Delaware 3845 77-0154833
(State or other
jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or
organization) Classification Code Number) Identification Number)
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1501 Industrial Road
San Carlos, CA 94070
(650) 802-0400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
William H. Lawrenson
Chief Financial Officer
1501 Industrial Road
San Carlos, CA 94070
(650) 802-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Robert P. Latta, Esq. John W. White, Esq.
Julia Reigel, Esq. Cravath, Swaine & Moore
G. Scott Giesler, Esq. WorldWide Plaza
Wilson Sonsini Goodrich & Rosati 825 Eighth Avenue,
Professional Corporation New York New York 10019-7475
650 Page Mill Road (212) 474-1000
Palo Alto, CA 94304-1050
(650) 493-9300
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Title of Each Class Proposed Maximum
of Securities to be Aggregate Offering Amount of
Registered Price(1) Registration Fee
-----------------------------------------------------------------------------
Common stock, $0.001 par
value..................... $50,600,000 $13,358.40
-----------------------------------------------------------------------------
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be + +changed. We may not sell these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +preliminary prospectus is not an offer to sell these securities and is not + +soliciting an offer to buy these securities in any state where the offer or + +sale is not permitted. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED AUGUST 18, 2000
PROSPECTUS
Shares
Natus Medical Incorporated
Common Stock
We are selling shares of our common stock. We have granted the underwriters a 30-day option to purchase up to an additional shares of common stock to cover over-allotments.
This is the initial public offering of our common stock. We currently expect that the initial public offering price will be between $ and $ per share. We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol "BABY."
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 Natus Medical Incorporated (before expenses) $ $
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The underwriters expect to deliver the shares to purchasers on or about , 2000.
Salomon Smith Barney
Dain Rauscher Wessels
Prudential Vector Healthcare
a unit of Prudential
Securities
, 2000
[Artwork:
Text reads as follows:
ALGO(R) Newborn Hearing Screeners use AABR(TM) Automated Auditory Brainstem
Response technology, which screens the entire hearing pathway from the ear to
the brainstem.
Picture of ALGO Newborn Hearing Screener in use.
Text surrounding the picture reads as follows (counter-clockwise):
1. The ALGO screener sends a series of soft clicking sounds into the baby's
ear.
2. The baby's brain responds with a specific brainwave pattern called the
auditory brainstem response (ABR).
3. The screener automatically compares the baby's ABR to a stored template from
normal hearing infants.
4. The ALGO screener prints pass/refer results after every screen.
Caption at bottom of page reads:
NATUS because every baby is precious]
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Information Regarding Forward-Looking Statements......................... 21
Use of Proceeds.......................................................... 22
Our Policy Regarding Dividends........................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 37
Management............................................................... 58
Relationships and Related Party Transactions............................. 68
Principal Stockholders................................................... 71
Description of Capital Stock............................................. 74
Shares Eligible for Future Sale.......................................... 78
United States Tax Consequences to Non-United States Holders.............. 80
Underwriting............................................................. 82
Legal Matters............................................................ 84
Experts.................................................................. 84
Where You Can Find Additional Information................................ 84
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 Business
We are a medical device company focused on developing, manufacturing and marketing screening products for the identification and monitoring of common medical disorders that may occur in the critical developmental period from conception to a baby's first birthday. Currently, we are selling our ALGO products for newborn hearing screening, and, in early 2001, we expect to begin actively marketing our CO-Stat products for the evaluation of jaundice, a potentially toxic condition that can cause the skin to turn yellow. Both of our current product lines are comprised of hardware units and single-use disposable components and both product lines have been cleared for marketing by the United States Food and Drug Administration, or the FDA. We believe our products deliver accurate crib-side results in a rapid and reliable manner, and are simple to use and cost-effective. In addition, our products address the American Academy of Pediatrics' standard of care guidelines.
Our ALGO products use automated auditory response brainstem technology, or automated ABR, to enable simple, non-invasive and accurate screening for hearing impairment in newborns. The ALGO screener delivers sound stimuli to a newborn's ears and analyzes brain wave responses to produce a "Pass" or "Refer" result. The screening can be performed within hours after birth. In addition, the ALGO meets the American Academy of Pediatrics' guidelines without requiring a trained audiologist to operate the equipment. We currently sell our ALGO products in the United States, Europe, Japan, Australia and New Zealand. Our ALGO products have been installed in approximately 40% of the approximately 4,000 hospitals with birthing facilities in the United States. In 1999, we sold disposable supplies to conduct approximately 1.2 million tests, and in the six months ended June 30, 2000, we sold disposable supplies to conduct approximately 770,000 tests.
In addition to ALGO products, we have developed the CO-Stat analyzer that, within hours after birth, enables physicians to assess the likelihood that serious newborn jaundice will not occur. Jaundice may be a sign of an abnormally high rate of hemolysis, which is the process by which red blood cells in the human body are destroyed. Our CO-Stat analyzers accurately and non-invasively measure the rate of hemolysis by detecting the level of carbon monoxide in exhaled breath. In addition, we are currently investigating the use of the CO-Stat for other conditions, including pregnancy induced hypertension. To date, we have sold our CO-Stat system primarily for clinical research.
Our Market Opportunity
Early detection of disorders for which treatments are readily available maximizes the possibility of achieving the best outcome for the child and reduces the social impact and the financial cost of treatment and habilitation. Our products address hearing impairment and jaundice, which are among the more common disorders a baby may face after birth.
Each year, there are approximately 3.8 million births in the United States, and approximately 10.5 million births in all industrialized countries. Impaired hearing affects approximately six per 1,000 newborns in the United States. Undetected hearing impairment may result in the failure to learn, process spoken language or speak. The annual cost to society of profound newborn hearing impairment is estimated to be approximately $79 billion in the United States due to increased educational costs, lower lifetime income and higher unemployment. Early identification and habilitation can mitigate the effects of this disorder, regardless of its
severity. Recent clinical evidence in support of early detection for hearing impairment combined with the introduction of new technologies has led health organizations, such as the American Academy of Pediatrics, and state governments to endorse universal newborn hearing screening programs. As a result, we estimate that 88% of births in the United States during 2000 will occur in states with mandates or pending mandates for universal newborn hearing screening. In addition, we estimate that hospitals in four other states without mandates or pending mandates will screen more than half of newborns in those states. Although universal newborn hearing screening is less prevalent outside the United States, some foreign governments, such as those in Japan and regions of Belgium, have begun to implement newborn hearing screening initiatives. We believe a significant opportunity exists in international markets to increase the population of newborns screened for hearing impairment.
Jaundice affects over half of all newborns and may be indicative of serious conditions that can result in irreversible brain damage or death. Due to the potentially serious implications of jaundice, the American Academy of Pediatrics recommends that every newborn be closely monitored for jaundice and that physicians should definitively determine the presence or absence of an abnormal rate of hemolysis to establish the appropriate treatment for babies with jaundice. However, since jaundice is most often detected visually more than three days after birth, the need for definitive evaluation is often not established before a newborn's discharge from the hospital. We believe that hospitals in the United States spend approximately $1.3 billion per year to treat neonatal jaundice in the hospital, mainly due to late detection and subsequent readmission for evaluation.
We were incorporated in California on May 26, 1987 under the name Medical Instruments, Inc. On July 10, 1987, we changed our name to ALGOTEK Instruments, Inc., and on September 29, 1998 we changed our name to Natus Medical Incorporated. We reincorporated in Delaware in August 2000. Our principal executive offices are located at 1501 Industrial Road, San Carlos, California 94070, and our telephone number is (650) 802-0400.
