labor (the "Index") published nearest but prior to the date tenant took possession of the premises (the "Beginning Index") and the Index which is published nearest but prior to February 14, 1997 (the "Adjustment Index"). The CPI adjusted base rent shall be calculated by multiplying the base rent provided for in Paragraph 1.5 of the lease by a fraction, the numerator of which is the Adjustment Index and the denominator of which is the Beginning Index. In no event, however, shall the adjusted basic rent decrease below the basic rental provided for in Paragraph 1.5 of the lease or any subsequent adjustment hereof, nor shall it be less than four percent (4%) or greater than eight percent (8%) per annum. On such adjustment, the parties shall execute an amendment to the lease stating the new (adjusted) base rent. If the Index is changed so that the base year of the Index differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised.
5. Security Deposit: Lessee shall deposit with Lessor upon execution hereof the Security `Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under the Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease.
6. Use.
6.1 Use: Lessee shall use and occupy the Premises only for the purposes set forth in paragraph 1.8. or any other use which is comparable thereto and for no other purpose unless approved in writing by Lessor, which approval shall not be unreasonably withheld. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that unreasonably disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent: The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by products or fraction thereof. Lessee shall not engage in any activity in on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor which consent shall not be unreasonably withheld or delayed and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or injury and/or liability therefor. Lessor hereby deems those Hazardous Substances set forth on Exhibit "A" to be ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, Lessor hereby consents to the existence, use, manufacture, storage and transportation of such Hazardous Substances in, on and about the Premises during the Term of this Lease in compliance with Applicable Laws, and acknowledges that the same shall not constitute a Reportable Use under this Lease. If Lessee's use of the Premises changes at any time during the Lease Term from the Permitted Use identified at Paragraph 1.8 hereof, Lessee immediately shall notify Lessor of the change in use and whether any changes are required to the information contained on Exhibit "B."
(b) Duty to Inform Lessor: If Lessee knows or has reasonable cause to believe that a Hazardous Substance or a condition involving or resulting from same has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor; Lessee shall immediately give written notice of such fact to Lessor. Lessee shall within Lessee's possession or control also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any
Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving Premises.
(c) Indemnification: Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgements, costs, claims, liens, expenses, penalties, permits, and attorney's and consultant's fees during the Lease Term arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to the effects of any contamination or injury to person property or the environment created or suffered by Lessee and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved required by law and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law: Except as otherwise provided in
this Lease, Lessee shall at Lessee's sole cost and expense fully, diligently and
in a timely manner comply with all "Applicable Law" which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record permits the requirements of any
applicable fire insurance underwriter or rating bureau relating to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within ten (10) business days after
receipt of Lessor's written request, provide Lessor with copies of all documents
and information, including, but not limited to, permits, registrations,
manifests, applications, reports and certificates, evidencing Lessee's
compliance with any Applicable Law specified by Lessor, and shall immediately
upon receipt, notify Lessor in writing (with copies of any documents involved)
of any threatened or actual claim notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with any
Applicable Law.
6.4 Inspection; Compliance: Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, upon one (1) business day's prior written notice and subject to Lessee's reasonable security precautions, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections.
6.5 Lessor's Representation and Indemnity: Lessor represents and warrants that, to the best of Lessor's knowledge, prior to and as of the Commencement Date, there have been and are no Hazardous Substances located on, under, in or about the Premises, or the soil, groundwater or surface water thereof. Except to the extent resulting from the release, discharge or emission of Hazardous Substances in violation of Applicable Law on or about the Premises during the term by Lessee, its agents, employees, contractors or invitees, Lessee is released from and shall not be responsible for, and Lessor shall indemnify, defend, protect and hold Lessee, its employees, agents, shareholders, licensees, invitees, officers and directors, harmless from and against, any claims, actions, losses, costs, damages, liabilities or expenses (including, without limitation, reasonable attorneys', experts' and consultants' fees, investigation and laboratory fees) (collectively, "Claims"), arising out of or in connection with any Hazardous Substance (including, without limitation, asbestos) present at any time on, under, in or about the Premises, soil, groundwater or surface water thereof, caused by or resulting from (i) the acts or omissions of Lessor, its agents, employees, contractors or invitees; and (ii) the acts or omissions of any previous tenant of Lessor, or the tenant's agents, employees, contractors or invitees. In addition, except to the extent resulting from the release, discharge or emission of Hazardous Substances on or about the Premises in violation of Applicable Law during the term of this Lease by Lessee, its agents, employees, contractors or invitees, Lessee also is released from and shall not be responsible for any Claims arising out of or in connection with Hazardous Substances present on, under, in or about the Premises caused by any person other than Lessor or its previous tenants (or their agents, employees, contractors or invitees), including, without limitation, caused by migration, dumping or other third party source. Lessor's indemnification and warranty under this Paragraph shall survive termination of this Lease.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations:
7.1 Lessee's Obligations:
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), and except to the extent required as a result of the negligence or willful misconduct of Lessor or Lessor's employees, agents, licensees or invitees, Lessee shall, at Lessee's sole cost and expense and at all times keep the Premises and every part thereof in good order, condition and repair excluding structure elements of the Premises, the roof structure, exterior walls and foundation of the Premises (whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detector systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitation sewer system) in violation of hazardous substances laws. Lessee, in keeping the Premises in good order, condition and repair shall exercise and perform good maintenance practices.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations: Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises) 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations:
(a) Definitions; Consent Required: The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises installed at Lessee's sole expense. The term "Trade Fixtures" shall mean Lessee's machinery and equipment installed at Lessee's sole expense that can be removed without doing material damage to the Premises that cannot be repaired. The term "Alterations" shall mean any modification of the improvements on the Premises from that which provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion installed at Lessee's sole expense. Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations or Alterations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof, and the cost thereof in any one instance does not exceed $25,000.00.
(b) Consent: Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent special consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the terms of this Lease shall be done in good and workmanlike manner, with good and sufficient materials, and in compliance with Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specification therefor. Lessor may (but with no obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $25,000.00 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one quarter times the estimated cost of such Alteration or Utility Installation.
(c) Indemnification: Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee and for use on the Premises, which claims are or may be secured by an mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim, or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one quarter times the amount of such contested lien claim or demand indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration:
(a) Ownership: Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises.
(b) Removal: Unless otherwise agreed in writing, Lesser may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration: Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear, acts of God, casualties, condemnation, Hazardous Substances (other than those stored, used or disposed of by Lessee in or about the Premises), and Alterations or Utility Installations which Lessor states in writing may be surrendered at the termination of the Lease, excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practices by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance, removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, all as may then be required by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to obligation to repair and restore the Premises per this Lease.
8. Insurance; Indemnity:
8.1 Payment For Insurance: Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made Lessee to Lessor within fifteen (15) business days following receipt of an invoice for any amount due.
8.2 Liability Insurance:
(a) Carried by Lessee: Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving, or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured Managers or Lessors of Premises Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations,
but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) Carried by Lessor: In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee, Lessee shall not be named as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value:
(a) Building and Improvements: The Insuring Party shall obtain and keep in force during the term of this lease a policy or policies in the name of Lessor, with loss payable to Lessor (but naming Lessee as an additional insured) and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood unless required by a Lender), including coverage for any additional cost resulting from debris removal and reasonable amounts of coverage for the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) Rental Value: The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) Tenant's Improvements: If the Lessor is the Insuring Party, the Lessor shall not be required to Insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations.
8.4 Lessee's Property Insurance: Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessee's option, by endorsement to a policy already carried, maintain insurance coverage on all Lessee's personal property, Lessee Owned Alterations and Utility Installations and the Tenant Improvements in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible not to exceed $1,000 per occurrence. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies: Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Vest's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation: The parties hereto release each other and their respective agents, employees, successors, assignees and subtenants from all liability for injury to any person or damage to any property that is caused by or results from a risk which is actually insured against, which is required to be insured against under this Lease, or which would normally be covered by the standard form of "all risk-extended coverage" casualty insurance, without regard to the negligence or willful misconduct of the entity so released. Each party shall
use its best efforts to cause each insurance policy it obtains to provide that the insurer thereunder waives all right of recovery by the way of subrogation as required herein in connection with any injury or damage covered by the policy. If such insurance policy cannot be obtained with such waiver of subrogation, or if such waiver of subrogation is only available at additional cost and the party for whose benefit the waiver is not obtained does not pay such additional cost, then the party obtaining such insurance shall immediately notify the other party of that fact.
8.7 Indemnity: Except for Lessor's negligence or willful misconduct and/or breach of express warranties or other provisions of this Lease by Lessor or Lessor's agents, employees, contractors or invitees, and subject to Paragraph 8.6 above, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the use of the Premises by Lessee the negligence or willful misconduct of Lessee, its agents, contractors, employees or invitees, and out of any Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonable satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability: Except to the extent caused by the negligence or willful misconduct of Lessor, its agents, employees, contractors or invitees, Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invites, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Except to the extent caused by the negligence or willful misconduct of Lessor, its agents, employees, contractors, or invitees, Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
8.9 Lessor's Indemnity: Except to the extent caused by the negligence or willful misconduct of Lessee, its agents, employees, contractors, or invites, Lessor shall indemnify, protect, defend and hold harmless Lessee from any and all damages, liabilities, claims, judgements, actions, attorneys' fees, consultants' fees, cost and expenses arising from the negligence or willful misconduct of Lessor or its employees, agents, contractors or invites; any
violation of Applicable Law; or the breach of Lessor's obligations or representations under this Lease.
9. Damage or Destruction:
9.1 Definitions:
(a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the Premises the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction.
(c) "Insured Loss" shall mean damage or destruction to improvements on the Premises which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation.
9.2 Partial Damage-Insured Loss: If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's a Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect.
9.3 Partial Damage - Uninsured Loss: If a Premises Partial Damage that is not an insured loss occurs, Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date of the damage or destruction. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of said notice to given written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's commitment in such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance
thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction: Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by an authorized public authority), this Lease shall terminate as of the date of such Premises Total Destruction, whether or not the damage or destruction in an Insured Loss or was caused by a negligent or willful act of Lessee.
9.5 Insured Casualty: Lessor shall not have the right to terminate this Lease if damage to or destruction of the Premises results from a casualty ordinarily covered by insurance required to be carried by Lessor under this Lease.
9.6 Uninsured Casualty: In the case of damage which is not required to be covered by insurance, Lessor shall not have the right to terminate this Lease (i) if the damage is relatively minor (e.g., repair or restoration would take fewer than one hundred twenty (120) days or would cost less than ten percent (10%) of the replacement cost of the Building); or (ii) if Lessee agrees to pay the cost of repair in excess of a pre-agreed base amount.
9.7 Damage at the End of Lease Term: If the Premises are damaged by any peril during the last twelve (12) months of the Lease Term, and in the reasonable opinion of the Lessor's architect or construction consultant, the restoration of the Premises cannot by substantially completed within sixty (60) days, either party shall have the option to terminate this Lease, which option may be exercised only by delivery to the other party of a written notice of election to terminate within thirty (30) days after the date of such damage; provided, however, that Lessor may not terminate this Lease pursuant to this Paragraph 9.7 if Lessee, at the time of such damage, has an express written option to extend further the Term of this Lease and Lessee exercises such option so to extend further the Lease Term within thirty (30) days following the delivery to Lessee of Lessor's written termination notice.
9.8 Lessee's Right to Terminate: Lessor shall notify Lessee within thirty (30) days after any damage to or destruction of the Premises, the length of time Lessor reasonably estimates to be necessary for repair or restoration. Lessee shall have the right to terminate this Lease within fifteen (15) days after the receipt of such notice if restoration or repair of the Premises will take more than ninety (90) days.
9.9 Construction Standard: If this Lease is not terminated by Lessor or Lessee pursuant to this Paragraph, Lessor shall restore the Premises and all tenant improvements installed by Lessor to the condition in which they existed immediately prior to the destructive event.
9.10 Abatement of Rent: Rent shall be temporarily abated proportionately during any period when, by reason of any damage or destruction, Lessee reasonably determines that there is substantial interference with Lessee's use of the Premises, having regard to the extent to which Lessee may be required to discontinue Lessee's use of the Premises. Such abatement shall commence upon the date of such damage or destruction and end upon substantial
completion by Lessor of the repair or reconstruction which Lessor is obligated or undertakes to do. Lessee shall not be entitled to any compensation or damages from Lessor for loss of the use of the Premises, damage to Lessee's personal property or any inconvenience occasioned by such damage, repair or restoration.
9.11 Termination - Advance Payments: Upon termination of this Lease pursuant to this Paragraph 9, a prorata adjustment shall be made concerning any advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease.
9.12 Waive Statutes: Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes:
10.1 (a) Payment of Taxes: Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2 applicable to the Premises during the term of the Lease. All such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installments upon Lessor's request, Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover a period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration if Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
10.2 Definition of "Real Property Taxes": As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income, gift, transfer, conveyance or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge or increase thereon imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, but shall exclude any such tax, fee, levy, assessment or charge, or any increases in the foregoing, caused by or relating to a voluntary or involuntary change in ownership or other conveyance of the Premises.
10.3 Joint Assessment: If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes, all of the land and
improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuation assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith shall be conclusive.
10.4 Personal Property Taxes: Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days prior to delinquency thereof as detailed in a written statement setting forth the taxes applicable to Lessee's property.
11. Utilities: Lessee shall pay for all water, gas, heat, light, power, telephone trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon.
12. Assignment and Subletting:
12.1 Lessor's Consent Required:
(a) Lessee shall not voluntarily or by operations of law assign, transfer, mortgage, or otherwise transfer or encumber (collectively "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36.
(b) Lessee may, without Lessor's prior written consent and without any participation by Lessor in assignment and subletting proceeds, sublet the Premises or assign the Lease to: (i) a subsidiary, affiliate, division or corporation controlling, controlled by or under common control with Lessee; or (ii) a successor corporation related to Lessee by merger, consolidation, non-bankruptcy reorganization, or government action. For the purpose of this Lease, a sale or transfer of Lessee's capital stock through any public exchange shall not be deemed an assignment, subletting, or any other transfer of this Lease or the Premises requiring Lessor's consent. Lessee shall notify Lessor in writing within ten (10) days after any of the foregoing assignments or sublets has become effective.
(c) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c)
12.2 Terms and Conditions Applicable to Assignment and Subletting:
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this lease.
(c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent subletting and assignments of the sublease or any amendments or modifications thereto so long as Lessor notifies Lessee or anyone else liable on the Lease or sublease and obtain their consent and such action shall not relieve such persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination and to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including, but not limited to, the intended usage and/or required modification of the Premises if any, together with a non-refundable deposit of $500.00 as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with provisions of an assignment or sublease to which Lessor has specifically consented in writing.
12.3 Additional Terms and Conditions Applicable to Subletting: The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublease, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor unless received by Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of the Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice.
12.4 Lessor's Response: If Lessor's consent to any assignment or subletting shall not be given or withheld within twenty (20) business days following Lessee's request for consent, such consent shall be deemed given.
13. Default; Breach; Remedies:
13.1 Default; Breach: A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such a Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraph 13.2 and/or 13.3.
(a) The abandonment of the Premises without payment of Rent or performance of Lessee's other obligations hereunder.
(b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and where due when such failure
continues for three (3) days after receipt of written notice by Lessee from Lessor or the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any other obligation under this Lease where such failure continues for a period of ten (10) days following receipt of written notice thereof by Lessee.