Natus(R); 70-40(R); ALGO(R); ALGO 1e(R); ALGO 2(R); ALGO2e; ALGO 2e Color; ALGO Portable; ALGO Databook(R); ALGO DataBook NHS Data Tracking System; CO- Stat(R); CO-Stat End Tidal Breath Analyzer; Dri-Prep(R); Ear Couplers(R); Jelly Button(R); MiniMuffs(R); Duracoupler; AABR; and ALGO 3 are our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.
The Offering
Common stock offered.......................... shares
Common stock outstanding after this offering.. shares
Use of proceeds............................... To fund international
expansion, working capital,
capital expenditures, general
corporate purposes and
potential acquisitions of
complementary businesses,
products and technologies.
Proposed Nasdaq National Market symbol........ "BABY"
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Unless otherwise noted, all information in this prospectus:
. assumes no exercise of the underwriters' option to purchase up to additional shares of our common stock to cover over-allotments;
. reflects a two-for-five reverse split of our common and preferred stock in August 2000;
. reflects the conversion of each outstanding share of our convertible preferred stock into one share of common stock, or an aggregate of 8,931,534 shares, 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 authorizing a class of 10,000,000 shares of undesignated preferred stock concurrently with the completion of this offering.
The number of shares of common stock to be outstanding immediately after this offering:
. is based upon 9,684,520 shares of common stock outstanding as of June 30, 2000 assuming conversion of all convertible preferred stock;
. does not take into account 1,326,123 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2000 at a weighted average exercise price of $1.09 per share;
. does not take into account 1,500,000 shares of common stock available for future issuance under our 2000 stock option plan;
. does not take into account 1,000,000 shares of common stock available for future issuance under our 2000 employee stock purchase plan; and
. does not take into account 400,000 shares of common stock available for future issuance under our 2000 director option plan.
SUMMARY FINANCIAL DATA
Six Months
Years Ended December 31, Ended June 30,
------------------------------------------- ---------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------ -------
(in thousands, except per share amounts)
Statement of Operations
Data:
Net revenues............ $ 4,274 $ 6,501 $10,031 $15,884 $19,783 $8,918 $11,009
Cost of revenues........ 2,027 2,567 3,612 5,577 6,624 3,082 3,908
------- ------- ------- ------- ------- ------ -------
Gross profit........... 2,247 3,934 6,419 10,307 13,159 5,836 7,101
------- ------- ------- ------- ------- ------ -------
Operating expenses:
Marketing and selling.. 2,105 2,828 4,259 6,275 7,684 3,654 4,395
Research and
development........... 645 962 1,602 2,711 2,457 1,288 1,605
General and
administrative........ 648 829 1,231 1,638 2,384 1,021 1,152
Amortization of
deferred stock
compensation.......... -- -- -- -- -- -- 278
------- ------- ------- ------- ------- ------ -------
Total operating
expenses............. 3,398 4,619 7,092 10,624 12,525 5,963 7,430
------- ------- ------- ------- ------- ------ -------
Income (loss) from
operations............. (1,151) (685) (673) (317) 634 (127) (329)
Other income (expense),
net.................... (12) 21 97 118 20 5 12
------- ------- ------- ------- ------- ------ -------
Income (loss) before
taxes.................. (1,163) (664) (576) (199) 654 (122) (317)
Income tax expense...... -- -- -- -- 10 -- --
------- ------- ------- ------- ------- ------ -------
Net income (loss)....... (1,163) (664) (576) (199) 644 (122) (317)
Accretion of redeemable
convertible preferred
stock.................. 625 1,079 1,292 1,389 2,085 695 692
------- ------- ------- ------- ------- ------ -------
Net loss available to
common stockholders.... $(1,788) $(1,743) $(1,868) $(1,588) $(1,441) $ (817) $(1,009)
======= ======= ======= ======= ======= ====== =======
Basic and diluted net
loss per share......... $(20.55) $(16.29) $ (7.62) $ (3.63) $ (2.56) $(1.47) $ (1.59)
======= ======= ======= ======= ======= ====== =======
Shares used in computing
basic and diluted net
loss per share......... 87 107 245 438 562 557 633
Pro forma basic and
diluted net loss per
share.................. $ (0.17) $ (0.11)
======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 8,478 9,565
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During the six months ended June 30, 2000, we amortized deferred stock compensation of $353,000, of which $75,000 was included in cost of revenues and $278,000 was included in operating expenses. The amortization of deferred stock compensation allocated to operating expenses was comprised of expenses related to marketing and selling of $91,000, research and development of $48,000 and general and administrative of $139,000.
Pro forma basic and diluted net loss per share for the year ended December 31, 1999 and the six months ended June 30, 2000 have been calculated assuming the conversion of all outstanding shares of our convertible preferred stock as of June 30, 2000 into 8,931,534 shares of common stock as if the stock had been converted at the beginning of the respective period.
June 30, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $ 1,805 $1,805 $
Working capital............................... 3,859 3,859
Total assets.................................. 9,059 9,059
Convertible preferred stock................... 24,534 --
Total stockholders' equity (deficit).......... (18,811) 5,723
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The pro forma balance sheet data reflects the conversion of all outstanding shares of convertible preferred stock as of June 30, 2000 into 8,931,534 shares of common stock upon the closing of this offering. The pro forma as adjusted balance sheet data further reflects the sale of shares of common stock in this offering at an assumed initial public offering price of $ after deducting estimated underwriting discounts, commissions and offering expenses.
RISK FACTORS
An investment in our common stock involves significant risks. You should carefully consider the following risks described below and the other information in this prospectus including our financial statements and related notes before you decide to buy our common stock. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment.
We have a history of losses and may experience losses in the future, which may result in the market price of our common stock declining
Since our inception, we have incurred significant net losses, including net losses available to common stockholders of $1.9 million in 1997, $1.6 million in 1998, $1.4 million in 1999 and $1.0 million in the six months ended June 30, 2000. In addition, we had an accumulated deficit of $19.5 million as of June 30, 2000. We expect to continue to incur net losses for at least the next 12 months.
We anticipate that our expenses will increase substantially in the foreseeable future as we:
. continue to invest in research and development to enhance our ALGO and CO-Stat products and develop new technologies;
. develop additional applications for our current technology, such as the use of our CO-Stat breath analyzer for the detection of pregnancy induced hypertension;
. increase our marketing and selling activities, particularly outside the United States;
. continue to increase the size and number of locations of our customer support organization; and
. develop additional infrastructure and hire additional management and other employees to keep pace with our growth.
As a result of these increased expenses, we will need to generate significantly higher revenues to achieve profitability. We cannot be certain that we will achieve profitability in the future or, if we achieve profitability, sustain it. If we do not achieve and maintain profitability, the market price of our common stock is likely to decline, perhaps substantially.
We have relied, and expect to continue to rely, on sales of our ALGO product family for substantially all of our revenues, and a decline in sales of these products could cause our revenues to fall
Historically, we have derived substantially all of our revenues from sales of our ALGO products. Revenues from our ALGO products accounted for approximately 98% of our revenues in 1998, 1999 and the six months ended June 30, 2000. We expect that the revenues from the ALGO product family will continue to account for a substantial majority of our revenues for at least the next two years. To date, our MiniMuff product, which is disposable ear covers for newborns, has accounted for only a small percentage of our net revenues. We have not derived any significant revenues from sales of our CO-Stat products. Any factors adversely affecting the pricing of our ALGO screening equipment and related disposables or demand for our ALGO products, including physician acceptance or the selection of competing products, could cause our revenues to decline and our business to suffer.
As the ALGO and MiniMuff products are our only lines of commercially marketed products to date, if more physicians do not adopt our ALGO and MiniMuff products, we will not achieve future sales growth
The ALGO product family was commercially introduced in 1985, and our MiniMuff product was introduced in 1995. More neonatologists and pediatricians must adopt our products for us to increase our sales. We believe that physicians will not continue to use our ALGO products unless they determine, based on published peer-reviewed journal articles, long-term clinical data and experience, that the ALGO products
provide an accurate and cost-effective alternative to other means of testing for hearing impairment. There are currently alternative hearing screening products, which are less expensive and may be quicker on a per test basis. Physicians are traditionally slow to adopt new products and testing practices, partly because of perceived liability risks and the uncertainty of third party reimbursement. If more neonatologists and pediatricians do not adopt our ALGO products, we may never have significant revenues or achieve and maintain profitability. Factors that may affect the medical community's acceptance of our ALGO products, some of which are beyond our control, include:
. the changing governmental and physician group guidelines for screening of newborns, particularly with respect to full term babies;
. the performance, quality, price and total cost of ownership of our screening products relative to other screening products for newborns;
. our ability to maintain and enhance our existing relationships and to form new relationships with leading physician organizations, hospitals and third party payors;
. changes in state and third party payor reimbursement policies for newborn hearing screening equipment; and
. the adoption of state and foreign laws requiring universal newborn hearing screening.
Our quarterly operating results may fluctuate, which could cause our stock price to decline
Our revenues and operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate in the future. The following are among the factors that could cause our operating results to fluctuate significantly from quarter to quarter:
. the budgeting cycle of our customers;
. the size and timing of specific sales, such as large purchases of screening equipment or disposables by government agencies or hospital systems, as described below;
. product and price competition;
. the timing and market acceptance of new product introductions and product enhancements by us and our competitors, such as the expected reduction in demand for our ALGO 2e Color screener prior to the announced launch date of our ALGO 3 screener;
. the length of our sales cycle;
. the loss of key sales personnel or international distributors; and
. changes caused by the rapidly evolving market for newborn screening products.
In addition, we experience seasonality in the sale of our screening equipment. For example, our sales typically decline from our fourth fiscal quarter to our first fiscal quarter. We anticipate that we will continue to experience relatively lower sales in our first fiscal quarter due to patterns in the capital budgeting and purchasing cycles of our current and prospective customers, many of which are government agencies. We may also experience declining sales in the third fiscal quarter due to summer holiday and vacation schedules. These seasonal factors may lead to fluctuations in our quarterly operating results. It is difficult for us to evaluate the degree to which the summer slow down and capital budgeting and customer purchasing cycle variations may make our revenues unpredictable in the future.
In addition, if a majority of our customers were to implement enterprise- wide evaluation programs or purchase products for the entire organization at once, our sales cycle could lengthen and our revenues could be erratic from quarter to quarter. This could make our business difficult to manage. For example, in the fourth quarter of 1997, a local government agency in Belgium made a one time purchase of equipment for each of the
hospitals in its jurisdiction and approximately one year's supply of disposables. This purchase resulted in an abnormally high level of sales during that period.
We do not have any historical experience selling our CO-Stat products and cannot determine how the sales cycle for the CO-Stat products will affect our revenues; however, the sales cycle could be protracted and could result in further unpredictability in our revenues from quarter to quarter.
Many of these factors are beyond our control, and we believe that you should not rely on our results of operations for interim periods as any indication of our expected results in any future period. If our revenues vary significantly from quarter to quarter, our business could be difficult to manage and our quarterly results could be below expectations of investors and stock market analysts, which could cause our stock price to decline.
Our operating results will decline if we do not succeed in developing and marketing additional newborn testing products, such as our CO-Stat product, or improving our existing products
We intend to develop additional testing products for the diagnosis and monitoring of common medical conditions in infants and pregnant women. Developing new products that meet the needs of neonatologists and pediatricians requires significant investments in research and development. If we fail to successfully develop and market new products, our operating results will decline.
We introduced our CO-Stat product family for clinical research uses in July 1999. To date, CO-Stat products have accounted for only a limited portion of our revenues, which have been derived primarily from sales to participants in our clinical trials. We have no experience marketing our CO-Stat product for commercial use. However, our future growth and profitability will depend on our ability to begin commercial sales of our CO-Stat products and to sell our CO- Stat products in volume. We cannot be certain that our entry into the hemolysis monitoring segment of the newborn testing market with CO-Stat will be successful, that the hemolysis monitoring market will develop at all or that physicians, governments or other third party payors will accept and adopt these products.
We cannot be certain that the clinical study of the cost-effectiveness of our CO-Stat product compared to other tests used for jaundice monitoring will produce results that are favorable to our products. The commercial acceptance of our CO-Stat products depends in part upon a favorable result from this study. If our CO-Stat products are not shown to be cost-effective, we may not be able to persuade clinicians to adopt our products and our results of operations may suffer.
If the studies do not produce satisfactory clinical data supported by the independent efforts of clinicians, our new products may not be accepted by physicians or government agencies as meeting the standards of care for universal newborn screening. Our safety, effectiveness, reliability, sensitivity and specificity data for the CO-Stat products is based on a study of 1,200 children. We may find that data from longer-term follow-up studies or studies involving a larger number of children is inconsistent with our relatively short-term data. If longer-term studies or clinical experience indicate that the CO-Stat products do not provide sensitive, specific and reliable results, our products may not gain commercial acceptance and our revenues could decline. In addition, we could be subject to significant liability for screening that failed to detect hemolysis leading to jaundice or costs and emotional distress incurred by families whose children received results indicating jaundice when none existed. We could have similar problems with any other products we offer in the future.
If the guidelines for recommended universal newborn screening do not continue to develop in the United States and foreign countries, and governments do not require testing of all newborns as we anticipate, our revenues may not grow because our products will not be needed for universal newborn screening
The demand for our screening products depends, in part, on the state and foreign governments' adoption of universal screening requirements for the disorders for which our products screen. The guidelines for universal newborn screening for hearing impairment and jaundice monitoring have been adopted by some
physician groups and governments only recently. We cannot predict the outcome or the impact that statutes and government regulations requiring universal newborn screening will have on our sales. The widespread adoption of these guidelines will depend on, among other things, our ability to:
. educate government agencies, neonatologists, pediatricians, third party payors and hospital administrators about the benefits of universal newborn hearing testing and the benefits of universal newborn hemolysis monitoring, as well as the use of our products to perform the screenings;
. establish and maintain relationships with leading physician groups, government agencies and other third party payors and maintain and enhance our relationships with our customers; and
. design our products to meet or exceed recommended guidelines for universal newborn screening.
If the governments in the most densely populated states and foreign countries do not require universal screening for the disorders for which our products test, our business would be harmed and our sales may not grow. As of June 30, 2000, 31 states have mandated universal newborn hearing screening, but the phase-in of these guidelines varies widely from six months to four years. To date, there has been only limited adoption of newborn hearing screening prior to hospital discharge by foreign governments. Our revenues may not grow if hospitals are slow to comply with these guidelines or the government provides for a lengthy phase-in period for compliance.
To date, physician groups and federal, state and local governments have not mandated the screening methodology to be used for newborn jaundice management or established monitoring of hemolysis as the best practice. If these mandates or practice recommendations are not issued, a market may not develop for our CO-Stat products.