(c) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereafter that are to be observed, complied with or performed by Lessee other than those described in subparagraphs (a) or (b) above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(d) The occurrence of any of the following events: (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor statue thereto (unless, in the case of a petition filed against Lessor or same is dismissed within sixty (60) days), (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at, the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within sixty (60) days; or (iv) the attachment, executed by other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is discharged within sixty (60) days; provided, however, in the event that any provision of this subparagraph (d) is contrary to any applicable law. This provision shall be of no force or effect, and not affect the validity of the remaining provisions.
(e) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder intentionally and materially false.
13.2 Remedies: If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessor (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn more than three (3) times in any year, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1 with or without further notice, demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the amount of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of time would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages that are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(a), (b) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(a), (b), or (d). In such case, the applicable grace period under subparagraphs 13.1(a), (b), or (d) and the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations of Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises is located.
(d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof prior to such termination or by reason of Lessee's use of the Premises.
13.3 Inducement Recapture in Event Of Breach: Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon occurrence of a monetary Breach of this Lease, more than three (3) times during the term by Lessee, as defined in Paragraph 13.1(a), any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessee under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breech by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiates the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing to Lessor at the time of such acceptance.
13.4 Late Charges: Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after receipt by Lessee of written notice from Lessor that such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor with incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary. Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 Breach by Lessor: Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall be thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished to Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that the nature of Lessor's obligation is such that more than thirty (3) days after such notice are reasonably required for its performance, then Lessor shall be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. If Lessor should fail to make payment of any amount payable by Lessor to third parties, or fail to perform any of its other obligations hereunder, and if such failure continues for thirty (30) days following written notice from Lessee (unless the nature of Lessor's obligation is such that more than thirty (30) days is required for performance and Lessor commences such performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion), Lessee shall have the right, in addition to any other rights or remedies it may have under this Lease, or at law or in equity, to cure such default; provided however, in case of emergency, where immediate action is necessary to protect persons or property, Lessee shall have the right to effect such cure immediately, without prior notice to Lessor, but shall notify lessor of the action taken as soon thereafter as is reasonably practicable. All costs incurred by Lessee in effecting such cure, together with interest thereon at the rate of two percent (2%) plus the "prime rate" charged by Bank of America NT & SA or the highest rate permitted by law, whichever is less ("Interest Rate"), from the date such costs were incurred until paid, shall be reimbursed to Lessee by Lessor within thirty (30) days after Lessor's receipt of a statement therefor.
14. Condemnation: If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of power (all of which are herein called "condemnation"). This Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If the portion of the Premises taken by condemnation materially impairs Lessee's use and occupancy of the Premises in Lessee's reasonable opinion, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days and Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises, and Rent shall be further equitably abated during any restoration of the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade fixtures, Utility Installations, Alterations, personal property and the "bonus value" of the Lease. In the event that this Lease in not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation, repair any damage to the Premises caused by such condemnation, except the extent that Lessee has been reimbursed therefor by the condemning
authority and Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair to the extent that Lessee has been reimbursed therefor by the condemning authority.
15. [INTENTIONALLY LEFT BLANK.]
16. Tenancy Statement:
16.1 Each Party (as "Responding Party") shall within ten (10)
business days after written notice from the other Party (the "Requesting Party")
execute, and deliver to the Requesting Party a statement in writing certifying:
(1) that none of the terms or provisions of this Lease have been changed (or, if
they have been changed, stating how they have been changed); (2) that this Lease
has not been canceled or terminated; (3) the last date of payment of Base Rent
and other charges and the time period covered by such payment; and (4) that, to
the party's actual current knowledge; the other party is not in default under
this Lease (or, if the other party is claimed to be in default, stating why).
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such available financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purpose herein set forth.
17. Lessor's Liability: The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor, provided that the transferee or assignee assumes in writing all of Lessor's obligations under this Lease. Nothing contained herein shall, however, release Lessor from any obligations accruing during such Lessor's ownership or possession of the Premises. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability: The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. Interest on Past-Due Obligations: Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the
late charge provided for in Paragraphs 13.4. Notwithstanding anything to the contrary contained in this Lease, for each late payment, (i) Lessee shall not be required to pay interest pursuant to this paragraph 19 if Lessee has paid a late charge pursuant to Paragraph 13.4 hereof for such late payment; and (ii) Lessee shall not be required to pay any such late charge if Lessee has made an interest payment pursuant to this Paragraph 19.
20. Time of Essence: Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined: All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer: This Lease and the exhibits attached hereto contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.
23. Notices:
23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may, by written notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier, if any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers: No waiver by Lessor or Lessee of the Default or Breach of any term, covenant or condition hereof by Lessee or Lessor shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee or Lessor of the same or of any other term, covenant or condition hereof Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be constructed as the basis of an estoppel to
enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. Recording: Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover: Lessee has no eight to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease.
27. Cumulative Remedies: No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. Covenants and Conditions: All provisions of this Lease to be observed or performed by Lessee and Lessor are both covenants and conditions.
29. Binding Effect; Choice of Law: This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the court in which the Premises are located.
30. Subordination; Attornment: Non-Disturbance:
30.1 Subordination: Provided that the ground Lessor, Lender, or
other holder of the interest to which this Lease would be subordinated executes
a recognition and non-disturbance agreement reasonably acceptable to Lessee
which (i) provides that this Lease shall not be terminated so long as no Breach
by Lessee exists under this Lease; and (ii) recognizes all of Lessee's rights
hereunder, this Lease and any Option granted hereby shall be subject and
subordinate to any ground lease, mortgage, deed of trust, or other hypothecation
or security device (collectively, "Security Device"), now or hereafter placed by
Lessor upon the real property of which the Premises are part, to any and all
advances made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof Lessee agrees that the
Lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Lessor under this Lease, but
that in the event of Lessor's default with respect to any such obligation,
Lessee will give any Lender whose name and address has been furnished Lessee in
writing for such purpose notice of Lessor's default and allow such Lender thirty
(30) days following receipt of such notice, the cure of said default before
invoking any remedies Lessee may have by reason thereof. If any Lender shall
elect to have this Lease and/or any Options granted hereby superior to the lien
of its Security Device and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 Attornment: Subject to the non-disturbance provisions of paragraph 30.3 and such recognition and attornment agreement, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, provided that such Lender or other party assumes in writing all of Lessor's obligations under this Lease, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Lessor or with respect to events occurring prior to acquisition of ownership unless such Lender had previously consented to the same; or (iii) be bound by prepayment of more than one month's rent unless the same was paid to such Lender.
30.3 Non-Disturbance: With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.
30.4 Self-Executing: Upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and non-disturbance agreement as is provided for herein.
31. Attorneys Fees: If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whereby compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs: Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of emergency, and otherwise at reasonable times upon one (1) business day's prior notice, subject to Lessee's reasonable security measures, for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. Lessor, however, at all times shall minimize any interference with Lessee's operations at the Premises.
33. Auctions: Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
34. Signs: Lessee shall have die right to erect and install building and monument signage at Lessee's expense; provided however, that Lessee first obtains all necessary governmental approvals therefor. Lessee shall remove all such signage at Lessee's expense promptly upon the expiration or sooner termination of this Lease. The installation of any sign on the Premises by or for Lessee shall be subject to provision of Paragraph 7 (Maintenance, Repairs, Utility Installation, Trade Fixtures and Alteration).
35. Termination; Merger: Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate of the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or more of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. Consents:
(a) Except for Paragraphs 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent, approval, designation, determination or judgment, of a Party is required, such consent, approval, designation, determination or judgment shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to the Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor.
(b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify hereafter any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as then reasonable with reference to the particular matter for which consent is being given.
37. Quiet Possession: Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of this provisions of this Lease.
38. Options:
38.1 Definition: As used in this Paragraph 38 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor.
38.2 Options Personal To Original Lessee: Each Option granted to Lessee in this Lease may only be assigned concurrently with an assignment of this Lease. The Options, if any, herein granted to Lessee are not assignable separately or apart from this Lease, and no Option may be separated from this Lease in any manner, by reservation or otherwise.
38.3 Multiple Options: In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised.
38.4 Effect of Default on Options:
(a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, during the time the Lessee is in Breach of this Lease.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 38.4(a).
39. Security Measures: Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises. Lessee, its agents and invitees and their property from the acts of third parties.
40. Reservations: Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee or increase Lessee's cost of such use of occupancy or Lessee's obligations hereunder. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
41. Performance Under Protest: If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the
Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum of any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease.
42. Authority: If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
43. Conflict: Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. Any conflict between this form of the Lease and any Addenda, Work Letter of Exhibits shall be controlled by the latter. This Lease is meant to supersede a previous Lease between the Lessor and VidaMed, Inc. The substance of this Lease is meant to be identical to the previous Lease.
44. Offer: Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto.
45. Multiple Parties: Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee.
46. Lessee Improvements: Lessor shall pay for and complete interior improvements "Tenant Improvements" mutually agreed upon as shown on attached Exhibit B.
47. Truck Access: Lessee will allow passage of semi-truck deliveries in Abbott Critical Care Systems, Hospital Products Division of Abbott Laboratories and Illness Corp., an average of five times per business day through the parking lot.
48. Right to Inspect Books and Records: Notwithstanding anything to the contrary contained in this Lease, within thirty (30) days after receipt by Lessee of Lessor's statement of operating expenses for any prior calendar year during the Term, Lessee or its authorized representative shall have the right to inspect the books of Lessor during the business hours of Lessor at Lessor's office in the Building, or, at Lessor's option, such other location as Lessor reasonably may specify, for the purpose of verifying the information contained in the statement. Unless Lessee asserts specific errors within thirty (30) days after receipt of the statement, the statement shall be deemed correct as between Lessor and Lessee, except as to individual components subsequently determined to be in error by a future audit.
49. Option to Extend: Notwithstanding anything to the contrary contained in this Lease:
(a) Grant of Option: Lessor hereby grants to Lessee one (1) option
("Option") to extend the term of this Lease, for an additional term of five (5)
years, commencing when the then existing Term expires, upon the terms and
conditions set forth in this Paragraph.
(b) Exercise of Option: Lessee may exercise such option by giving Lessor written notice of its intention not less than one hundred eighty (180) days' notice prior to the expiration of the then-existing term of the Lease.
(c) Extended Term Rent: If the Option is exercised, the monthly rent for the Premises shall be the then current fair market monthly rent ("Fair Market Rent") for the Premises as of the commencement date of the applicable extended term, as determined by the agreement of the parties, or, if the parties cannot agree term, then the Fair Market Rent shall be determined by three competent Real Estate Professionals mutually agreeable to the parties. All other terms and conditions contained in this Lease, as the same may be amended from time to time by the parties in accordance with the provisions of this Lease, shall remain in full force and effect and shall apply during the Option Term.
(d) Rescission: Notwithstanding anything to the contrary contained in
this Paragraph, if the monthly rent for an Option period is determined by
appraisal and if Lessee does not, in its discretion, approve the rental amount
established by the appraisal, Lessee may rescind its exercise of the Option by
giving Lessor written notice of its election to rescind within ten (10) days
after the receipt of all appraisals. If Lessee rescinds its exercise of the
Option, the (i) this Lease shall terminate on the sixtieth (60th) day after
Lessee's notice of rescission or on the date this Lease would have otherwise
terminated absent Lessee's exercise of the Option, whichever date is later; and
(ii) Lessee shall pay all costs and expenses of the appraisal.
50. Right of First Refusal: If at any time during the Term, as extended, Lessor shall solicit or receive a bona fide offer in writing ("Offer") from a third party to purchase the Premises, Lessee shall have a right of first refusal ("Right of First Refusal") to purchase the Premises upon the same terms and conditions as set forth in the Offer. Lessor, promptly following Lessor's receipt of the Offer, Shall deliver written notice to Lessee specifying the terms and conditions contained in the Offer. Lessee shall exercise its Right of First Refusal by providing Lessor with written notice of its exercise within twenty (20) business days after the date of receipt of Lessor's notice regarding the Offer. If Lessee exercises its Right of First Refusal within the twenty (20) business-day period, Lessor and Lessee promptly shall execute an amendment to this Lease relating to the Premises, which includes the terms and conditions set forth in the Offer. If Lessee fails to provide Lessor with its written notice of exercise within the twenty (20) business day period, then Lessee shall be deemed to have elected not to exercise its Right of First Refusal with respect to the particular Offer at issue. Notwithstanding the foregoing, if Lessor negotiates with the proposed purchaser terms materially more favorable then those offered to Lessee but rejected, Lessor shall be required to submit the more favorable terms to Lessee for its review. Lessee shall have seven (7) business days after receipt of the more
favorable terms to accept or reject the Premises. If Lessee rejects the more favorable terms, Lessor shall be free to enter a purchase agreement with the proposed purchaser. Lessee's Right of First Refusal; shall be continuous during the Term of this Lease and any extension thereof. Lessee's rejection of any particular Offer shall not relieve Lessor of its obligation to again offer the Premises to Lessee at any time that the Premises subsequently becomes available.
51. Construction of Tenant Improvements: At Lessor's sole cost and expense, Lessor shall construct the improvements ("Tenant Improvements") described in that certain letter from Vance M. Brown & Sons, Inc. to VidaMed Inc., dated July 13, 1994, attached hereto as Exhibit "B" and incorporated by reference herein. The Tenant Improvements shall be constructed in accordance with such attached plans and specifications, in a good and workmanlike manner, free of defects and using new materials and equipment of good quality and in compliance with all Applicable Law (including, without limitation, the Americans with Disabilities Act of 1990). Within thirty (30) days after the Commencement Date, Lessee shall have the right to submit a written "punchlist" to Lessor, setting forth any defective items to be corrected. Notwithstanding anything to the contrary contained in this Lease or in the foregoing, Lessee's acceptance of the Premises or submission of a "punchlist" shall not be deemed a waiver of Lessee's right to have defects in the Tenant Improvements or the Premises repaired at Lessor's sole expense. Lessee shall give notice to Lessor whenever any such defect becomes reasonably apparent, and Lessor shall repair such defect as soon as practicable. Lessor also hereby assigns to Lessee all warranties with respect to the Tenant Improvements, including, without limitation, warranties which would reduce Lessee's maintenance obligations hereunder, and shall cooperate with Lessee to enforce such warranties.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELAY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE, IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BY CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures.
Executed at_________________________ Executed at__________________________ On__________________________________ On___________________________________ By: LESSOR By: LESSEE The Brown Mountain View Joint Venture ZoMed International ------------------------------------- ------------------------------------- |
By:_________________________________ By:__________________________________
Name Printed: Allan Brown Name Printed: Hugh R. Sharkey
---------------------- -----------------------
Title: Managing Joint Venturer Title: Executive Vice President
----------------------------- ------------------------------
Address: 2747 Park Boulevard Address: 967 N. Shoreline Boulevard
--------------------------- ----------------------------
Palo Alto, CA 94304 Mountain View, CA 94043
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Phone: (415) 321-8432 Phone: (415) 390-8500
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VidaMed, Inc., Scionex Corporation and ZoMed International do not use hazardous materials as of the signing of the attached lease.
Alex Rossakos
June 22, 1999
RITA
MEDICAL SYSTEMS, INC.
June 22, 1999
Alex Roosakos
Cohesive Technology Solutions, Inc.
967 N. Shoreline Blvd.
Suite B
Mountain View, CA 94043
Subject: Extension of sublease of 967 North Shoreline Boulevard, Mountain View, CA 94043
Dear Alex,
This letter shall serve as the formal agreement to extend the sublease between RITA Medical Systems, Inc. ("Sublessor") and Computer LANscapes, Inc. (now Cohesive Technology Solutions, Inc.) ("Sublessee"), said sublease dated 13 January 1997. Reference is made, also, to Addendum One dated as of 13 January 1997 and Addendum Number Two, dated 19 February 1999. The standard sublease agreement as amended by Addendum One and Addendum Two and further described in this letter shall be referred to as the "Sublease Agreement". All capitalized terms are defined in the sublease.