Any failure in our efforts to educate clinician, government and other third party payors could significantly reduce our product sales
It is critical to the success of our sales effort that we educate a sufficient number of clinicians, hospital administrators and government agencies about our products and the costs and benefits of universal newborn hearing testing and universal newborn jaundice management using hemolysis monitoring. We rely on physician, government agency and other third party payor confidence in the benefits of testing with our products as well as their comfort with the reliability, sensitivity and specificity of our products. The impact of our products will not be demonstrable unless highly sensitive and specific evaluations are performed on a substantial number of newborns, including those who do not have risk factors for hearing impairment or who do not display signs of jaundice. If we fail to demonstrate the effectiveness of our products and the potential long-term benefits to patients and third party payors of universal newborn screening, our products will not be adopted.
We depend on our relationships with leading neonatology and pediatric physician groups and government agencies, and if these relationships suffer, we may have difficulty introducing and selling our products and our revenues would decline
We believe that our success depends in part on our ability to maintain or further develop our relationships with leading neonatology and pediatric physician groups, such as the American Academy of Pediatrics, as well as state health care agencies. We believe our relationships with these constituencies are important for market acceptance of our products. If we are unable to maintain and enhance our existing relationships with these physician groups and government agencies or develop similar relationships with other major physician groups or third party payors, we may have difficulty selling our products.
If health care providers are not adequately reimbursed for the screening procedures or for screening equipment itself, we may never achieve significant revenues
Physicians, hospitals and state agencies are unlikely to purchase our products if clinicians are not adequately reimbursed for the screening procedures conducted with our equipment or the disposable products
needed to conduct the screenings. Unless a sufficient amount of positive, peer- reviewed clinical data about our products has been published, third party payors, including insurance companies and government agencies, may refuse to provide reimbursement for the cost of newborn hearing screening and hemolysis monitoring with our products. Furthermore even if reimbursement is provided, it may not be adequate to fully compensate the clinicians or hospitals. Some third party payors may refuse adequate reimbursement for screening unless the infant has demonstrable risk factors. See "Business--Third Party Reimbursement" for a further discussion of reimbursement. If health care providers cannot obtain sufficient reimbursement from third party payors for our products or the screenings conducted with our products, it is unlikely that our products will ever achieve significant market acceptance.
Even if third party payors provide adequate reimbursement for some newborn hearing screening or hemolysis monitoring for jaundice management, adverse changes in reimbursement policies in general could harm our business
We are unable to predict changes in the reimbursement methods used by third party health care payors. For example, some payors are moving toward a managed care system in which providers contract to provide comprehensive health care for a fixed cost per person. We cannot assure you that in a managed care system the cost of our products will be incorporated into the overall payment for childbirth and newborn care or that there will be adequate reimbursement for our screening equipment and disposable products separate from reimbursement for the procedure. Unless the cost of screening is reimbursed as a standard component of the newborn's care, universal screening is unlikely to occur and the number of infants likely to be screened with our products will be substantially reduced.
We have very limited experience selling and marketing products other than our ALGO products, and our failure to build and manage our sales force or to market and distribute our CO-Stat products or other products effectively will hurt our revenues and quarterly results
Since we have not yet actively marketed our CO-Stat products, our sales force has little experience selling these products, and we cannot predict how successful they will be in selling these products. In order to successfully introduce and build market share for our CO-Stat products, we must sell our products to hospital administrators accustomed to the use of laboratory bench equipment rather than portable point of care screening devices for jaundice management.
We market almost all of our newborn hearing screening products in the United States through a small direct sales force of 14 persons. We must expand our sales team over the next two years in order to market our CO-Stat products along with our other products. There are significant risks involved in building and managing our sales force and marketing our products. We may be unable to hire a sufficient number of qualified sales people with the skills and training to sell our newborn hearing screening and jaundice management products effectively. Furthermore, we do not have any agreements with distributors or group purchasing organizations for sales of our CO-Stat products.
We may not be successful in generating revenues from our CO-Stat products because we may encounter difficulties in manufacturing our CO-Stat products in commercial quantities
We do not have experience manufacturing our CO-Stat products in commercial quantities, and we may encounter difficulties in the manufacturing of these products due to the following factors:
. our lack of extensive experience manufacturing our CO-Stat products in compliance with the FDA's regulations that govern manufacturing of medical devices;
. the need to enhance our manufacturing operations to increase our capacity or enter into agreements with contract manufacturers to produce the CO- Stat products for us; and
. the difficulty in attracting and retaining qualified employees, who are in short supply, for our assembly and testing operations.
If we encounter any of these difficulties, we may not be successful in marketing our CO-Stat products, and our revenues and financial condition may be harmed.
If we lose our relationship with any supplier of key product components, our relationship with a supplier deteriorates or key components are not available in sufficient quantities, our manufacturing could be delayed and our business could suffer
We contract with third parties for the supply of some of the components used in our products and the production of our disposable products. Some of our suppliers are not obligated to continue to supply us. For certain of these materials and components, relatively few alternative sources of supply exist. In addition, the lead time involved in the manufacturing of some of these components can be lengthy. If these suppliers become unwilling or unable to supply us with our requirements, it might be difficult to establish additional or replacement suppliers in a timely manner or at all. This would cause our product sales to be disrupted and our revenues and operating results to suffer.
Replacement or alternative sources might not be readily obtainable due to regulatory requirements and other factors applicable to our manufacturing operations. Incorporation of components from a new supplier into our products may require a new or supplemental filing with applicable regulatory authorities and clearance or approval of the filing before we could resume product sales. This process may take a substantial period of time, and we cannot assure you that we would be able to obtain the necessary regulatory clearance or approval. This could create supply disruptions that would harm our product sales and operating results.
There is only one supplier that provides hydrogel, the adhesive used in our disposable products. In addition, we have relied on a single supplier for the electrochemical sensors used in our CO-Stat analyzer and we have not qualified another vendor for this component. A disruption in the supply of the adhesive or electrochemical sensors could negatively affect our revenues. If we or our contract manufacturers were unable to locate another supplier, it could significantly impair our ability to sell our products. In addition, we may be required to make new or supplemental filings with applicable regulatory authorities prior to our marketing a product containing new materials or produced in a new facility. If we fail to obtain regulatory approval to use a new material, we may not be able to continue to sell the affected products.
Our sales efforts through group purchasing organizations may conflict with our direct sales efforts to our existing customers, which would reduce our revenues and gross profits from these sales
Recently, we entered into two agreements to sell our products through group purchasing organizations, which negotiate volume purchase prices for medical devices and supplies for member hospitals, group practices and other clinics. Sales to members of one group purchasing organization, Novation, Inc., accounted for approximately 20.6% of our total revenues in the six months ended June 30, 2000. These group purchasing organizations receive volume discounts off our direct selling price and other special pricing considerations from us. Many of our existing customers are members of group purchasing organizations, including those with which we have agreements. Our sales efforts through group purchasing organizations may conflict with our direct sales efforts to our existing customers. If our existing customers begin purchasing our products through group purchasing organizations, our revenues and profit margin could decline.
We rely on sales to existing customers for a substantial portion of our revenues, and if our existing customers do not continue to purchase products from us, our revenues may decline
We rely on sales of additional screening equipment to our existing customers for a substantial portion of our revenues. If we fail to sell additional screening equipment to our existing customers directly or indirectly, we would experience a material decline in revenues.
Because we rely on distributors to sell our products outside of the United States, our revenues could decline if our existing distributors do not continue to purchase products from us or if our relationships with any of these distributors is terminated
We rely on distributors, such as Nippon Eurotec, our Japanese distributor, for a majority of our sales outside the United States. These distributors also assist us with regulatory approvals and education of physicians and government agencies. Our revenues outside the United States represented approximately 10% of our net revenues in 1999 and approximately 14% of our net revenues in the six months ended June 30, 2000. We intend to continue our efforts to increase our sales in Europe, Japan and other countries with a relatively high level of health care spending on infants. If we fail to sell our products through our existing international distributors, we would experience a decline in revenues. We cannot be certain that we will be able to attract new international distributors that market our products effectively or provide timely and cost- effective customer support and service. Even if we are successful in selling our products through new distributors, the rate of growth of our revenues could be harmed if our existing distributors do not continue to sell a large dollar volume of our products. None of our existing distributors are obligated to continue selling our products.
In the past, we have terminated our relationships with distributors for poor performance. We are also subject to foreign laws governing our relationships with our distributors. These laws may require us to make payments to our distributors even if we terminate our relationship for cause. Some countries require termination payments under common law or legislation that may supercede our contractual relationship with the distributor. Any required payments would adversely affect our operating results.
Our plan to expand in international markets will result in increased costs and may not be successful, which could harm our business
We must expand the number of distributors who sell our products or increase our direct international sales presence to significantly penetrate international markets. We have only recently begun to develop a direct sales force outside the United States. As we continue to increase our direct international sales presence, we will incur higher personnel costs that may not result in additional revenues. A higher percentage of our sales to international distributors could also impair our revenues due to discounts available to these distributors. We may not realize corresponding growth in operating results from growth in international sales, due to the higher costs of sales outside of the United States. Even if we are able to successfully expand our direct and indirect international selling efforts, we cannot be certain that we will be able to create or increase demand for our products outside of the United States.
Acceptance of our products in international markets will be dependent upon the availability of adequate reimbursement within prevailing health care payment systems. Reimbursement and health care payment systems vary significantly by country and include both government-sponsored health care and private insurance. Although we intend to seek international reimbursement approvals, we may not obtain these approvals in a timely manner or at all.
Although our sales contracts provide for payment in United States dollars, we expect that we will incur expenses related to international sales denominated in the respective local currency. We also expect to begin selling our products in local currencies as we expand our direct international sales. To date, we have not undertaken any foreign currency hedging transactions, and as a result, our future revenues and expense levels from international operations may be unpredictable due to exchange rate fluctuations. Furthermore, a strengthening of the dollar could make our products less competitive in foreign markets. Our international operations are subject to other risks, which include:
. contractual provisions governed by foreign law, such as common law rights to sales commissions by terminated distributors;
. the dependence of demand for our products on health care spending by local governments;
. greater difficulty in accounts receivable collection and longer collection periods;
. difficulties of staffing and managing foreign operations;
. difficulties in obtaining reimbursement for procedures using medical devices in some foreign markets;
. reduced protection for intellectual property rights in some countries and potentially conflicting intellectual property rights of third parties under the laws of various foreign jurisdictions;
. potentially adverse tax consequences, including the impact of expiration of favorable short-term tax rates; and
. difficulty in obtaining foreign regulatory approvals.
Our failure to obtain necessary FDA clearances or approvals or to comply with FDA regulations could hurt our ability to commercially distribute and market our products in the United States, and this would harm our business and financial condition
Unless an exemption applies, each medical device that we wish to market in the United States must first receive one of the following types of FDA premarket review authorizations:
. 510(k) clearance via Section 510(k) of the federal Food, Drug, and Cosmetics Act of 1938, as amended; or
. premarket approval via Section 515 of the Food, Drug, and Cosmetics Act if the FDA has determined that the medical device in question poses a greater risk of injury.
The FDA's 510(k) clearance process usually takes from four to 12 months, but can take longer. The process of obtaining premarket approval is much more costly, lengthy and uncertain. Premarket approval generally takes from one to three years, but can take even longer.
We have obtained 510(k) clearances for the uses of the ALGO products in newborn hearing testing, the MiniMuff product for newborn noise diminution and the CO-Stat products for newborn hemolysis monitoring. We may need to obtain additional 510(k) clearance to expand the market for our CO-Stat products for use in new applications. Furthermore, if the FDA concludes that these future products using our technology do not meet the requirements to obtain 510(k) clearance, then we would have to seek premarket approval. We cannot assure you that the FDA will not impose the more burdensome premarket approval requirement on modifications to our existing products or future products, which in either case could be costly and cause us to divert our attention and resources from the development of new products or the enhancement of existing products. In addition, we cannot assure you that the FDA will ever grant either 510(k) clearance or premarket approval for any product we propose to market.
We may not promote or advertise the ALGO, MiniMuff or CO-Stat products, or any future cleared or approved devices, for uses not within the scope of our clearances or approvals or make unsupported promotional claims about the benefits of our products. If the FDA requires us to revise our promotional claims or takes enforcement action against us based upon our labeling and promotional materials, our sales could be delayed, our revenues could decline and our reputation among clinicians could be harmed.
The FDA may require us to obtain a new 510(k) clearance or premarket approval if we make any modification to a 510(k) cleared device that significantly affects its safety or effectiveness. We have modified aspects of our ALGO products, but we believe that these modifications do not require new 510(k) clearances. We cannot assure you that the FDA would agree with any of our decisions not to seek new clearances. In the future, we may modify our products after they have received clearance or approval, and, in appropriate circumstances, we may determine that new clearances or approvals are unnecessary. If the FDA requires us to seek 510(k) clearance or a premarket approval for any modification to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain the new clearance or approval, which would disrupt our revenues and harm our business.
We are also subject to inspection and market surveillance by the FDA concerning compliance with pertinent regulatory requirements. If the FDA finds that we have failed to comply with these requirements, the
agency can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:
. fines, injunctions and civil penalties;
. the recall or seizure of our products;
. the issuance of public notices or warnings;
. the imposition of operating restrictions, partial suspension or total shutdown of production;
. the refusal of our requests for 510(k) clearance or premarket approval of new products;
. the withdrawal of 510(k) clearance or premarket approvals already granted; and
. criminal prosecution.
The FDA also has the authority to require repair, replacement or refund of the cost of any medical device manufactured or distributed by us. Our failure to comply with applicable requirements could lead to an enforcement action that may have an adverse effect on our financial condition and results of operations.
If we fail to obtain necessary foreign regulatory approvals in order to market and sell our products outside of the United States, we may not be able to sell our products in other countries
Our products are regulated outside the United States as medical devices by foreign governmental agencies similar to the FDA and are subject to regulatory requirements similar to the FDA's in foreign countries. We are currently subject to regulations governing the sales of our ALGO products in Australia, Europe, Japan and New Zealand. We plan to seek approval to sell our products in additional countries. The time and cost required to obtain market authorization from other countries and the requirements for licensing a product in another country may differ significantly from FDA requirements. We may not be able to obtain these approvals without incurring significant expenses or at all.
If we or our suppliers fail to comply with applicable regulations, sales of our products could be delayed and our revenues could be harmed
Every manufacturer of a finished medical device, including us and some of our contract manufacturers and suppliers, are required to demonstrate and maintain compliance with the FDA's quality system regulation. This regulation incorporates the requirements of the FDA's current good manufacturing practices and covers product design, testing and manufacturing quality assurance, and requires the maintenance of accurate records and documentation. The FDA enforces the quality system regulation through periodic unannounced inspections. Although we have passed inspections in the past, we cannot assure you that we or our contract manufacturers will pass any future quality system regulation inspections. If we or our contract manufacturers fail one of these inspections in the future, our operations could be disrupted and our manufacturing and sales delayed significantly until we can demonstrate adequate compliance. If we or our contract manufacturers fail to take adequate corrective action in a timely fashion in response to a quality system regulations inspection, the FDA could shut down our or our contract manufacturers' manufacturing operations and require us, among other things, to recall our products, either of which would harm our business. We cannot assure you that we or our key component suppliers and contract manufacturers are or will continue to be in compliance with applicable regulatory requirements or will not encounter any manufacturing difficulties. If these suppliers fall out of compliance or experience manufacturing difficulties, our ability to manufacture and sell our products would be harmed.