1. First Extension Term:
Beginning Date: August 16, 1999
Ending Date: August 15, 2000
2. Extension of Term:
As agreed in Addendum Two - dated 19 February 1999
3. Basic Rent during First Extension Term:
$13,825.56 per month
4. Additional Security Deposit:
$3,143.56 (due upon execution of this sublease extension)
Alex Rossakos
June 22, 1999
5. Master Lessor shall implement the following tenant improments which will be completed prior to August 16, 1999:
HVAC System - brought up to good operating condition Exterior painting - touch up as needed Parking lot - seal coat and restripe Interior painting and acoustic ceiling tile repairs as needed Installation of new accent carpet in the Cohesive lobby area (approx. 184 sq. ft), requires sublessee to remove existing furniture, reception desk or computer equipment and replace at end of job Repair of existing 2x4 lay in light fixtures, as necessary
Except to the extent amended, by the terms of this letter, all terms and conditions contained in the Sublease Agreement, Addendum One and Addendum Number Two shall remain in full force and effect and shall apply during the First Extension Term.
RITA Medical Systems, Inc. Cohesive Technology Solutions, Inc.
By: /s/: Ronald Steckel By: /s/: Alex Roosakos
------------------------- ------------------------
Title: Vice President Title: Managing Partner
----------------------- ----------------------
Date: June 24, 1999 Date: June 25, 1999
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Addendum Number One
The following additions apply to Section 12 - Additional Provisions:
1. Add: "building systems maintenance."
2. "As written".
3. Add: "except customary amounts of office supplies and janitorial products provided that the use thereof is incidental to Sublessee's use of the Premises and is performed in compliance with applicable laws."
4. Delete and substitute the following: "Sublessee is hereby granted a first right of refusal on any space made available in the building by Sublessor. Prior to subleasing any portion of such space to a third party, Sublessor shall notify Sublessee of such proposed Sublease, and the terms and conditions of such proposed Sublease. Sublessee shall have the option, exercisable by written notice to Sublessor within ten (10) days after Sublessee's receipt of such notice, to Sublease such portion of the adjacent space from Sublessor for the same duration and on the same terms and conditions offered by such third party. If Sublessee fails to exercise such option within such period, Sublessor shall be free to Sublease such portion of such adjacent space to such third party on the terms and conditions specified in the notice to Sublessee. If Sublessor and such third party fail to execute a Sublease agreement within sixty (60) days after the expiration of Sublessee's option period, Sublessee's first, right of refusal shall be revived and shall again apply to any proposed Sublease of such portion of the adjacent space."
5. Add: "Sublessee shall be permitted to mark twelve (12) spaces as "ComputerLANscape Visitor".
6. Add: "Upon signature of this Sublease, Sublessor agrees to allow Sublessee and Sublessee's contractors access to the Premises during normal business hours in order to make improvements. Sublessee's planned improvements shall be per Attachment 1."
Add the following:
7. If Sublessor exercises its option to extend the term of the Master Lease, Sublessee shall have the option to extend the term of this Sublease for the same duration. Sublessor shall notify Sublessee of Sublessor's exercise of such option and Sublessee shall have the option, exercisable by written notice to Sublessor within ten (10) days after Sublessee's receipt of such notice, to extend this Sublease for the same duration. If Sublessee's option is exercised, the monthly rent for the Premises shall be the same as the new rent to be paid by Sublessor to the Master Lessor, on a square footage basis. If Sublessor
Alex Roosakos
June 22, 1999
rescinds its exercise of the extension under the terms of the Master Lease, then Sublessee's exercise of its option to extend this Sublease shall also be deemed rescinded and this Sublease shall then terminate upon termination of the Master Lease.
8. Sublessee shall be permitted to erect a monument sign in the front of the building and a canopy over the entrance to the Premises. Said work to be in consonance with Paragraph 6 of Section 12.
Executed at RITA MEDICAL SYSTEMS Rita Medical Systems, Inc.
-------------------------- ---------------------------------
on 1/21/97 By /s/: Edward Gough
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address 967 N. Shoreline Blvd. By ______________________________
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Mountain View, CA 94043 Sublessor (corporate seal)
--------------------------------------
Executed at COMPUTER LANSCAPES, INC. Computer LANscapes Inc.
------------------------ ---------------------------------
on 1/17/97 By /s/: Alex Roosakos
-------------------------------- -------------------------------
address 785 Castro Street #C By ______________________________
---------------------------
Mountain View, CA 94041 Sublessee (corporate seal)
-----------------------------------
Executed at________________________ _________________________________
on ________________________________ By ______________________________
address____________________________ By ______________________________
___________________________________ Master Lessor (corporate seal)
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[DIAGRAM OF PREMISES]
Addendum Number Two
This Addendum Number Two is an addendum to the Standard Sublease agreement dated January 13, 1997, entered into between RITA Medical Systems, Inc. ("Sublessor") and Computer LANscapes, Inc. (now Cohesive Technology Solutions, Inc., referred to as "Sublessee"). That Standard Sublease agreement, as amended by its Addendum Number One, shall be referred to as the "Sublease Agreement."
Background
Under the Sublease Agreement, Sublessee has subleased (the "Sublease") from Sublessor certain portions of the premises at 967 Shoreline Blvd., Mountain View, California (the "Subleased Premises"). Under the Sublease Agreement, the term of the Sublease will end on August 15, 1999. The parties wish to extend the term of the Sublease under the terms and conditions of this Addendum. Capitalized terms not otherwise defined in this Addendum shall have the meanings defined for them in the Sublease Agreement.
Agreement
Rita Medical Systems, Inc. Cohesive Technology Solutions, Inc.
By: /s/: Barry Cheskin By: /s/: Alex Roosakos
------------------------------- --------------------------------
/s/: Barry Cheskin, President & CEO /s/: Alex Roosakos, Managing Partner
----------------------------------- ------------------------------------
Printed Name and Title Printed Name and Title
Date: February 19, 1999 Date: February 19, 1999
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Exhibit 10.11
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into effective as of May 26, 2000, by and between _____________ (the "Employee") and RITA Medical Systems, Inc., a California corporation (the "Company").
RECITALS
A. It is understood that another company or other entity may from time to time consider the possibility of acquiring the Company or that a change in control may otherwise occur, with or without the approval of the Company's Board of Directors (the "Board"). The Board has identified the Employee, an officer of the Company, as a key employee whose continued employment with the Company is critical to the Company's future success and has determined that it is important to provide Employee with an incentive to continue his or her employment with the Company in the event that the Company consummates a Change of Control transaction. For purposes of this Agreement, this shall include Employee's employment in a majority-owned subsidiary or other surviving entity of an acquiring Company.
B. To accomplish the foregoing objectives, the Board of Directors has directed the Company, upon execution of this Agreement by the Employee, to agree to the terms provided in this Agreement.
C. Certain capitalized terms used in the Agreement are defined in Section 3 below.
In consideration of the mutual covenants contained in this Agreement, and in consideration of the continuing employment of Employee by the Company, the parties agree as follows:
merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.
(a) In the event that the severance benefits provided for in this Agreement to the Employee (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee's benefits under Section 2 shall be payable either: (i) in full, or (ii) as to such lesser amount which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after- tax basis, of the greatest amount of benefits under Section 2, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company's independent public accountants (the "Accountants"), whose determination shall be conclusive
and binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section 4, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code. The Company and the Employee shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 4.
(b) The payment of severance benefits provided for in this Agreement shall be subject to all applicable income, employment and social tax rules and regulations.
(c) The stock option acceleration benefits described above may negatively impact the Company's ability to engage in a Change of Control transaction that is favorable to the Company and its stockholders. As a result, the Board established the following limitation on the availability of these benefits: in the event that the Company commences substantive discussions with a potential acquiror prior to November 26, 2000 and such substantive discussions result in a Change of Control of the Company, the acceleration benefits described in this letter shall not apply to your options to purchase Common Stock or your restricted stock. The original vesting schedule(s) or repurchase terms which apply to your options to purchase Common Stock or restricted stock, as the case may be, would then apply.
any such payment be reduced by any earnings that the Employee may receive from any other source.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.
RITA MEDICAL SYSTEMS, INC. EMPLOYEE
By:_______________________ ______________________________
Title:____________________
THIS AGREEMENT made as of November 12, 1997 to take effect as of December 1, 1997 as specified herein, by and between RITA Medical Systems, lnc. (and its successors and assigns, the "Seller"), a California corporation having its principal office at 967 North Shoreline Boulevard, Mountain View, California 94043, NISSHO IWAI CORPORATION ("Distributor"), a Japanese corporation having its primary office at 4-5 Akasaka 2-chome, Minato-ku, Tokyo 107, and NISSHO IWAI AMERICAN CORPORATION ("Distributor Agent"), a New York corporation with an office at 44 Montgomery Street Suite 2150, San Francisco, California 94104-4375 (the Distributor and Distributor Agent shall be referred to collectively as "Distributors").
WHEREAS, Seller has been engaged in the manufacture and marketing of the Products (as hereinafter defined) and desires to expand the sale of same;
WHEREAS, among other things, Distributors are collectively engaged in exporting, distributing and marketing various products in Japan; and
WHEREAS, Distributors desire to act as, and Seller desires to appoint Distributors as the sole and exclusive distributors of the Products in the Territory (as hereinafter defined).
NOW, THEREFORE, the parties hereto agree as follows:
1.1 "Acquisition Closing Date" shall mean the date on which control of the Seller transfers to another individual or entity in accordance with the acquisition agreement entered into between the Seller and such acquiring individual or entity.
1.2 "Agreement" shall mean this agreement and any amendments hereto.
1.3 "Delivery Point" shall mean F.0.B. Seller's manufacturing site which is currently located at Mountain View, California, or such other location as may be agreed to in writing from time to time.
1.4 "Individual Contract" shall mean a Purchase Order for the Products issued by Distributor Agent and accepted by Seller as provided herein.
1.5 "Equipment" shall mean minimally-invasive surgical ablation systems for the treatment of solid organ tumors consisting of RF Generators, Electrodes and associated equipment described in Exhibit A and as may be added or modified in accordance with this Agreement.
1.6 "End-Customer" shall mean ultimate purchaser or user of the Products,
i.e., medical practitioner, hospital and medical facilities.
1.7 "In-Country Caretaker Period" shall mean the period from December 1, 1997 to the day before the Investment Date.
1.8 "Investment Date" shall mean the date when Distributors remit the funds for investment in Seller pursuant to letter of intent described in Article 2.1.
1.9 "Marks" shall mean all trademarks, tradenames, emblems, designs, patents and other intellectual property utilized in connection with the Products and identified in Exhibit C annexed hereto and any abbreviation or modification thereof.
1.10 "MHW" shall mean the Japanese Ministry of Health and Welfare.
1.11 "MHW Product Approval" shall mean the MHW approval, in whatever form, for the importation and distribution of Product pursuant to a "me too" or a "new medical product" application.
1.12 "Minimum Purchase Target" shall mean the minimum target quantity of Equipment for purchase each Sales Year by Distributors as provided in Exhibit B.
1.13 "Parts" shall mean replacement parts for, or components of, the Equipment.
1.14 "Product(s)" shall mean, as applicable, the Equipment and/or Parts and/or other products as provided in Article 4 herein.
1.15 "Purchase Order" shall mean Distributor Agent's standard form purchase order prevailing from time to time.
1.16 "Purchaser(s)" shall mean intermediate purchasers of the Products.
1.17 "Sales Year" shall mean each successive one-year period with the first such one year period commencing the first day of the third full month following the month in which the Distributor obtains initial MHW Product Approval.
1.18 "Sub-Distributor" shall mean the sub-distributor to the Distributor as identified in Article 5 herein.
1.19 "Territory" shall mean Japan.
2.1 Seller hereby appoints Distributors, and Distributors accept the appointment, as Seller's sole and exclusive distributor for the sale and distribution of the Products for and in the Territory as of the Investment Date. subject to the investment requirement defined below. Further, seller appoints Distributors, and Distributors agree, to act as its in-country caretaker during the In-country Caretaker Period, provided that Distributors rights and obligations during this period shall be limited to (a) Product testing, and (b) preparation of application to obtain MHW Product Approval, and (c) receipt of the termination fee in accordance with Article 13. In no event shall Distributor file the MHW Product Approval application with the MHW until after the Investment Date. It is the desire of the Distributors to make an investment in the Seller, as more fully described in a letter of intent of even date herewith, subject to the terms and conditions therein. If this investment is not made by the close of business on January 15, 1998, this Agreement shall terminate, unless extended by mutual written agreement.
2.2 During the term of this Agreement, except as stated herein, Seller shall not directly or indirectly (i) sell, distribute, market, lease or otherwise make available the Products within the Territory except through Distributors or (ii) grant a license to anyone other than Distributors for the manufacture and/or sale of the Products within the Territory. Seller shall take all commercially reasonable steps to prevent shipment (or trans-shipment) of any Products by or on behalf of others into the Territory.
2.3 During the term of this Agreement, Distributors and Sub-Distributors shall not sell, market or service in the Territory any device which are similar to or competitive with those Products and which are handled by Distributors under this Agreement.
2.4 Seller shall promptly refer to Distributor Agent all inquiries for the Products originating in or for ultimate delivery to the Territory.
2.5 The relationship between Seller and Distributors is solely that of seller and buyer. Distributors shall sell the Products for its own account and risk as an independent contractor. Nothing contained herein shall be construed or deemed to make the parties hereto joint ventures or partners or to constitute either party an agent or employee of the other. Neither party shall at any time make any representation, either in writing or orally. that it is an agent, partner or joint venture with the other. Neither party shall have the right, power or authority to assume or create any obligation, express or implied, on behalf of the other.
2.6 Each of Seller and Distributors hereby represent and warrant to the other that: (i) the most recent financial, background and product information previously furnished to the other is true, correct and complete in all material respects; (ii) it is a duly organized and validly existing corporation under the laws of its domiciliary jurisdiction; (iii) it has full power and authority to execute and deliver this Agreement and to perform and observe the provisions of this Agreement; (iv) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action and do not in any way contravene any law, obligation or restriction binding on or affecting it or any of its property; (v) no authorization or approval (including export licenses and exchange control approval) or other action by, and no notice to or filing with, any governmental authority or regulatory body, except as referenced herein. is required for the due execution, delivery and performance of this Agreement; and (vi) this Agreement has been duly executed and delivered and is a legal, valid and binding obligation enforceable against it in accordance with its terms.
3.1 The sale and purchase of the Products hereunder shall be based on the terms and conditions set forth herein and in the applicable Purchase Order, provided that if any discrepancy should occur between the terms and conditions of this Agreement and those set out in the printed portion of the Purchase Order, this Agreement shall prevail. An Individual Contract for the Products shall be deemed to have been made when Distributor Agent receives Seller's acceptance of the Purchase Order, such acceptance being indicated by Seller's countersignature on the Purchase order, Seller's issuance of a sales confirmation or similar document, Seller's delivery of the products or the like, provided that if any terms in such sales confirmation or similar document conflict with, or supplement, the terms of this Agreement or the Purchase Order, such conflicting or supplemental terms shall be deemed null and void and the provisions of this Agreement and/or the Purchase Order shall govern. In any case, Seller shall respond to each Purchase Order within fifteen (15) days after its
receipt by Seller, and failure by Seller to so respond shall be deemed acceptance by Seller. Seller shall endeavor to timely fill all Purchase Orders.
3.2 For the purpose of securing orderly shipments, Distributor Agent shall submit to seller a rolling four-quarter forecast of orders for Equipment purchases at the beginning of each quarter, of which Distributors, subject to Article 8.2, agree to purchase as a binding commitment the quantity forecast for the first two quarters of each such forecast. Distributor Agent shall submit the sales forecast for the first Sales Year on or about the Investment Date.
3.3 The price and payment terms for the Products set forth in each Individual Contract shall be in accordance with Exhibit B annexed hereto. The parties may amend such prices by mutual agreement in writing, to enable both parties to realize fair profits on their sales by taking into consideration the normal practices of the trade, if any, and competitive circumstances existing from time to time, including, in the event Distributor succeeds in obtaining MHW medical insurance reimbursement points for the Products. Beginning with the second Sales Year, Seller may make unilateral adjustments to Product prices consistent with the U.S. Consumer Price Index, provided, the Product price shall not increase by more than five (5) percent during any one Sales Year.
3.4 Distributors shall have, upon Seller's consent, which consent shall not be unreasonably withheld, the right to inspect the Products at the place of manufacture prior to packing thereof. Seller shall timely notify Distributor Agent of the production schedules for the Products and of the readiness of Products for packing. Inspection shall be at Distributors' expense. Inspection of any products by Distributors shall not constitute acceptance thereof nor shall it constitute a waiver of any claim or right which Distributors or Purchasers may have with respect thereto.
3.5 Seller shall deliver and Distributor Agent shall take delivery of the Products at the Delivery Point. Seller shall pack the Products to withstand normal international transportation, exposure and handling. Upon such delivery, title to the Products shall pass to Distributors.
4.1 Seller shall notify Distributor Agent sufficiently in advance of any planned modification in the design or specifications or of any withdrawal of any Products, taking into account, among other factors (i) the time necessary to obtain any Japanese governmental permits, licenses, and approvals, including new or additional MHW Product Approvals. and (ii) the time necessary to publicly announce and inform End-Customers of the Product withdrawal or modification.
4.2 Any new products (and components thereof) developed or handled by Seller in the future which are similar to or competitive with the Products shall be included in the term "Products'' and shall be subject to the terms and conditions of this Agreement, except for (i) the price therefor, and (ii) the Minimum Purchase Targets, both of which shall be mutually agreed, to enable both parties to realize fair profits on their sates by taking into consideration the normal practices of the trade if any competitive circumstances existing from time to time, and whether Distributor must obtain MHW Product Approval.
4.3 Seller shall make commercially reasonable efforts to notify Distributor Agent of any new products which are not similar or competitive with the Products.
Seller authorizes, and Distributor agrees to, the prompt appointment of the following entity as Distributor's sub-distributor within the Territory: AIoka Company, Ltd. ("Sub-Distributor"), 6-22-1 Mure Mitaka-shi Tokyo 181. Japan. Such appointment shall not take place until after the investment, as defined in Article 2.1, has been met. Distributor shall not, without the Seller's prior written consent, which Seller may withhold in its sole and absolute discretion, appoint any other sub-distributor. Distributor shall cause Sub-Distributor to be bound by and comply with the relevant Articles contained herein, and any breach by Sub-Distributor of those Articles shall be deemed to be a breach by Distributor.
6.1 Seller warrants and represents that to the best of its knowledge, it is the rightful and legal owner of all rights, title, and interest to any and all Marks used in connection with the manufacture
sale and promotion of the Products.
6.2 Seller hereby grants to Distributors and to Sub-Distributor the sole and exclusive right and license to use all Marks in connection with the promotion, sale and distribution of the products in the Territory.
6.3 If Seller adopts any other trademarks, tradenames and the like in connection with the Products in the future, Seller shall notify Distributor Agent immediately thereof and same shall be included in the term ''Marks''.
6.4 At Seller's sole expense, Seller shall duly register and keep effective in the Territory the Marks and shall take all commercially reasonable steps to duly protect the Marks.
6.5 Seller shall take all commercially reasonable steps to ensure that the Products are marked labeled and packaged in accordance with this Agreement and in accordance with all applicable laws, rules and regulations in the Territory. Distributor shall take all commercially reasonable steps to ensure that the Products are advertised, distributed and sold in accordance with this Agreement and in accordance with all applicable laws, rules and regulations in the Territory.
6.6 Distributor agrees to promptly report complaints from End-Customers regarding performance of the Products.
7.1 Distributor shall use its best efforts to obtain in the Distributor's name, (I) "me too" MHW Product Approval, and (ii) any other Japanese governmental permits, licenses and approvals, within twelve months of the "me too" MHW Product Approval application filing date, provided that if such are not achieved within eighteen (18) months from the Investment Date, this Agreement may terminate at Seller's option subject to the following: In the event the MHW does not permit classification of the Products under the "me too" MHW Product Approval category through no fault of Distributor, Distributor shall upon mutual agreement, apply for "new medical product" MHW Product Approval.
7.2 Upon mutual agreement of the parties, Distributor shall use its best efforts to obtain in the Distributor's and/or Sub-Distributor's name (i) the "new medical product" MHW Product Approval and (ii) thereafter, MHW medical insurance "reimbursement points'' for the Products. Seller shall provide Distributors free of charge up to one hundred (100) pieces of Electrodes per applicable organ for any clinical trials of the Product.
7.3 Immediately following the Agreement effective date, Seller shall provide to Distributor free of charge (i) [***] Generators, (ii) a reasonable quantity of Electrodes, and (c) any product documentation, including Product specifications, drawings, and data as required by the MHW or any other authorizing governmental agency. Seller shall provide to Distributor free of charge a reasonably sufficient quantity of future Products for Distributors to complete the MHW Product Approval application process.
7.4 Distributor shall provide Seller with a copy of such MHW Product Approval application fifteen (15) days prior to its submission to the MHW, and shall keep Seller promptly informed of the progress of each such application. Distributor shall assume all costs and expenses incurred in connection with the MHW Product Approval application, including the conducting of Product clinical tests.
7.5 In the event this Agreement is terminated pursuant to Article 13 herein, Distributor shall and when applicable, have Sub-Distributors promptly take all steps necessary to transfer to Seller all MHW Product Approvals as follows: (i) If termination is pursuant to Article 13.2 or Article 13.4 herein, and Distributor is the terminating party, or if termination is pursuant to Article 13.1 or Article 13.3. Distributor shall at Seller's cost and expense transfer the MHW Product Approvals to seller; (ii) if termination is pursuant to Article 13.2 or Article 13.4 herein, and Seller is the terminating party or termination is pursuant to Article 13.5 herein, Distributor shall at its own cost and expense transfer the MHW Product Approvals to Seller or Seller's designee. During any period in which transfer of the MHW Product Approval is pending, Distributor agrees, and where applicable, to have sub-Distributor agree, to the extent within its control and to the extent permitted by law, to take such actions to enable the Seller or Seller's designee to make full use of such MHW Product Approvals.
8.1 Distributor agrees to (i) use reasonable commercial efforts to promote the sate of the products and to serve customers in the Territory, and (ii) meet the Minimum Purchase Target for each Sales Year, provided, this latter undertaking shall not constitute a material obligation for purposes of Article 13.2 herein. Any quantity of Products purchased in excess of the Minimum Purchase Target for a given Sales Year shall be credited towards satisfying the Minimum Purchase Target for future Sales Years.
8.2 In the event the total quantity of Products for which Purchase Order(s) have been issued during any Sales Year is less than the Minimum Purchase Target, Seller shall have, as its exclusive remedy, the option, upon ninety (90) days written notice to Distributor Agent, of (i) terminating this Agreement pursuant to Article 13.5 or (ii) converting the exclusive distributorship granted hereunder to a non-exclusive distributorship, at the exclusive option of Seller. Should Seller exercise either remedy, Distributor may, in its sole discretion and without penalty, withdraw the most recent rolling four-quarter forecast for orders submitted to the Seller pursuant to Article 3.2., the effect of which shall be to make the purchase commitment thereunder null and void.
8.3 Upon Seller's reasonable request, Distributors shall furnish Seller with reports relating to the sale of the Products which may include, but is not limited to, Product inventory, sales to End-Customers, and Generator placements. Each party shall furnish the other party with information which is necessary or helpful with respect to sales promotion of the Products.
8.4 Upon the request of Distributors, Seller shall provide to Distributors free of charge within two weeks following MHW Product Approval (i) [***] Generators and [***] Electrodes for promotional use, and (ii) a reasonable number of catalogs, brochures and other promotional materials in the English language which may be useful to Distributors sales promotion of the Products. Seller reserves the right to review and approve all promotional materials developed by Distributor. For future Products, Seller agrees to discuss with Distributors the required quantity of samples and promotional materials necessary for Distributor to effectively engage in sales promotion of such Products.
8.5 Distributor shall limit promotion of the Products to medical applications previously approved by the Seller. Should Distributor learn of the unapproved use or promotion of the Product by a Purchaser or End-Customer, Distributor shall inform such Purchaser or End-Customer of the approved uses for the Product and shall take all commercially reasonable steps to discourage such unapproved use.
9.1 At no cost to Distributors, Seller shall provide Distributor with (i) such technical advice and information as may be deemed necessary for a full understanding of the Products and (ii) training for a reasonable period of time for a reasonable number of personnel dispatched by Distributor to Seller's facilities. The compensation, travel, hotel and other expenses for Distributor's personnel shall be for Distributor's account.
9.2 Upon mutual agreement of the parties, Seller shall provide technical support (including the dispatch of Seller's qualified personnel) to ensure the proper installation, calibration and use of the Products and to provide advice, training and assistance to Distributors' and Purchasers' personnel and shall visit potential customers with Distributor to promote the sale and proper use of the Products. Seller shall provide such personnel at a rate to be mutually agreed.
9.3 If requested by Distributors, Seller shall from time to time consider requests to improve or modify the Products in accordance with the requests of End-Customers in the Territory.
10.1 Seller hereby warrants to Distributors, Sub-Distributors, and to Purchasers that the Products shall (i) strictly conform to the Product specifications as provided by Seller and received by Distributor from time to time and all U.S. governmental regulations therefor, (ii) be free from defects in design, material and workmanship and (iii) be of merchantable quality and fit for the ordinary purposes for which the Products are used. This warranty shall survive any inspection, delivery, acceptance or payment by Distributors. Distributors shall have no obligation to provide any warranty to the Purchasers with respect to the Products, except that Distributor and Sub-Distributor shall pass on to End-Customers a copy of Seller's statement of warranty. Seller's liability under these warranties,
subject to Article 11 , shall be limited to a refund of the End-Customer's purchase price or repair or replacement. In no event shall Seller be liable for the cost of procurement of substitute goods.
10.2 Seller shall promptly repair or replace (i) any Generator which does not comply with Seller's warranty for a period of twelve (12) months from the date of delivery to Purchasers or eighteen (18) months from delivery to the Delivery Point, whichever is earlier, or (ii) any Electrode which does not comply with Seller's warranty for a period of twenty four (24) months from the date of delivery to Purchasers or until the date of the Electrode expiration date, whichever is earlier, provided, Seller warrants that the Electrodes shall have a minimum shelf-life of twenty-four (24) months, and provided further, that Seller shall endeavor to achieve a shelf-life of thirty-six (36) months for the Electrodes before commencement of the first Sales Year. and shall deliver to Distributors Electrodes with a manufacture date no more than ninety (90) days from the date of manufacture/sterilization date. Seller represents that it shall promptly and diligently comply with all its warranty obligations.
10.3 A Product may only be returned with the prior written approval of the Seller, such approval not to be unreasonably withheld. Any such approval shall reference a return material authorization number issued by Seller. Repair and transportation costs for returned Products shall be for Seller's account, provided, if Seller determines that the returned Products were not defective, such costs shall be for Distributor's account.
10.4 From the date hereof and until two (2) years after the termination of this Agreement, Seller shall maintain a general comprehensive product liability insurance policy in the amount of $2 (two) million per occurrence and $2 (two) million in the aggregate per year. Distributors and Sub-Distributor shall be named as additional insureds. Within sixty (60) days from the date hereof, Seller shall send Distributor Agent a copy of such insurance policy. Such policy shall provide that Distributors and Sub-Distributor must be notified at least sixty (60) days prior to such policy's expiration, termination or modification.
13.1 This Agreement shall commence as of the date first above written and shall terminate at the end of three (3) Sales Years, except that, thereafter at Distributors' sole option, this Agreement may be renewed for two (2) additional Sates Years upon Distributors meeting the Minimum Purchase Targets, after which it shall terminate. If this renewal option becomes exercisable, and Distributors
intend to renew the Term. Distributor Agent shall so notify Seller not less than ninety (90) days prior to the expiration of the Term. Seller and Distributors shall make best efforts to negotiate commercially reasonable terms with respect to the Product price and Minimum purchase Targets for the additional Sales Years, to enable both parties to realize fair profits on their sales by taking into consideration market conditions and the normal practices of the trade. If Seller and Distributor fail to agree to such terms within ninety (90) days of the start of such discussions, this Agreement shall terminate.
13.2 This Agreement may be terminated by either party upon written notice to the other if the other party fails to fulfill its material obligations hereunder and such failure is not cured within sixty (60) days after its receipt of a written notice requesting a remedy thereof
13.3 This Agreement may be terminated by Seller if there is a change in
the control of the seller, such termination to be effective as of the
Acquisition Closing Date, provided, in the event of such termination. (i) Seller
shall compensate Distributors in accordance with Article 13.7 herein, (ii)
seller (a) shall be obligated to deliver Electrodes and Generators to
Distributors sufficient, considering Distributors current inventory to allow
Distributor to satisfy End-Customer orders placed by Distributor's existing End-
Customers prior to the Acquisition Closing Date, (b) shall be obligated to
deliver Generators to Distributors sufficient, considering Distributors current
inventory, to satisfy End-Customer orders placed within six (6) months after the
Acquisition Closing Date but which arise from quotations made prior to such date
provided that Distributor Agent shall have provided Seller with a list of
outstanding quotes as of the Acquisition Closing Date and further provided that
Seller may. at Sellers sole option, fill such End-Customer orders directly, and
(c) shall be obligated to deliver Electrodes to Distributors sufficient,
considering Distributor's current inventory, to satisfy Distributors existing
End-Customers for orders placed within ninety (90) days after the Acquisition
Closing Date, provided, the quantity of Electrodes ordered do not exceed the
average monthly quantity of Electrodes ordered by Distributors End-Customers for
the preceding twelve months, and provided further, that Seller may, at Sellers
sole option, fill such End-Customer orders directly.
13.4 This Agreement may be terminated by either party upon written notice if the other party becomes insolvent or any voluntary or involuntary petition in bankruptcy is filed by or against such party or a trustee is appointed with respect to any of the assets of such party or a liquidation proceeding is commenced by or against such party and such proceeding has not been terminated within ninety (90) days, or if such party discontinues its business.
13.5 Seller may, in accordance with Article 8.2, terminate this Agreement if the total quantity of Products for which Purchase Order(s) have been issued is less than the Minimum Purchase Target for any Sales Year.
13.6 Termination of this Agreement shall not relieve either party of its obligations incurred prior thereto, or any rights or obligations which by their terms survive or take effect upon termination. Regardless of the reasons for termination of this Agreement, all outstanding credits and liabilities under the warranty provisions hereof shall continue to remain in force.