We may experience intense competition from other medical device companies, and this competition could adversely affect our revenues and our business
Our most significant current and potential competitors for the ALGO products include companies that market hearing screening equipment. For the CO-Stat products, we anticipate that our competitors will be large medical
device companies that market laboratory bench equipment used for blood-based antibody and bilirubin tests and companies that sell devices that analyze the amount of yellow in the skin to estimate the level of bilirubin.
In addition, large medical testing equipment vendors, such as Johnson & Johnson or F. Hoffmann-La Roche Ltd, may also acquire or establish cooperative relationships with our current competitors. We expect that the medical testing equipment industry will continue to consolidate. New competitors or alliances among competitors may emerge and rapidly acquire significant market share, which would harm our business and financial prospects.
Our competitors may have greater financial resources and name recognition or larger, more established distribution channels than we do. We believe that Bio- Logic Systems Corp., Intelligent Hearing Systems and Sonamed Corp., each of which is also currently marketing enhanced auditory brainstem response and otoacoustic hearing screening equipment products, could also introduce new, lower priced hearing screening equipment similar to our products. Similarly, we believe that Chromatics Color Sciences International, Inc., Minolta Co., Ltd. or SpectRx, Inc., each of which is currently marketing skin color analysis products for bilirubin monitoring, or Johnson & Johnson or Roche, each of which is currently marketing equipment for blood-based bilirubin or antibody tests, could also introduce new, lower-priced screening equipment similar to our CO- Stat products.
In addition, other medical device companies may decide to bundle their products with other newborn hearing screening or hemolysis monitoring products and sell the bundle at lower prices. If this happens, our business and future operating results could suffer if we were no longer able to offer commercially viable or competitive products.
We believe our future success depends on our ability to enhance existing products, develop and introduce new products, satisfy customer requirements and achieve market acceptance. We cannot be certain that we will successfully identify new product opportunities. We may not be able to develop and bring new products to market before our competitors or in a more cost-effective manner. Increased competition may negatively affect our business and future operating results by leading to price reductions, higher selling expenses or a reduction in our market share.
We may not be able to preserve the value of our products' intellectual property because we may not be able to protect access to our intellectual property
If we fail to protect our intellectual property rights or if our intellectual property rights do not adequately cover the technology we employ, other medical device companies could sell hearing screening or hemolysis monitoring products with features similar to ours, and this could reduce demand for our products. We protect our intellectual property through a combination of patent, copyright, trade secret and trademark laws. We have eight issued United States patents, five patent applications pending before the United States Patent and Trademark Office and seven patent applications pending before foreign governmental bodies of which one European Patent Office application has been allowed and will be registered in nine European countries. We enter into confidentiality or license agreements with our employees, consultants and corporate partners and seek to control access to our intellectual property and the distribution of our hearing screening or hemolysis monitoring products, documentation and other proprietary information. However, we believe that these measures afford only limited protection. Others may develop technologies that are similar or superior to our technology or design around the patents, copyrights and trade secrets we own. The patent we licensed from a third party for the technology upon which we have developed our automated ABR technology has expired, and our rights to commercialize this technology are not exclusive.
Despite our efforts to protect our proprietary rights, others may attempt to copy or otherwise improperly obtain and use our products or technology. Policing unauthorized use of our products is difficult and expensive, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully. Our means of protecting our proprietary rights may be inadequate. Enforcing our intellectual property rights could be costly and time consuming and may divert our management's attention and resources. Enforcing our intellectual property rights could also result in the loss of our intellectual property rights.
Our operating results would suffer if we were subject to a protracted infringement claim or a significant damage award
Substantial intellectual property litigation and threats of litigation exist in our industry. We expect that medical screening equipment may become increasingly subject to third party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Third parties such as individuals, educational institutions or other medical device companies may claim that we infringe their intellectual property rights. Any claims, with or without merit, could have any of the following negative consequences:
. result in costly litigation and damage awards;
. divert our management's attention and resources;
. cause product shipment delays or suspensions; or
. require us to seek to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all.
A successful claim of infringement against us could result in a substantial damage award and materially harm our financial condition. Our failure or inability to license the infringed or similar technology could prevent us from selling our products and adversely affect our business and financial results.
Product liability suits against us could result in expensive and time consuming litigation, payment of substantial damages and an increase in our insurance rates
The sale and use of our medical testing products could lead to the filing of a product liability claim if someone were to be injured using one of our devices or if one of our devices fails to detect a disorder for which it was being used to screen. A product liability claim could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or financial condition. We cannot assure you that our product liability insurance would protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing any coverage in the future.
We may incur significant costs related to a class action lawsuit due to the likely volatility of the public market price of our stock
When our common stock is publicly traded, our stock price may fluctuate for a number of reasons including:
. quarterly fluctuations in our results of operations;
. our ability to successfully commercialize our products;
. announcements of technological or competitive developments by us or our competitors;
. announcements regarding patent litigation or the issuance of patents to us or our competitors;
. announcements regarding state screening mandates or third party payor reimbursement policies;
. regulatory developments regarding us or our competitors;
. acquisitions or strategic alliances by us or our competitors;
. changes in estimates of our financial performance or changes in recommendations by securities analysts; and
. general market conditions, particularly for companies with a relatively small number of shares available for sale in the public market.
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 damage awards and divert our management's attention from running our business.
We depend upon key employees in a competitive market for skilled personnel, and, without additional employees, we cannot grow or achieve and maintain profitability
Our products and technologies are complex, and we depend substantially on the continued service of our senior management team including Tim C. Johnson, our chief executive officer, William New, Jr., M.D., Ph.D., our chief technology officer, chairman and a founder, Bryan Flaherty, Ph.D., our vice president of research and development and Lucille Ferus, our vice president of engineering. The loss of any of our key employees could adversely affect our business and slow our product development process. Although we maintain key person life insurance on Dr. New, we do not maintain key person life insurance on any of our other employees, and the amount of the policy on Dr. New may be inadequate to compensate us for his loss.
Our future success also will depend in part on the continued service of our key management personnel, software engineers and other research and development employees and our ability to identify, hire, and retain additional personnel, including customer service, marketing and sales staff. Hiring sales, marketing and customer service personnel in our industry is very competitive due to the limited number of people available with the necessary technical skills and understanding of pediatric audiology and neonatal jaundice management. We may be unable to attract and retain personnel necessary for the development of our business. Moreover, our business is located in the San Francisco Bay area of California, where demand for personnel with the skills we seek is extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly.
We could lose the ability to use net operating losses, which may adversely affect our financial results
As of December 31, 1999, we had total net operating loss carryforwards of approximately $8.4 million for income tax purposes. These net operating loss carryforwards, if not utilized to offset taxable income in future periods, will expire in various amounts beginning in 2002 through 2012. If we continue to have net losses, we may not be able to utilize some or all of our net operating loss carryforwards before they expire.
In addition, applicable United States income tax law imposes limitations on the ability of corporations to use net operating loss carryforwards if the corporation experiences a more than 50% change in ownership during any three- year period. We cannot assure you that we will not take actions, such as the issuance of additional stock, that would cause an ownership change to occur. Accordingly, we may be limited to the amount we can use in any given year, so even if we have substantial net income, we may not be able to use our net operating loss carryforwards before they expire. In addition, the net operating loss carryforwards are subject to examination by the Internal Revenue Service, or IRS, and are thus subject to adjustment or disallowance resulting from any such IRS examination.
If we are unable to use our net operating loss carryforwards to offset our taxable income, our future tax payments will be higher and our financial results may suffer.
We have broad discretion in how we use the net proceeds of this offering, and we may not use these proceeds effectively
Our management could spend most of the net proceeds from this offering in ways that our stockholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to assess whether the net proceeds of this offering will be used appropriately. The failure of our management to apply the net proceeds of this offering effectively could have a material adverse effect on our business, financial condition and results of operations.
Our executive officers, directors and their affiliates hold a substantial portion of our stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders
Our executive officers, directors and individuals or entities affiliated with them will beneficially own approximately % of our outstanding common stock as a group immediately after this offering. Acting
together, these stockholders would be able to significantly influence all matters that our stockholders vote upon, including the election of directors and determination of significant corporate actions. This concentration of ownership could delay or prevent a change of control transaction that could otherwise be beneficial to our stockholders.
We may need to raise additional capital in the future, which could result in dilution to our stockholders and adversely affect our operations
While we believe the proceeds from this offering will provide us with adequate capital to fund operations for at least the next 18 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, which we may not be able to do on favorable terms, or at all. 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 or preferred stock, these securities could have rights that are senior to holders of common stock and any debt securities could contain covenants that would restrict our operations.
Our charter documents and Delaware law contain provisions that may inhibit potential acquisition bids, which may adversely affect the market price of our common stock, discourage merger offers and prevent changes in our management
Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for our company. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock for three years. Under Delaware law, a corporation may opt our of the antitakeover provisions. We do not intend to opt out of the antitakeover provisions of Delaware Law.
Upon the closing of this offering, our board of directors will have the authority to issue up to 10 million shares of preferred stock. Our board of directors can fix the price, rights, preferences and privileges of the preferred stock without any further vote or action by our stockholders. These rights, preferences and privileges may be senior to those of the holders of our common stock. We have no current plans to issue any shares of preferred stock. We have also adopted other provisions in our charter documents effective upon the closing of this offering that could delay or prevent a change in control. The consent of two-thirds of our stockholders is required to amend our certificate of incorporation, and our stockholders cannot act by written consent. Only stockholders entitled to vote at least 30% of the shares eligible to vote may call a special meeting. Each member of our board of directors will serve for a three year term and will only stand for election once every three years. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction.
A large number of shares, 9,684,520, or % of our total outstanding common stock, may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly
Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Sales of a substantial number of shares of our common stock could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock.
Immediately after the closing of this offering, we will have outstanding shares of common stock. This includes shares that we are selling in this offering, which may be resold immediately in the public market. The remaining 9,684,520 shares will become eligible for resale in the public market 180 days after the date of the final prospectus pursuant to agreements our stockholders have with us and the underwriters. However, Salomon Smith Barney Inc. can waive this restriction and allow these stockholders to sell their shares at any time. Of these shares, 6,103,902 shares will be subject to volume limitations under the federal securities laws.
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, performance or achievements expressed or implied by the forward- looking statements. Forward-looking statements include, but are not limited to, statements about:
. the capabilities, development and marketing of our products;
. the benefits of universal newborn screening and, in particular, our technology and methods;
. the development of voluntary and governmentally mandated universal newborn hearing and jaundice management screening programs;
. third party payor reimbursement for our products and the tests conducted with them;
. our plans for future products and for enhancements of our existing products;
. our patent applications and proposed patents;
. our ability to attract customers; and
. our sources of revenues and anticipated revenues, including the development and commercialization of our products.
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.
This prospectus contains statistical data regarding medical conditions and medical products that we obtained from private and public industry publications. These publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications are reliable, we have not independently verified their data.
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 $ million from the sale of the shares of common stock we are offering, based on an assumed initial public offering price of $ per share and after deducting estimated 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 $ million. We currently intend to use the net proceeds of this offering as follows:
. to fund international expansion;
. to increase our working capital;
. to fund our capital expenditures; and
. for general corporate purposes.
In addition, we also may use a portion of the net proceeds of this offering for the acquisition of complementary businesses, products or technologies. While we evaluate these types of opportunities from time to time, there are currently no agreements or negotiations with respect to any specific transaction.
We have not yet determined all of our expected expenditures, and we cannot estimate the amounts to be used for each purpose set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. Pending use of the net proceeds as described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.
OUR POLICY REGARDING DIVIDENDS
We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. In addition, our bank line of credit generally prohibits us from paying cash dividends.
CAPITALIZATION
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 included elsewhere in this prospectus. The following table describes our capitalization as of June 30, 2000:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of all outstanding shares of convertible preferred stock into 8,931,534 shares of common stock concurrently with the completion of this offering; and
. on a pro forma as adjusted basis to reflect the conversion of all outstanding shares of convertible preferred stock into 8,931,534 shares of common stock and the sale of shares of common stock offered by us at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.
June 30, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share amounts)
Long-term debt, net of current portion......... $ -- $ -- $ --
-------- -------- --------
Convertible preferred stock:
Series A convertible preferred stock, $0.001
par value; 1,241,842 shares authorized,
1,241,841 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted; aggregate liquidation value of
$3,716...................................... 2,227 -- --
Redeemable convertible preferred stock, $0.001
par value; 8,781,412 shares authorized;
outstanding shares: aggregate liquidation
value of $24,486 and aggregate redemption
value of $22,307:
Series B: 3,967,126 shares authorized;
3,967,120 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted.................................... 12,121 -- --
Series C: 3,214,286 shares authorized;
2,490,181 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted.................................... 5,640 -- --
Series D: 1,600,000 shares authorized;
1,232,392 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and pro forma as
adjusted.................................... 4,546 -- --
-------- -------- --------
Total convertible preferred stock............ 24,534 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares
authorized, issued or outstanding, actual and
pro forma; 10,000,000 shares authorized, no
shares issued or outstanding, pro forma as
adjusted..................................... -- -- --
Common stock, $0.001 par value; 120,000,000
shares authorized, actual, pro forma and pro
forma as adjusted; 752,986 shares issued and
outstanding, actual; 9,684,520 shares issued
and outstanding, pro forma; shares
issued and outstanding, pro forma as
adjusted..................................... 1,824 26,358
Deferred stock compensation................... (1,122) (1,122) (1,122)
Accumulated deficit........................... (19,513) (19,513) (19,513)
-------- -------- --------
Total stockholders' equity (deficit)......... (18,811) 5,723
-------- -------- --------
Total capitalization........................ $ 5,723 $ 5,723 $
======== ======== ========
|
The actual, pro forma and pro forma as adjusted information set forth in the table excludes:
. shares of common stock issuable upon the exercise of the underwriters' over-allotment option;
. 1,326,123 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2000 at a weighted average exercise price of $1.09 per share; and
. 2,900,000 shares of common stock reserved for future issuance under our 2000 stock option plan, 2000 employee stock purchase plan and 2000 director option plan as of June 30, 2000.