13.7 The parties agree that Distributors shall expend substantial efforts and costs to develop and maintain a market for the Products. Therefore, in the event of a termination pursuant to Article 13.3 herein, Seller shall compensate Distributors with cash payments in accordance with the following schedule, provided that for purposes of defining the compensation herein with respect to those periods beyond the Investment Date, if the Acquisition Closing Date occurs within twenty-one (21) days of execution of a definitive agreement regarding the acquisition ("agreement date"), the Cash Amount shall be computed as if the Termination Date is the agreement date:
-------------------------------------------------------------------------------- Termination Date Cash Amount -------------------------------------------------------------------------------- In-Country Caretaker Period US$ [***] -------------------------------------------------------------------------------- Investment Date -- Day before date of MHW ProductApproval US$ [***] -------------------------------------------------------------------------------- Date of MHW Product Approval -- Day before 1st sales Year US$ [***] -------------------------------------------------------------------------------- During 1st sales Year US$ [***] -------------------------------------------------------------------------------- ___________________ *** Material has been omitted pursuant to a request for confidential treatment, and such Material has been filed separately with the SEC. |
-------------------------------------------------------------------------------- During 2nd sales Year US$ [***] -------------------------------------------------------------------------------- During 3rd sales Year US$ [***] -------------------------------------------------------------------------------- |
Seller shall promptly deliver all amounts payable pursuant to this provision by wire transfer to Distributor or Distributor Agent, as specified by Distributor, no later than the Acquisition Closing Date.
13.8 Upon termination of this Agreement. Seller shall have the following
additional obligations with respect to repurchase of Product inventory held by
Distributors or Sub-Distributor: (i) If the termination arises from Article 13.2
or Article 13.4 herein, and the Distributors are the terminating party, or
termination arises from Article 13.3 herein, Seller shall, upon Distributors'
request. promptly repurchase at Seller risk and expense and at the original
invoice price that portion of the Product inventory which has at least twelve
(12) months until the Product expiration date and which was not damaged while in
the care of Distributor; (ii) if the termination arises from Article 13.2 or
Article 13.4 herein, and the Seller is the terminating party, or termination
arises from Article 13.1 or Article 13.5 herein, Seller may, but shall not be
obligated to, repurchase the Product inventory.
15.1 This Agreement constitutes a contract and, except as provided herein, is not assignable by either party in whole or in part without the prior written consent of the other party, and any attempted assignment or participation without such approval shall be null and void. Except as provided herein any such assignment without the written consent of the other party shall be void. Seller may assign this Agreement, subject to the existing terms and conditions, to an individual or entity that acquires controlling interest in Seller, provided, this Agreement has not been terminated pursuant to Article 13.3.
15.2 Any notice made in relation to this Agreement or performance thereunder shall be in writing and delivered by hand or sent by prepaid certified mail, return receipt requested, telefax (with a copy by certified mail) to the following addresses:
If to Distributors: Nissho lwai American Corporation
44 Montgomery Street, Suite 2150
san Francisco. California 94104-4375
Attn: Takehito Jimbo
Telefax No.: (415) 788-6959
If to Seller: RITA Medical Systems, Inc.
967 North Shoreline Boulevard
Mountain View, California 94043
Attn: Mr. Barry Cheskin, President
Telefax No.: (415) 390-8505
|
or such other address as the intended recipient previously shall have designated in writing. All notices hereunder shall be deemed to be made upon receipt. Rejection or other refusal to accept or the inability to deliver because of change of address of which no notice was given shall be deemed to be receipt of the notice sent.
*** Material has been omitted pursuant to a request for confidential treatment, and such Material has been filed separately with the SEC.
*** Material has been omitted pursuant to a request for confidential treatment, and such Material has been filed separately with the SEC.
such State's conflicts of law rules. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be finally settled as follows: If action is brought by seller arbitration shall be conducted in Tokyo. Japan in accordance with the rules then in effect of the Japan Commercial Arbitration Association by a mutually agreeable number of arbitrators appointed in accordance with such rules; if action is brought by Distributors, arbitration shall be conducted in San Francisco, California in accordance with the rules then in effect of the American Arbitration Association. The arbitrators shall follow the law governing this Agreement. Judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, either party may, (i) file suit in any court of competent jurisdiction to seek equitable relief and/or to enforce an arbitration award and/or (ii) implead the other in any action, suit or proceeding wherein the impleading party has been made a party by any third party in respect to any claim for which the impleaded party is or may be liable to the impleading party.
15.4 The provisions of this Agreement shall be deemed to be severable, and the invalidity of any provision of this Agreement shall not affect the validity of the remaining provisions of this Agreement.
15.5 The failure of either party hereto to enforce at any time any of the provisions hereof shall not be construed to be a waiver of such provisions or of the right of such party thereafter to enforce any such provisions.
15.6 The paragraph headings herein are for ease of reference only and are not to be utilized in construing or interpreting this Agreement.
15.7 The prevailing party in an arbitration or lawsuit pursuant to Article 15.3 shall be reimbursed by the other party for all expenses, including, without limitation, reasonable attorneys' fees and other legal expenses, incurred or paid by it in exercising or protecting its interests, rights or remedies under this Agreement, plus interest thereon at the highest rate permitted by applicable law.
15.8 No provision of this Agreement shall be construed against or interpreted to the disadvantage of either party hereto by any court or governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision.
15.9 Notwithstanding anything herein to the contrary, it is intended that Articles 3, 7, 10, 11, 12, 13, and 15 shall survive the termination or expiration for any reason of this Agreement.
15.10 All references to dates herein shall mean United States Pacific Standard Time.
15.11 This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter of this Agreement, and supersedes all prior discussions, agreements and understandings between the parties with respect to the subject matter of this Agreement. No amendment or modification or this Agreement shall be binding on the parties unless made in writing expressly referring to this Agreement and signed by and authorized representative of each party.
lN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
RITA MEDICAL SYSTEMS, INC.
/s/: Barry Cheskin ------------------ Barry Cheskin President and CEO |
NISSHO IWAI CORPORATION
/s/: Ryuichi Kumagai -------------------- Ryuichi Kumagai General Manager Medical & Electronics Systems Dept. |
NISSHO IWAI AMERICAN CORPORATION
/s/:Soichi Hirayama ------------------- Soichi Hirayama General Manager and Vice President |
Generators
----------
------------------------------------------------------------------------------
Model Number Part Number
------------------------------------------------------------------------------
RITA Model 500L 700-1 00891
------------------------------------------------------------------------------
Electrodes
----------
------------------------------------------------------------------------------
Model Number Part Number Description
------------------------------------------------------------------------------
RITA Model 30 700-1 00852/890 4 array, 3cm
------------------------------------------------------------------------------
RITA Model 30 700-1 00766/952 3 array, 2cm
------------------------------------------------------------------------------
RITA Model 20 700-1 00767/951 2 array, 2cm
------------------------------------------------------------------------------
|
----------------------------------------------------------------------------- Product Sales Year One Sales Year Two Sales Year Three ----------------------------------------------------------------------------- Generators $[***]/unit $[***]/unit $[***]/unit ----------------------------------------------------------------------------- Electrodes $[***]/unit $[***]/unit $[***]/unit ----------------------------------------------------------------------------- |
Note: prices are U.S. Dollar. F.0.B. Delivery Point
------------------------------------------------------------------------ Product Sales Year One Sales Year Two Sales Year Three ------------------------------------------------------------------------ Generators [***] [***] [***] ------------------------------------------------------------------------ Electrodes [***] [***] [***] ------------------------------------------------------------------------ |
Net sixty (60) days from date of delivery to Distributor Agent
JAPANESE PATENTS
-----------------------------------------------------------------------------------------------------------------------
Japanese Patent RITA PCT Application Filing
Application No. Reference No. Title No. Date Status
-----------------------------------------------------------------------------------------------------------------------
9-509498 13724-768 Method and Apparatus for PCT/US96/13285 08/15/96 Pending
Ablation of a Selected Mass
-----------------------------------------------------------------------------------------------------------------------
9-509547 13724-770 Method and Apparatus for PCT/US96/13409 08/15/96 Pending
Ablation of a Selected Mass
-----------------------------------------------------------------------------------------------------------------------
9-509548 13724-766 Method and Apparatus for PCT/US96/13411 08/15/96 Pending
Ablation of a Selected Mass
-----------------------------------------------------------------------------------------------------------------------
9-509503 13724-764 Method and Apparatus for PCT/US96/13300 08/15/96 Pending
Ablation of a Selected Mass
-----------------------------------------------------------------------------------------------------------------------
n/a 13724-775 Multiple Electrode Ablation PCT/US95/10242 08/11/95 Pending
Apparatus
-----------------------------------------------------------------------------------------------------------------------
|
JAPANESE TRADEMARKS
------------------------------------------------------------------------------ Country Mark Class Filing Date Filing No. Status Locator ------------------------------------------------------------------------------ Japan RITA 10 12/18/96 8-141791 Filed 13724-TM2002 ------------------------------------------------------------------------------ |
LICENSED PATENTS
-------------------------------------------------------------------------------------------------------------------------
U.S. Patent
Serial No. Entitled Date Issued Expiration Date Licensor
-------------------------------------------------------------------------------------------------------------------------
Medical Probe Device and Method
5,366,490 November 22, 1994 November 22, 2011 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
Medical Probe Device and Method
5,370,675 December 6, 1994 December 6, 2011 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
BPH Ablation Method and
5,385,544 Apparatus January 31, 1995 January 31, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
Steerable Medical Probe with
5,409,453 Stylets April 25, 1995 April 25, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
5,421,819 Medical Probe Device June 6, 1995 June 6, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
Medical Probe Device with Optical
5,435,805 Viewing Capability July 25, 1995 July 25, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
Medical Probe with Biopsy
5,470,308 Stylet November 28, 1995 November 28, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
Medical Ablation Apparatus
5,470,309 Utilizing a Heated Stylet November 28, 1995 November 28, 2012 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
5,484,400 Dual Channel RF Delivery System January 16, 1996 January 16, 2013 VidaMed, Inc.
-------------------------------------------------------------------------------------------------------------------------
|
--------------------------------------------------------------------------------------------------
European
PCT Serial No. Entitled Licensor
--------------------------------------------------------------------------------------------------
WO 95/17132 Medical Probe Apparatus with Laser and/or Microwave VidaMed, Inc.
--------------------------------------------------------------------------------------------------
Medical Probe Apparatus with Enhanced RF, Resistance
WO 95/18575 Heating, and Microwave Ablation Capabilities VidaMed, Inc.
--------------------------------------------------------------------------------------------------
|
U.S. PATENTS
-------------------------------------------------------------------------------------------------------------------
Serial #/ Filing Date/
RITA # Title Patent # Issue Date Status
-------------------------------------------------------------------------------------------------------------------
08/148,441 11/08/93
1002 Medical Probe Device and Method 5,486,161 1/23/96 Issued
-------------------------------------------------------------------------------------------------------------------
Device for Treating Cancer and 08/148,439 11/08/93
1003 Non-Malignant Tumors and Methods 5,458,597 10/17/95 Issued
-------------------------------------------------------------------------------------------------------------------
Device for Treating Cancer and 08/208,676 03/11/94
1004 Non-Malignant Tumors and Methods 5,472,441 12/05/95 Issued
-------------------------------------------------------------------------------------------------------------------
08/291,424 08/16/94
1008 Coiled RF Electrode Treatment Apparatus 5,507,743 04/16/96 Issued
-------------------------------------------------------------------------------------------------------------------
08/295,166 08/24/94
1011 RF Treatment Apparatus 5,599,345 02/04/97 Issued
-------------------------------------------------------------------------------------------------------------------
08/290,031 08/12/94
1012 Multiple Electrode Ablation Apparatus 5,536,267 07/16/94 Issued
-------------------------------------------------------------------------------------------------------------------
08/295,200 08/24/94
1018 RF Treatment System 5,599,346 02/04/97 Issued
-------------------------------------------------------------------------------------------------------------------
08/515,379 08/15/95
1039 Multiple Antenna Ablation Apparatus and Method 5,683,384 11/04/97 Issued
-------------------------------------------------------------------------------------------------------------------
08/576,436 12/19/95
1039CIP5 Multiple Antenna Ablation Apparatus and Method 5,672,173 09/30/97 Issued
-------------------------------------------------------------------------------------------------------------------
08/585,532 01/10/96
1039CIP6 Multiple Antenna Ablation Apparatus and Method 5,672,174 9/30/97 Issued
-------------------------------------------------------------------------------------------------------------------
Multiple Antenna Ablation Apparatus with
1039CIP1 Multiple Sensor Feedback 08/575,208 12/19/95 Allowed
-------------------------------------------------------------------------------------------------------------------
[***] [***] [***] [***] [***]
-------------------------------------------------------------------------------------------------------------------
Multiple Antenna Ablation Apparatus and Indication
1039CIP3 Method Sensor Feedback 08/577,208 12/22/95 Allowed
-------------------------------------------------------------------------------------------------------------------
1039CIP4 Multiple Antenna Ablation Apparatus and Method 08/574,618 12/19/95 Allowed
-------------------------------------------------------------------------------------------------------------------
1039CIP8 Multiple Antenna Ablation Apparatus and Method 08/605,323 02/14/96 Allowed
-------------------------------------------------------------------------------------------------------------------
Multiple Antenna Ablation Apparatus and
1039CIP9 Method with Cooling Element 08/616,928 03/15/96 Allowed
-------------------------------------------------------------------------------------------------------------------
|
*** Material has been omitted pursuant to a request for confidential treatment, and such Material has been filed separately with the SEC.
U.S. TRADEMARKS
---------------------------------------------------------------------------------------------------------------------------
Application
Trademark Classes Filing Date No. Status Case Number
---------------------------------------------------------------------------------------------------------------------------
RITA 10,42 06/19/96 75/122,091 Published 13724-TM1001
---------------------------------------------------------------------------------------------------------------------------
RITA 10,42 11/20/96 75/202,020 Published 13724-TM1013
---------------------------------------------------------------------------------------------------------------------------
RITA MEDICAL SYSTEMS 10 09/09/96 75/163,081 Allowed 13724-TM1012
---------------------------------------------------------------------------------------------------------------------------
|
EXHIBITS 10.13
THIS AGREEMENT made as of March 12, 1999, as specified herein, by and between RITA Medical Systems, Inc. (and its successors and assigns, the "Seller"), a California corporation having its principal office at 967 North Shoreline Boulevard, Mountain View, California 94043, NISSHO IWAI CORPORATION ("Distributor"), a Japanese corporation having its primary office at 4-5 Akasaka 2-chome, Minato-ku, Tokyo 107, and NISSHO IWAI AMERICAN CORPORATION ("Distributor Agent"), a New York corporation with an office at 44 Montgomery Street, Suite 2150, San Francisco, California 94104-4708 (the Distributor and Distributor Agent shall be referred to collectively as "Distributors").
WITNESSETH
WHEREAS, Seller has been engaged in the manufacture and marketing of the
Products (as hereinafter defined) and desires to expand the sale of the same;
WHEREAS, among other things, Distributors are collectively engaged in
exporting, distributing and marketing various products in Korea; and
WHEREAS, Distributors desire to act as, and Seller desires to appoint
Distributors as described below;
NOW, THEREFORE, the parties hereto agree as follows:
Distributors shall act as Seller 's exclusive distributor in the Territory
(described in Exhibit A) to promote, sell and distribute the Products
(described in Exhibit B) for applications which the Seller approves in
writing, and to provide service with respect to the Products, to customers,
as they are defined below. Further, Seller authorizes, and Distributors
agree to, the prompt appointment of the following entity as Distributors'
exclusive sub-distributor ("Sub-Distributor") within the territory:
Daeyoung Medical Corporation, 9-1, Hongdo-Don, Donk-ku, Taejeon, Korea.
Distributors shall cause Sub-Distributor to be bound by and comply with all
relevant sections of this Agreement, and any breach by Sub-Distributor
shall be deemed a breach by Distributors. Failure to appoint said Sub-
Distributor within sixty (60) days of the date hereof shall be grounds for
immediate termination of this Agreement at the option of the Seller.
"Customers" means medical doctors, institutions such as hospitals and clinics, and similar institutions which are active in the personal care of patients. Distributors are not authorized to sell any Products to any of Distributors' competitors or to any of Seller 's competitors without Seller 's prior written consent. Distributors shall not actively solicit orders from Customers domiciled outside the Territory, or sell or deliver any Product to any Customer which is not in the Territory, except as permitted under the Exclusive Distributorship Agreement between Seller and Distributors dated November 12, 1997 for the distribution of Products in Japan. Furthermore, Distributors shall not appoint
any distributor or any agent or maintain any sales, service or stock facility outside the Territory. Except with the prior written consent of Seller, Distributors shall not sell or advertise within the Territory, either on Distributors' own behalf or on behalf of any other person, company, or corporation, products which are similar to or competitive with the Products.
Distributors shall be obligated to use commercially reasonable efforts to promote Seller's products according to Section 1 above, at Distributors' sole expense. This includes, but is not limited to, the activities described below in this Section. Distributors shall provide training and clinical education to all of the Customers in Distributors' Territory. Distributors shall provide appropriate promotional materials in the language of Distributors' Territory. Distributors shall be obligated to provide a sales report to Seller on a monthly basis, by the 15th of the month following the reporting period, which summarizes unit sales, free goods and the number of active accounts as well as the current inventory status of all Products which are in Distributors' possession at the end of the month. Distributors shall provide to Seller, on request, copies of any tenders for the Products in Distributors' Territory. Prior to the commencement of each Sales Year (defined in Section 14) Distributors shall provide to Seller a business plan which will describe Distributors' results for the prior year and Distributors' plans for the coming year.
Seller shall be obligated to provide Distributors with such technical
support, advice and information as may be deemed necessary by Seller to
provide Distributors with a full understanding of the Products at no cost
to Distributors. Seller shall also provide Distributors at Seller's cost
with a reasonable number of its then existing catalogs, brochures and other
promotional materials in the English language to facilitate Distributors'
promotion of the Products. Promptly, after this Agreement is signed by both
parties, Seller shall also provide Distributors [***]with [***] Model 500
PA Generators and [***] Model 30 Electrodes which are brand new and not
used or refurbished (or Model 70 electrodes, depending upon availability)
for the exclusive use of Distributors' Sub-Distributor for promoting and
marketing the Products in the Territory provided that Distributors provide
a like quantity of generators and electrodes to Distributors' Sub-
Distributor at no charge as well. Seller agrees to sell the above mentioned
[***] product to Distributors [***] as described in Section 5 below.
The sale and purchase of the Products hereunder shall be based on the terms and conditions set forth herein and in the applicable Purchase Order, provided that if any discrepancy should occur between the terms and conditions of this Agreement and those
set out in the printed portion of the Purchase Order, this Agreement shall prevail. An Individual Contract for the Products shall be deemed to have been made when Distributor Agent receives Seller's acceptance of the Purchase Order, such acceptance being indicated by Seller's countersignature on the Purchase Order, Seller's issuance of a sales confirmation or similar document, Seller's delivery of the Products or the like, provided that if any terms in such sales confirmation or similar document conflict with, or supplement, the terms of this Agreement or the Purchase Order, such conflicting or supplemental terms shall be deemed null and void and the provisions of this Agreement and/or the Purchase Order shall govern. In any case, Seller shall respond to each Purchase Order within fifteen (15) days after its receipt by Seller, and failure by Seller to so respond shall be deemed acceptance by Seller. Seller shall endeavor to timely fill all Purchase Orders. Seller agrees that Nissho Iwai American Corporation, a wholly owned subsidiary of Nissho Iwai Corporation, shall act as Distributors' agent specifically in the formal execution of purchase orders to Seller.
In the first three years of this Agreement, Distributors shall purchase the minimum quantity of Products set forth on Exhibit C. In (a) succeeding years or (b) if additional products are added by Seller to the Products listed in Exhibit B; then, in accordance with Section 14, the parties shall make best efforts to negotiate commercially reasonable terms regarding the minimum quantities so as to enable both parties to realize a fair profit on their sales by taking into consideration the normal practices of the trade, if any, and competitive circumstances. Such terms shall be considered in effect only when reduced to writing and signed by both parties. Purchases in excess of the minimum quantity required in a given Sales Year shall be credited toward satisfying the minimum quantity required for the following Sales Year.
For the purpose of securing orderly shipments, Distributors shall submit to Seller a rolling four quarter forecast, conforming to calendar quarters, of orders for the Products at the beginning of each quarter. The first and second quarters of such forecast shall be considered to be a binding commitment.
Distributors shall have, upon Seller's consent, which consent shall not be unreasonably withheld, the right to a visual inspection of the Products by a full-time employee of Distributors at the place of manufacture prior to final packing for shipment. Seller shall timely notify Distributors of packing and shipping schedules for the Products. Inspection shall be at Distributors' expense and shall not cause interruption to Seller's production or shipping operations. Inspection of Products by Distributors shall not constitute a waiver of any claim or right which Distributors or Purchasers may have with respect to Product warranties.
A Product may only be returned with the prior written approval of the Seller, such approval not to be unreasonably withheld. Any such approval shall reference a return
material authorization number issued by Seller. Repair and direct out-of- pocket transportation costs for returned Products under warranty and their replacements shall be for Seller's account, provided, if Seller determines that the returned Products were not defective, such costs shall be for Distributors' account.
In the [***]of this Agreement, Distributors shall pay for Products the prices listed on Exhibit D hereto. In (a) succeeding years or (b) if additional products are added by Seller to the Products listed in Exhibit B; then, in accordance with Section 14, the parties shall make best efforts to negotiate commercially reasonable terms regarding the prices so as to enable both parties to realize a fair profit on their sales by taking into consideration the normal practices of the trade, if any, and competitive circumstances. Such terms shall be considered in effect only when reduced to writing and signed by both parties.
Full payment of Distributors' purchase price for the Products shall be in United States of America dollars. Payment terms shall be net sixty (60) days, and payment shall be made by wire transfer, check or other instrument approved by Seller. Any invoiced amount not paid when due shall be subject to a service charge at the lower of the rate of one and one-half percent (1.5%) per month or the maximum rate permitted by law. If Distributors fail to make any payment to Seller when due, Seller may, without affecting its rights under this Agreement, cancel or delay any future shipments of the Products to Distributors. Further, a failure to pay within twenty (20) days after the applicable due date shall be considered a failure to fulfill a material obligation under this Agreement. In the case of the authorized return of Products under warranty or recall, the sixty (60) day payment terms for such Products only shall begin upon shipment of replacement Products from Seller's manufacturing location.
If Distributors receive or become aware of any complaints concerning the Products Distributors shall promptly report them to Seller on copies of the form attached as Exhibit E to this Agreement (or on such form as Seller may provide from time to time) and Distributors shall provide all necessary reasonable assistance in connection with any corrective action with respect to the Products. Any determination of corrective action shall be made by Seller in its sole discretion.
Distributors shall comply with all applicable laws, rules and regulations of the Territory governing the use, sale, distribution, shipment and import of the Products. With respect to those Products that have not yet received approval for commercial sale, Distributors shall also comply with the laws, rules and regulations of the Territory concerning use, sale, distribution, shipment and import of unapproved products, and with any applicable Seller clinical trial protocol. In connection with this obligation, Distributors shall obtain and keep in effect all required licenses, permits and authorizations (collectively, "Registration(s)") in the name of Seller, or if this is specifically prohibited by applicable law, in the name of Distributors or Sub-Distributor.
Seller shall provide Distributors with all necessary assistance in connection with Distributors or Sub-Distributor obtaining Registrations which Seller concurs in writing are necessary for the conduct of Distributors' business. Distributors will advise Seller, upon Seller 's request, of the status of all Registrations.
Seller shall have the sole authority to cancel or transfer (or direct the cancellation or transfer of) all such Registrations. If this Agreement is terminated for any reason, Seller shall make best commercial efforts to appoint a designee qualified under applicable law to assume distribution of the Products in the Territory within a period of ninety (90) days following termination of this Agreement, and Distributors or Sub-Distributor shall, at Seller's expense, promptly transfer all Registrations held by Distributors or Sub-Distributor in connection with Distributors' or Sub- Distributor's distribution of the Products to Seller or its qualified designee. If such transfer is explicitly prohibited by applicable law, as confirmed by Seller and Distributors and/or Sub-Distributor in writing, Distributors and/or Sub-Distributor shall terminate their Registrations within thirty (30) days following Seller's request and shall use best commercial efforts to assist Seller, at Seller's expense, in obtaining new Registrations for the Seller's qualified designee within thirty (30) days of appointment of said designee.
Distributors and/or Sub-Distributor shall use Distributors' best efforts to obtain the Registrations necessary to sell the current Products within sixty (60) days of the effective date of this Agreement provided that if such Registrations are not obtained by Distributors or Sub-Distributor within six (6) months for any reason, this shall be grounds for immediate termination of this Agreement at the option of the Seller.
Whenever possible under specific tender conditions, all activities with respect to tenders shall be conducted so as to allow, upon termination of this Agreement for any reason, and upon Seller's written request, transfer of such tenders to Seller or to such party as Seller designates in writing.
Seller may provide Distributors with information concerning the manufacture of the Products to increase Distributors' ability to obtain Registrations. Distributors agree that such information will be disclosed only to those of Distributors' employees who are authorized by Seller in writing to receive such information.
Seller shall be responsible for compliance with all applicable United States laws and regulations governing the manufacture and sale of the Products. Distributors shall comply, and use Distributors' commercially reasonable efforts to assist Seller in complying, with all United States laws and regulations applicable to the import and distribution of the Products in the Territory including the maintenance of all required books, records and reports. In particular, Distributors shall track the serial numbers and lot numbers of Products delivered to Distributors' Customers. The obligation to maintain all legally required records shall survive the termination of this Agreement.
Distributors shall cooperate with Seller in effecting any recall of any specific lot(s) of the Products which, in Seller's opinion, is necessary, provided, however, that Seller shall bear all reasonable, direct out-of- pocket transportation costs relating to the Products under recall and their replacements. This section of the Agreement shall survive the termination of this Agreement, provided however that Seller shall reimburse Distributors and/or Sub-Distributor for all reasonable direct out-of-pocket costs relating to support provided to Seller in the event of a Recall following termination of this Agreement.
Seller warrants and represents that, to the best of its knowledge, as of the date hereof, it is the rightful and legal owner of all Seller's rights, title and interest to any and all patents, trademarks and trade names used in connection with the manufacture, sale and promotion of the Products.
Distributors expressly acknowledge that Distributors do not have and shall not acquire under this Agreement any rights in or to any of Seller 's patents, trademarks or trade names or to any patents, trademarks or trade names of any subsidiary or other affiliate of Seller. Distributors further acknowledge that Distributors shall not at any time use, register, or obtain in Distributors' own or any other name, Seller 's corporate name, or any of its other trademarks or trade names without Seller's prior consent in writing.
Both parties agree at all times during the term of this Agreement to hold in strictest confidence, and not use, or to disclose to any person, firm, corporation or any other entity without written authorization of the other party, any Confidential Information of the other party.
Both parties further agree not to make copies of such Confidential Information except as authorized by the other party. Distributors understand that "Confidential
Information" of Seller means any of Seller's proprietary information, technical data, trade secrets or know-how, including, but not limited to research, product plans, products, services, suppliers, Customer lists and Customers, prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to Distributors by Seller orally, in writing or by drawings.
Seller understands that "Confidential Information" of Distributors means any of Distributors' proprietary information including, but not limited market information, trade secrets or know how, Customer lists and Customers, prices and costs, finances, budgets or other information disclosed to Seller by Distributors orally, in writing or by drawings.
Confidential Information shall not in any case include information which is or becomes generally available or comes to either party's attention through means which do not involve a violation of this Agreement.
Seller hereby warrants to Distributor, Sub-Distributors, and to Distributors or Sub-Distributor's Customers that the Products shall (i) strictly conform to the Product specifications as provided by Seller and received by Distributor from time to time and all U.S. governmental regulations therefor, (ii) be free from defects in design, material and workmanship and (iii) be of merchantable quality and fit for the ordinary purposes for which the Products are used. This warranty shall survive any inspection, delivery, acceptance or payment by Distributors. Distributors shall have no obligation to provide any warranty to the Customers with respect to the Products, except that Distributor and Sub-Distributor shall pass on to Customers a copy of Seller's statement of warranty which shall conform to this Agreement. Seller's liability under these warranties, subject to Section 13, shall be limited to a refund of the Customer's purchase price or repair or replacement. In no event shall Seller be liable for the cost of procurement of substitute goods.
Seller shall promptly repair or replace (i) any Generator which does not comply with Seller's warranty for a period of twelve (12) months from the date of delivery by Sub-Distributor to the Customers or eighteen (18) months after shipment from Seller's manufacturing location to the Distributors, whichever is earlier, or (ii) any Electrode which does not comply with Seller's warranty for a period of twenty four (24) months from the date of delivery by Sub-Distributor to Customers or until the date of the Electrode expiration date, whichever is earlier, provided, Seller warrants that the Electrode shall be manufactured with a minimum shelf-life of twenty-four (24) months, and provided further that Seller shall endeavor to achieve a shelf-life of thirty-six (36) months for the Electrodes as soon as commercially reasonable, and shall deliver to
Distributors Electrodes with a manufacture date no more than ninety (90)
days from the date of manufacture/sterilization date, or one hundred eighty
(180) days once a three year shelf-life is obtained. Seller represents that
it shall promptly and diligently comply with all its warranty obligations.
From the date hereof and until two (2) years after the termination of this Agreement, Seller shall maintain a general comprehensive product liability insurance policy in the amount of two million U.S. dollars ($2,000,000) per occurrence and two million U.S. dollars ($2,000,000) in the aggregate per year. Distributor and Sub-Distributor shall be named as additional insureds. Within sixty (60) days from the date hereof, Seller shall send Distributor Agent a copy of such insurance policy. Such policy shall provide that Distributors and Sub-Distributor must be notified within thirty (30) days of such policy's expiration, termination or modification.
ALL OTHER GUARANTEES, WARRANTIES, CONDITIONS AND REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, WHETHER ARISING UNDER ANY STATUTE, COMMON LAW, CASE LAW, COMMERCIAL USAGE, CUSTOM OR OTHERWISE, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXCLUDED.
Seller shall indemnify and hold Distributors, Sub-Distributor, their
parent, subsidiaries and affiliates and their directors, officers and
employees ("Related Parties") harmless from any and all losses,
obligations, liabilities, costs and expenses including, but not limited to,
legal fees and out-of-pocket expenses arising out of or in connection with
(i) any claim of a third party regarding any breach of Seller's warranty,
or any product liability claims arising from the Products that are
otherwise not covered by Seller's general comprehensive product liability
insurance, excluding those claims which arise from the Distributors' or
Sub-Distributor's misconduct or gross negligence and (ii) any claim of a
third party regarding infringement of patent, trademark or tradename rights
with respect to the Products; provided that in either case (i) or (ii)
above, (x) Distributors or Sub-Distributor shall have promptly informed
Seller thereof (y) Distributors and/or Sub-Distributor do not defend
against or settle any claim without the written consent of Seller and (z)
Distributors and/or Sub-Distributor make best efforts to cooperate with
Seller in connection with the defense or settlement of such claim, provided
that Seller shall reimburse Distributors and/or Sub-Distributor for
reasonable expenses associated with such cooperation. In complying with the
provisions of this paragraph, Seller, and not Distributors or Sub-
Distributor, shall actively and at Seller's own expense defend against or
settle any such claim. Notwithstanding the foregoing, Seller's obligations
hereunder shall not extend to special or consequential damage claims of
Distributors, Sub-Distributors, and Related Parties. Seller's obligations
hereunder shall survive the expiration or termination of this Agreement
provided that any claim under this section
was made within ten (10) years of the termination of this Agreement or until the termination of any applicable statutes of limitations. In the event of any such claim after such period, Seller shall use its reasonable commercial efforts to assist Distributors and/or Sub-Distributor in defending against any such claim.
This Agreement shall be for a three (3) year period commencing on the first full month following Distributors' or Sub-Distributor's obtaining the Registrations necessary to sell the current Products. This Agreement shall automatically renew for successive one year periods beginning on the first day following the end of the initial three year period of this Agreement, unless notice of termination is given by either party for any reason or no reason within the ninety (90) days proceeding the commencement of any one year renewal period. Each one year period, as described in this section, shall be called a "Sales Year".
Further, this agreement may be terminated or, at the exclusive option of the Seller, converted to a non-exclusive distributorship:
(1) by Seller, upon thirty (30) days written notice to Distributors, if minimum quantity of Products, as per Section 3, is not purchased by Distributors by the end of any Sales Year.
(2) by either party upon thirty (30) days written notice to the other if the parties fail to reach agreement as to the Minimum Purchase Quantity (according to Section 3 above) or as to the prices (according to Section 5 above) either (a) prior to the commencement of any one year renewal period or (b) within sixty (60) days of written notification by Seller of an addition to the Products.
Should Seller terminate the Agreement or convert the Agreement to a non- exclusive distributorship according to either (1) or (2) above, Distributor may, in its sole discretion and without penalty withdraw the most recent rolling four-quarter forecast for orders submitted to the Seller, the effect of which shall be to make all purchase commitments by Distributor and all supply commitments by Seller under this Agreement null and void.
Further, this Agreement may be terminated:
(3) by either party upon written notice to the other if the other party fails to fulfill its material obligations hereunder and such failure is not cured within sixty (60) days after its receipt of written notice requesting a remedy thereof, provided that there shall be no such cure period if another provision in this Agreement excludes it or specifies another period.
(4) by either party upon written notice if the other party or the Sub- Distributor becomes insolvent or any voluntary or involuntary petition in bankruptcy is filed by or against such party or a trustee is appointed with respect to any of the assets of such party or a liquidation proceeding is commenced by or against such party and such proceeding has not been terminated within ninety (90) days, or if such party discontinues its business.
(5) by Seller upon sixty (60) days written notice to Distributors if there is a change of control of Seller.
Upon termination of this Agreement, Seller shall have the following additional obligations with respect to repurchase of Product inventory held by Distributors or Sub-Distributor: (i) if the termination arises from (3) or (4) above, and the Distributors are the terminating party, or termination arises from (5), Seller shall, upon Distributors' request, promptly repurchase at Seller's risk and expense and at the original invoice price any undamaged "Saleable"inventory, defined as inventory in the Seller's catalog at the time of termination of this Agreement and having a minimum remaining shelf life of at least eighteen (18) months. If the termination arises from (3) or (4) above, and the Seller is the terminating party or if termination arises from (1) or (2) above, Seller shall have the right, but not the obligation, to repurchase undamaged, Saleable inventory at the original invoice price.
Only the following Sections of this Agreement shall survive its termination: Sections 4, 6, 8, 11, 12, 13 and 16.
Other than the specific provisions in this Section, neither party shall have any remedy upon termination due to such termination, provided that this shall have no effect on the surviving Sections of this Agreement, which remain in effect and enforceable along allowing any remedy specifically associated with them.
Neither party shall be responsible to the other party for non-performance or delay in performance under this Agreement due to acts of God, civil commotion, war, riots, strikes, lockouts, severe weather, fires, explosions, governmental actions or other similar causes beyond the control of such party, provided that the party so affected shall promptly give notice thereof to the other party and shall continue to take all action reasonably within its power to comply herewith as fully as possible. In any event, the time for performance hereunder shall only be extended for the duration of the delay.
The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles
of conflict of laws. Any dispute or claim arising out of or in connection with any provision of this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.
Any notice required or permitted by this Agreement shall be in writing and
shall be deemed sufficient upon receipt, when delivered personally or by
courier, overnight delivery service or confirmed facsimile, or forty-eight
(48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if
such notice is addressed to the party to be notified at such party's
address or facsimile number as set forth below, or as subsequently modified
by written notice.
RITA Medical Systems, Inc. 967 N. Shoreline Boulevard, Mountain View, CA 94043 USA Attn: Barry Cheskin - President and CEO Fax: 650-390-8505
Nissho Iwai Corporation
4-5 Akasaka 2-chome, Minato-ku, Tokyo 107, Japan
Attn: Ryuichi Kumagai - General Manager
Medical Systems Department
Fax: 03-3588-3975
|
Nissho Iwai American Corporation 1211 Avenue of the Americas, New York, NY10036, USA Attn: Shin-ichi Kawaratani - Assistant Vise President Fax: 212-704-6961
The provisions of this Agreement shall be deemed to be severable and the invalidity of any provision of this Agreement shall not affect the validity of the remaining provisions of this Agreement.
No amendment or modification of this Agreement shall be binding on the parties unless made in writing expressly referring to this Agreement and signed by authorized representatives of each party.
This Agreement is not assignable by either party in whole or in part without the prior written consent of the other party, and any attempted assignment without such approval shall be null and void, except that Seller may assign this Agreement to an individual or entity which acquires a controlling interest in Seller.
This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersedes all prior discussions, agreements and understandings.
SIGNATURE PAGE FOLLOWS
Both parties acknowledge and agree to all of the foregoing terms and conditions. Until so executed by Distributors and Seller and returned to Seller, this Agreement shall not be binding on either party, and unless executed by Distributors and returned to Seller within ten days of the date set forth on the first page hereof, this Agreement shall expire without further notice and shall be null and void.
The parties executed this Agreement on the respective dates set forth below.
RITA MEDICAL SYSTEMS, INC.
/s/: Barry Cheskin
-------------------
By: Barry Cheskin
Title: President and CEO
Address: 967 N. Shoreline Blvd.
Mountain View, CA 94043, USA
|
NISSHO IWAI CORPORATION
/s/: Ryuichi Kumagai
---------------------
By: Ryuichi Kumagai
Title: General Manager
Address: 4-5, Akasaka 2-chome,
Minato-ku, Tokyo 107, Japan
|
NISSHO IWAI AMERICAN CORPORATION
/s/: Shin-ichi Kawaratani
-------------------------
By: Shin-ichi Kawaratani
Title: Assistant Vise President
Address: 1211 Avenue of the Americas,
New York, NY10036, USA
|
Exhibit A
Territory
South Korea
Exhibit B
Products
GENERATORS
Model Number Part Number ------------ ----------- Model 500PA 700-101082 |
ELECTRODES
Model Number Part Number Description ------------ ----------- ----------- Model 30 700-100890 4 array, 3cm, 15cm Model 30 700-100852 4 array, 3cm, 25cm Model 70* |
ACCESSORIES
Model Number Part Number ------------ ------------ Main Cable 700-101086 Foot Switch 410-100453 Dispersive Electrode 700-100379 Power Cord TBD |
At its sole discretion with sixty (60) days prior written notice: (1) Seller may discontinue any product on this list and (2) Seller may add additional products to this list, provided that the list shall contain those Seller products which are direct replacements for the current Products in applications which the Seller approves in writing.
* When, and if, such product is introduced for Korea
Exhibit C
Minimum Purchase Target
------------------------------------------------------------------------------
Product 1st Sales Year 2nd Sales Year 3rd Sales Year
------- -------------- -------------- --------------
------------------------------------------------------------------------------
Model 500PA Generator [***] [***] [***]
------------------------------------------------------------------------------
Model 30 Electrodes [***] [***] [***]
|
* Each generator is supplied with Power Cord, a Main Cable and a Footswitch ** Each electrode is supplied with one Dispersive Electrode; if, and when the Model 70 is introduced for Korea, both Model 30 and Model 70 purchases shall be credited against the minimum purchase target
Exhibit D
Pricing Schedule
--------------------------------------------------------------------------------
Product 1st Sales Year 2nd Sales Year 3rd Sales Year
------- -------------- -------------- --------------
--------------------------------------------------------------------------------
Model 500PA Generator* [***] [***] [***]
--------------------------------------------------------------------------------
Model 30 Electrodes** [***] [***] [***]
--------------------------------------------------------------------------------
Main Cable [***] [***] [***]
--------------------------------------------------------------------------------
Foot Switch [***] [***] [***]
--------------------------------------------------------------------------------
Dispersive Electrode [***] [***] [***]
--------------------------------------------------------------------------------
Power Cord [***] [***] [***]
--------------------------------------------------------------------------------
|
* Each generator is supplied with Power Cord, a Main Cable and a Foot Switch ** Each Model 30 electrode is supplied with one Dispersive Electrode; Model 70 pricing shall be the same as Model 30 pricing in the 1st, 2nd and 3rd Sales Years
+ Applies to first 1,000 [***]units; quantity discounts for 1st Sales Year only are as follows (if, and when, the Model 70 is introduced for Korea, both Model 30 and Model 70 purchases shall be credited against these quantity discounts):
1,001/st/ - 1,999/th/ units [***] 2,000/th/ - 2,999/th/ units [***] 3,000/th/ + units [***] |
Note that all part numbers are per Exhibit B and that terms are F.O.B. Seller's manufacturing location. All freight, insurance and other direct shipping expense shall be borne by Distributors from Seller's manufacturing location.
Exhibit E
Complaint Form
Complaint Report Form Complaint No._____
_______________________________[ ]See Attached
Treatment Date:______________________ C. Device Returned
Indication:__________________________ [ ] Yes, Date Returned:____
Treatment Site:______________________ [ ] No
B. Origin of Complaint D. Confirmed Complaint?:
[ ] Domestic [ ] Clinical Study [ ] Yes
[ ] International [ ] Literature [ ] No
E. RMA Number: ________________
--------------------------------------------------------------------------------
11. Investigation:
[ ] Yes
|
Complaint Response Sent:____________________
Approved by:__________________________ __________
Regulatory Affairs or Designated Date
________________ __________
Quality Assurance Date
Date File Closed:_______________________
--------------------------------------------------------------------------------
|
EXHIBITS 10.14
December 21, 1998
MDH s.r.1. Forniture Ospedaliere
Via delle Gardenie 9
Milano 20147
Italy
Dear Gianfranco Bellezza:
This letter is the agreement ("Agreement") between MDH s.r.l. Forniture Ospedaliere ("you") and RITA Medical Systems, Inc. ("RITA") under which you are appointed as a distributor in the territory described on Exhibit A to this Agreement (the "Territory") of the RITA-branded products listed on Exhibit B to this Agreement (the "Products"). This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersedes all prior discussions, agreements and understandings, including, without limitation, that certain International Distributor Agreement between RITA, you and Gianfranco Bellezza made as of December 1, 1996. That certain agreement is hereby terminated as of December 31, 1998. The terms and conditions under which you will act as RITA's distributor are as follows:
You shall act as RITA s distributor in the Territory (described in Exhibit
A) to promote, sell and distribute the Products (described in Exhibit B)
for RITA approved applications only and to provide service with respect to
the Products, to the medical community. As used in this Agreement, "medical
community" means medical doctors, institutions such as hospitals and
clinics, and similar institutions which are active in the personal care of
patients. You are not authorized to sell any Products to any of your
competitors or to any of RITA's competitors without RITA's prior written
consent. You shall not actively solicit orders from customers domiciled
outside the Territory, or sell or deliver any Product to any customer which
is not in the Territory. Furthermore, you shall not appoint any distributor
or any agent or maintain any sales, service or stock facility outside the
Territory. Except with the prior written consent of RITA , you shall not
sell or advertise within the Territory, either on your own behalf or on
behalf of any other person, company, or corporation, products which
compete, directly or indirectly, with the Products.
You shall be obligated to actively promote RITA's products according to
Section 1 above, at your sole expense. This includes, but is not limited
to, the activities described below in this Section. You shall attend and
exhibit at all major trade shows in your
Territory related to the Products. You shall provide training and clinical education to all of the customers in your Territory. You shall provide appropriate promotional materials in the language of your Territory. You shall be obligated to provide a sales report to RITA on a monthly basis, by the 15th of the month following the reporting period, which details your sales to customers, including the customer name, quantity and selling price as well as the current inventory status of all Products which are in your possession at the end of the month. You shall provide to RITA, on request, copies of any tenders for the Products in your Territory. Prior to the commencement of each Sales Year (defined in Section 14) you shall provide to RITA a business plan which will describe your results for the prior year and your plans for the coming year.
RITA shall be obligated to provide you with such technical support as may be deemed necessary by RITA to provide you with a full understanding of the Products. RITA shall also provide you with a reasonable number of its then existing catalogs, brochures and other promotional materials in the English language to facilitate your promotion of the Products.
All purchase orders shall be governed by the terms of this Agreement and RITA's standard acknowledgement form, provided that if any conflicts shall occur, this Agreement shall prevail.
In the [***] of this Agreement, you shall purchase the minimum quantity of Products set forth on Exhibit C. In (a) succeeding years or (b) if additional products are added by RITA to the Products listed in Exhibit B; then, in accordance with Section 14, the minimum quantity of Products to be purchased shall be as agreed between the parties in writing.
For the purpose of securing orderly shipments, you shall submit to RITA a rolling four quarter forecast of orders for the Products at the beginning of each quarter.
Products may only be returned with the prior written approval of RITA. Any such approval shall reference a return material authorization number issued by RITA. Repair and transportation costs for returned Products shall be borne by RITA, provided, if RITA determines that the returned Products were not defective, such costs shall be borne by you.
In the [***] of this Agreement, you shall pay for Products the prices listed on Exhibit D hereto. In (a) succeeding years or (b) if additional products are added by RITA to the Products listed in Exhibit B; then, in accordance with Section 14, the prices of Products to be purchased shall be as agreed between the parties in writing.
Full payment of your purchase price for the Products (including any freight, taxes or other applicable costs initially paid by RITA but to be borne by you) shall be in United States of America dollars. All exchange, interest, banking, collection, and other charges shall be at your expense. Payment terms shall be net ninety (90) days, and payment shall be made by wire transfer, check or other instrument approved by RITA. Any invoiced amount not paid when due shall be subject to a service charge at the lower of the rate of one and one-half percent (1.5%) per month or the maximum rate permitted by law. If you fail to make any payment to RITA when due, RITA may, without affecting its rights under this Agreement, cancel or delay any future shipments of the Products to you. Further, such a failure to pay shall be considered a failure to fulfill a material obligation under this Agreement.
If you receive or become aware of any complaints concerning the Products you shall promptly report them to RITA on copies of the form attached as Exhibit E to this Agreement (or on such form as RITA may provide from time to time) and you shall provide all necessary assistance in connection with any corrective action with respect to the Products. Any determination of corrective action shall be made by RITA in its sole discretion.
You shall comply with all applicable laws, rules and, regulations of the Territory governing the use, sale, distribution, shipment and import of the Products. With respect to those Products that have not yet received approval for commercial sale, you shall also comply with the laws, rules and regulations of the Territory concerning use, sale, distribution, shipment and import of unapproved products, and with any applicable RITA clinical trial protocol. In connection with this obligation, you shall obtain and keep in effect all required licenses, permits and authorizations (collectively, "Registration(s)").
RITA shall provide you with all necessary assistance in connection with your obtaining Registrations which RITA concurs in writing are necessary for the conduct of your business. You will advise RITA, upon RITA's request, of the status of all Registrations,
and will notify RITA whenever any change of Registration status occurs and whenever any Registration is called into question. All such Registrations shall be in the name of RITA or, if Registration in RITA's name is prohibited by applicable law, in the name of a party designated in writing by RITA or in trust for RITA. RITA shall have the sole authority to cancel or transfer (or direct the cancellation or transfer of) all such Registrations. If this Agreement is terminated for any reason, you shall promptly transfer all Registrations held by you in connection with your distribution of the Products to RITA or its designee. You shall pay all applicable Registration fees, duties, taxes and other expenses relating to the sale and use of the Products within the Territory.
To the extent that the law requires RITA. rather than you, to file any Registration, RITA may register the Products as required by law. You shall provide all necessary assistance in connection with the filing of such Registrations.
All activities with respect to tenders shall be conducted so as to allow, upon termination of this Agreement for any reason, and upon RITA's written request, transfer of such tenders to RITA or to such party as RITA designates in writing.
RITA may provide you with information concerning the manufacture of the Products to increase your ability to obtain Registrations. You agree that such information will be disclosed only to those of your employees who are authorized by RITA in writing to receive such information.
RITA shall be responsible for compliance with all applicable United States laws and regulations governing the manufacture and sale of the Products. You shall comply, and use your best efforts to assist RITA in complying, with all applicable United States laws and regulations including the maintenance of all required books, records and reports. In particular, you shall track the serial numbers and lot numbers of Products delivered to your customers.
You shall cooperate with RITA in effecting any recall of the Products which, in RITA's opinion, is necessary.
You expressly acknowledge that you do not have and shall not acquire under this Agreement any rights in or to any of RITA's patents, trademarks or trade names or to any patents, trademarks or trade names of any subsidiary or other affiliate of RITA. You further acknowledge that you shall not at any time use, register, or obtain in your own or any other name, RITA's corporate name, or any of its other trademarks or trade names.
You agree at all times during the term of this Agreement with RITA and thereafter, to hold in strictest confidence, and not use, except for the benefit of RITA, or to disclose to any person, firm, corporation or any other entity without written authorization of the President of RITA, any Confidential Information of RITA which you obtain or create. You further agree not to make copies of such Confidential Information except as authorized by RITA. You understand that "Confidential Information" means any RITA proprietary information, technical data, trade secrets or know- how, including, but not limited to research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of RITA on whom you called or with whom you became acquainted during the relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to you by RITA orally, in writing or by drawings.
RITA extends to you, only, in respect of each new and unused Product supplied to you, a warranty on terms identical to that contained in the warranty certificate enclosed and delivered with such Product when sold directly by RITA. RITA's liability is limited in all respects by the terms and conditions of such warranty.
RITA agrees that such warranty will have a minimum term of twelve (12) months from the date of its sale to you for Products with no expiration date and a minimum term extending until the expiration date for Products which have such an expiration date, providing they are unopened and undamaged.
ALL OTHER GUARANTEES, WARRANTIES, CONDITIONS AND REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, WHETHER ARISING UNDER ANY STATUTE, COMMON LAW, CASE LAW, COMMERCIAL USAGE, CUSTOM OR OTHERWISE, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXCLUDED.
You shall give RITA immediate written notice if you become aware of any legal action deriving from the use of the Products by customers, and include in such notice all facts relating to the legal action of which you are aware. RITA shall indemnify you during the term of this agreement to the extent that it and you are covered by its commercial general liability policy (including products liability) then in effect for any such claims which are brought against you, except for claims which arise from your negligence, action or failure to act. RITA shall have the right, but not the obligation, to defend any such claim, even after this Agreement terminates, and settle it on such terms as RITA deems appropriate. You shall cooperate fully with RITA in connection with such defense.
This Agreement shall be for a two (2) year period commencing on January 1, 1999. This agreement shall automatically renew for successive one year periods beginning on January 1, 2001 unless notice of termination is given by either party for any reason or no reason within the ninety (90) days proceeding the commencement of any succeeding one year renewal period. Each one year period, as described above, shall be called a "Sales Year".
Further, this agreement may be terminated:
(1) by RITA, upon thirty (30) days written notice if minimum quantity of Products, as per Section 3, is not purchased by you by the end of any Sales Year.
(2) by either party upon thirty (30) days written notice to the other if the parties fail to reach agreement as to the Minimum Purchase Quantity (according to Section 3 above) or as to the prices (according to Section 5 above) either (a) prior to the commencement of any one year renewal period or (b) within sixty days of written notification by RITA of an addition to the Products.
(3) by either party upon written notice to the other if the other party fails to fulfill its material obligations hereunder and such failure is not cured within sixty (60) days after its receipt of written notice requesting a remedy thereof.
(4) by either party upon written notice if the other party becomes insolvent or any voluntary or involuntary petition in bankruptcy is filed by or against such party or a trustee is appointed with respect to any of the assets of such party or a liquidation proceeding is commenced by or against such party and such proceeding has not been terminated within ninety (90) days, or if such party discontinues its business.
(5) by RITA upon thirty (30) days written notice if Gianfranco Bellezza, for any reason, fails to devote substantially all of his time to fulfilling the terms of this Agreement.
15. FORCE MAJEURE
Neither party shall be responsible to the other party for non-performance or delay in performance under this Agreement due to acts of God, civil commotion, war, riots, strikes, lockouts, severe weather, fires, explosions, governmental actions or other similar causes beyond the control of such party, provided that the party so affected shall promptly give notice thereof to the other party and shall continue to take all action reasonably within its power to comply herewith as fully as possible. In any event, the time for performance hereunder shall only be extended for the duration of the delay.
16. GENERAL PROVISIONS
The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. Any dispute or claim arising out of or in connection with any provision of this Agreement will be finally settled by binding arbitration in Santa Clara County, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision.
Any notice required or permitted by this Agreement shall be in writing and
shall be deemed sufficient upon receipt, when delivered personally or by
courier, overnight delivery service or confirmed facsimile, or forty-eight
(48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if
such notice is addressed to the party to be notified at such party's
address or facsimile number as set forth below, or as subsequently modified
by written notice.
RITA Medical Systems, Inc.
967 N. Shoreline Boulevard
Mountain View, CA 94043 USA
Attn: Barry Cheskin
Fax: 650.390-8505
MDH s.r.l. Forniture Ospedaliere
Via Delle Gardenie 9
Milano 20147 Italy
Attn: Gianfranco Bellezza
Fax: 39-02-417 875
The provisions of this Agreement shall be deemed to be severable and the invalidity of any provision of this Agreement shall not affect the validity of the remaining provisions of this Agreement.
No amendment or modification of this Agreement shall be binding on the parties unless made in writing expressly referring to this Agreement and signed by authorized representatives of each party.
This Agreement is not assignable by either party in whole or in part without the prior written consent of the other party, and any attempted assignment without such approval
shall be null and void, except that RITA may assign this Agreement to an individual or entity which acquires a controlling interest in RITA.
By your signature below, you acknowledge and agree to all of the foregoing terms and conditions. Until so executed by you and RITA and returned to RITA, this Agreement shall not be binding on either party, and unless executed by you and returned to RITA within ten days of the date set forth on the first page hereof, this Agreement shall expire without further notice and shall be null and void.
The parties executed this Agreement on the respective dates set forth below.
RITA MEDICAL SYSTEMS, INC.
By: /s/: Barry Cheskin
------------------
Title: President & CEO
|
Address: 967 N. Shoreline Blvd.
Mountain View, CA 94043
Date: December 22, 1998
MDH S.R.L. FORNITURE OSPEDALIERE
By: /s/: Gianfranco Bellezza
------------------------
Title: General Manager
|
Address: Via Delle Gardenie 9 Milano 20147 Italy
Date: January 4, 1999
By his signature below, Gianfranco Bellezza acknowledges and agrees to the termination as of December 31, 1998 of that certain International Distributor Agreement between RITA, MDH s.r.l. Forniture Ospedaliere and Gianfranco Bellezza made as of December 1, 1996, as set forth on the first page hereof.
GIANFRANCO BELLEZZA
By: /s/: Gianfranco Bellezza
------------------------
Title: General Manager
|
Address: Via Delle Gardenie 9 Milano 20147 Italy
Date: January 4, 1999
Exhibit A
Territory
Italy
Switzerland
Exhibit B
Products
GENERATORS
Model Number Part Number ------------ ----------- Model 500LA 700-101081 |
ELECTRODES
Model Number Part Number Description ------------ ----------- ----------- Model 30 700-100890 4 array, 3cm, 15cm Model 30 700-100852 4 array,'3czn, 25cm Model 70* |
ACCESSORIES
Model Number Part Number ------------ ----------- Main Cable 410-100837 Foot Switch 410-100453 Dispersive Electrode 700-100379 Power Cord (Italy) 410-100698 Power Cord (Predabesi, Italy) 410-100703 Power Cord (Europe) 410-100700 |
At its sole discretion: (1) RITA may discontinue any product on this list and
(2) RITA may add additional products to this list, provided that the list shall
contain those RITA products which are direct replacements for the current
Products in RITA approved applications.
* When, and if, such product is introduced for Italy
Exhibit C
Minimum Purchase Target
Product 1999 Sales Year 2000 Sales Year
------- --------------- ---------------
Model 500LA Generator* [***] [***]
Model 30Electrodes** [***] [***]
|
* Each generator is supplied with Power Cord, 2 Main cables and a Footswitch ** Each electrode is supplied with one Dispersive Electrode; if, and when the Model 70 is introduced for Italy, both Model 30 and Model 70 purchases shall be credited against the minimum purchase target
Exhibit D
Pricing Schedule
Distributor Price Distributor Price
Product 1999 Sales Year 2000 Sales Year
-------------------------- ------------------- ------------------
Model 500LA Generator* [***] [***]
Model 30 Electrodes** [***] [***]
Main Cable [***] [***]
Foot Switch [***] [***]
Dispersive Electrode [***] [***]
Power Cord (Italy) [***] [***]
Power Cord (Predabesi, Italy) [***] [***]
Power Cord (Europe) [***] [***]
|
No discounts for sub-agents
* Each generator is supplied with Power Cord, 2 Main Cables and a Foot Switch ** Each Model 30 electrode is supplied with one Dispersive Electrode Model 70 pricing shall be the same as Model 30 pricing in the 1999 and 2000 Sales Year
Note that all part numbers are per Exhibit B and that terms are F.O.B. RITA's manufacturing location.
Exhibit E
Complaint Form
____________________________________________________________[See Attached]
[ ] 10.
A. Complaint Number:_________________ C. Device Returned_____________
Treatment Date:___________________ [ ] Yes, Date Returned:_____
Indication:_______________________ [ ] No
Treatment Site:___________________ D. Confirmed Complaint?:
B. Origin of Complaint [ ] Yes
[ ] Domestic [ ] Clinical Study [ ] No
[ ] International E. RMA Number:
11. Investigation:
[ ] Yes
By who:____________________ Date Complete: ________________________
|
Approved by:_____________________ ____________
Regulatory Affairs Date
_____________________ ____________
Quality Assurance Date
Date File Closed:
--------------------------------------------------------------------------------
|
September 27, 1999
MDH s.r.l. Forniture Ospedaliere
Via Delle Gardenie 9
Milano 20147
Italy
Dear Gianfranco Bellezza:
You shall act as RITA's distributor in the Territory (described in Exhibit
A) to promote, sell and distribute the Products (described in Exhibit B)
for RITA approved applications only and to provide service with respect to
the Products, to the medical community. As used in this Agreement, "medical
community" means medical doctors, institutions such as hospitals and
clinics, and similar institutions which are active in the personal care of
patients. You are not authorized to sell any Products to any of your
competitors or to any of RITA's competitors without RITA's prior written
consent. You shall not actively solicit orders from any customers domiciled
outside the Territory, or sell or deliver any Product to any customer which
is not in the Territory. Notwithstanding the foregoing, from time to time,
you may be asked to sell or deliver Products (or you may have sold or
delivered Products) to customers in nations outside the Territory but
within the European Economic Area (EEA). You may only sell or deliver
Products to such customers with RITA's prior written consent for each order
or shipment, which will specify the terms on which such a sale or delivery
are acceptable to RITA. In no event does any such sale or delivery or
RITA's consent to such a sale or delivery confer on you any rights to sell
or deliver Products or provide services to such a customer in the future,
nor does any such sale or delivery entitle you to request any future
compensation regarding that customer. Further, in case RITA does not
consent to the sale or delivery of Products to a customer outside the
Territory, as described above, you shall not have any rights to any
indemnification or compensation for your activities related to that
customer. Furthermore, you shall not appoint any distributor or any agent
or maintain any sales, service or stock facility outside the Territory.
Except with the prior written consent of RITA, you shall not sell or
advertise within the Territory, either on your own behalf or on behalf of
any other person, company, or corporation, products which compete, directly
or indirectly, with the Products. Further, you shall not participate in the
development or clinical testing either on your own behalf or on behalf of
any other person, company, or corporation, products which compete, directly
or indirectly, with the Products.
All terms of the original Agreement (including this amendment, which describes
the modification of Section 1, as above, and forms part of the Agreement) remain
in full force and effect except to the extent that it is amended or modified in
writing and signed by authorized representatives of each party, as specified in
Section 16 of the Agreement. In that case, the Agreement as modified and
amended shall remain in full force and effect.
By your signature below, you acknowledge and agree to the above.
The parties executed this amendment to the "Agreement" on the respective dates set forth below:
RITA MEDICAL SYSTEMS, INC.
By: /s/: Barry Cheskin
------------------
Title: PRESIDENT AND CEO
|
Address: 967 North Shoreline Blvd.
Mountain View, CA 94043
Date: September 28, 1999
|
MDH S.R.L. FORNITURE OSPEDALIERE
By: /s/: Gianfranco Bellezza
------------------------
Title: General Manager
|
Address: Via delle Gardenie 9
Milano 20147
Italy
Date: September 28, 1999
|
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.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 14, 2000
|
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS | 3 MOS |
| FISCAL YEAR END | DEC 31 1999 | DEC 31 2000 |
| PERIOD START | JAN 01 1999 | JAN 01 2000 |
| PERIOD END | DEC 31 1999 | MAR 31 2000 |
| CASH | 7,067 | 9,772 |
| SECURITIES | 5,086 | 2,237 |
| RECEIVABLES | 1,203 | 1,497 |
| ALLOWANCES | (54) | (63) |
| INVENTORY | 845 | 883 |
| CURRENT ASSETS | 14,763 | 14,926 |
| PP&E | 2,246 | 2,463 |
| DEPRECIATION | (1,371) | (1,524) |
| TOTAL ASSETS | 15,705 | 15,930 |
| CURRENT LIABILITIES | 2,326 | 2,927 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 37,911 | 37,910 |
| COMMON | 1 | 1 |
| OTHER SE | 1,636 | 2,732 |
| TOTAL LIABILITY AND EQUITY | 15,705 | 15,930 |
| SALES | 4,629 | 1,841 |
| TOTAL REVENUES | 4,629 | 1,841 |
| CGS | 2,994 | 1,182 |
| TOTAL COSTS | 9,383 | 3,636 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 212 | 133 |
| INCOME PRETAX | (7,510) | (2,942) |
| INCOME TAX | 0 | 0 |
| INCOME CONTINUING | (7,510) | (2,942) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (7,510) | (2,942) |
| EPS BASIC | (9.33) | (2.89) |
| EPS DILUTED | (9.33) | (2.89) |