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was approximately $5.7 million, or $0.58 per share of common stock. Pro forma net tangible book value per share represents the amount of our total assets less total liabilities and intangible assets, divided by the number of shares of common stock outstanding, assuming the conversion of all shares of convertible preferred stock outstanding as of June 30, 2000 into 8,931,534 shares of common stock concurrently with the completion of this offering. Pro forma 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 pro forma net tangible book value per share of common stock immediately after the completion of this offering on a pro forma as adjusted basis. After giving effect to the sale of the shares of common stock by us at an assumed initial public offering price of $ per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2000 would have been approximately $ million or $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share of common stock to existing common stockholders and an immediate dilution in net tangible book value of $ per share to new investors of common stock in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share before this
offering..................................................... $0.58
Increase in pro forma net tangible book value per share
attributable to this offering................................
-----
Pro forma net tangible book value per share after this
offering.......................................................
----
Dilution per share to new investors............................. $
====
|
The following table summarizes, on a pro forma basis as of June 30, 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 estimated underwriting discounts and commissions and estimated offering expenses. The pro forma basis gives effect to the conversion of all shares of convertible preferred stock outstanding as of June 30, 2000 into 8,931,534 shares of common stock concurrently with the completion of this offering.
Shares Purchased Total Consideration
----------------- -------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ------------ ------- -------------
Existing stockholders......... 9,684,520 % $ 17,676,815 % $ 1.83
New investors.................
--------- ----- ------------ ----- ------
Total..................... 100.0% $ 100.0%
========= ===== ============ ===== ======
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The tables and calculations above assume no exercise of the underwriters' over-allotment option to purchase up to an additional shares of common stock. If the underwriters' over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to % of the total number of shares of common stock outstanding after this offering and the number of shares of common stock held by new investors will be increased to , or % of the total number of shares of common stock outstanding after this offering.
The information also assumes no exercise of any outstanding stock options. As of June 30, 2000, there were 1,326,123 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $1.09 per share. To the extent that any of these options 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 selected statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the selected balance sheet data as of December 31, 1998 and 1999 from the audited financial statements included elsewhere in this prospectus. The selected balance sheet data as of December 31, 1995, 1996 and 1997 and the statement of operations data for the years ended December 31, 1995 and 1996 are derived from our audited financial statements, which are not included in this prospectus. The selected statement of operations data for the six months ended June 30, 1999 and 2000 and the selected balance sheet data as of June 30, 2000 are derived from unaudited financial statements included elsewhere in this prospectus. We prepared the unaudited financial statements on the same basis as the audited financial statements and, in our opinion, they include all adjustments, consisting only of normal recurring adjustments, we consider necessary for a fair presentation of our financial position and results of operations for the periods presented. Historical results are not necessarily indicative of results of operations to be expected for future periods, and the results of the interim periods are not necessarily indicative of the results to be expected for a full year.
Our redeemable convertible preferred stock has a feature that requires us to repurchase the redeemable convertible preferred stock from its holders at the election of the holders of at least two-thirds of the outstanding redeemable convertible preferred stock commencing January 1, 2000. Accretion of redeemable convertible preferred stock represents the charge to retained earnings and net loss available to common stockholders we took in 1995, 1996, 1997, 1998 and 1999 and the six months ended June 30, 1999 and 2000 to reflect this potential liability. The outstanding shares of redeemable convertible preferred stock will convert into shares of our common stock on a one for one basis in connection with the closing of this offering, and no dividends will be paid or converted into common stock. The pro forma net loss per share for the years ended December 31, 1999 and the six months ended June 30, 2000 reflect the conversion of our convertible preferred stock. See the notes to our financial statements included elsewhere in this prospectus for a detailed explanation of how we have computed basic and diluted net loss per share and pro forma basic and diluted net loss per share.
Our operating results for the six months ended June 30, 2000 reflected amortization of deferred stock compensation of $353,000, of which $75,000 was included in cost of revenues. The amortization of deferred stock compensation allocated to operating expense was $278,000 and was comprised of marketing and selling expenses of $91,000, research and development expenses of $48,000 and general and administrative expenses of $139,000.
Six Months
Years Ended December 31, Ended June 30,
------------------------------------------- ---------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------ -------
(in thousands, except per share amounts )
Statement of Operations
Data:
Net revenues............ $ 4,274 $ 6,501 $10,031 $15,884 $19,783 $8,918 $11,009
Cost of revenues........ 2,027 2,567 3,612 5,577 6,624 3,082 3,908
------- ------- ------- ------- ------- ------ -------
Gross profit.......... 2,247 3,934 6,419 10,307 13,159 5,836 7,101
------- ------- ------- ------- ------- ------ -------
Operating expenses:
Marketing and
selling.............. 2,105 2,828 4,259 6,275 7,684 3,654 4,395
Research and
development.......... 645 962 1,602 2,711 2,457 1,288 1,605
General and
administrative....... 648 829 1,231 1,638 2,384 1,021 1,152
Amortization of
deferred stock
compensation......... -- -- -- -- -- -- 278
------- ------- ------- ------- ------- ------ -------
Total operating
expenses........... 3,398 4,619 7,092 10,624 12,525 5,963 7,430
------- ------- ------- ------- ------- ------ -------
Income (loss) from
operations............. (1,151) (685) (673) (317) 634 (127) (329)
Other income (expense),
net.................... (12) 21 97 118 20 5 12
------- ------- ------- ------- ------- ------ -------
Income (loss) before
taxes.................. (1,163) (664) (576) (199) 654 (122) (317)
Income tax expense...... -- -- -- -- 10 -- --
------- ------- ------- ------- ------- ------ -------
Net income (loss)....... (1,163) (664) (576) (199) 644 (122) (317)
Accretion of redeemable
convertible preferred
stock.................. 625 1,079 1,292 1,389 2,085 695 692
------- ------- ------- ------- ------- ------ -------
Net loss available to
common stockholders.... $(1,788) $(1,743) $(1,868) $(1,588) $(1,441) $ (817) $(1,009)
======= ======= ======= ======= ======= ====== =======
Basic and diluted net
loss per share ........ $(20.55) $(16.29) $ (7.62) $ (3.63) $ (2.56) $(1.47) $ (1.59)
======= ======= ======= ======= ======= ====== =======
Shares used in computing
basic and diluted net
loss per share......... 87 107 245 438 562 557 633
Pro forma basic and
diluted net loss per
share.................. $ (0.17) $ (0.11)
======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 8,478 9,565
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December 31,
------------------------------------------------ June 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents
short-term
investments............ $ 459 $ 754 $ 2,823 $ 1,943 $ 2,376 $ 1,805
Working capital......... 836 830 3,730 3,206 3,814 3,859
Total assets............ 2,256 2,681 6,330 7,418 8,699 9,059
Long-term debt, net of
current portion........ -- 10 -- 150 -- --
Convertible preferred
stock.................. 13,022 14,234 19,207 21,154 23,842 24,534
Total stockholders'
deficit................ (11,777) (13,544) (15,363) (16,851) (18,226) (18,811)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with "Selected Financial Data" and our financial statements and the related notes included elsewhere in this prospectus.
Overview
We develop, manufacture and market screening products for the detection and monitoring of common medical disorders in infants. Currently, we sell our ALGO products for hearing screening, and we expect to begin actively marketing our CO-Stat products for the analysis of hemolysis and management of jaundice in early 2001.
Our net revenues consist of revenues from sales of equipment and disposables. We currently derive substantially all of our net revenues from sales of a limited number of products. Nearly all of our net revenues were from sales of our ALGO products in 1997, 1998, 1999 and the six months ended June 30, 2000. Although we began selling our CO-Stat product in July 1999 on a very limited basis for clinical testing, we have not actively marketed it for commercial sale and expect that a substantial majority of our net revenues will continue to be generated from sales of our ALGO products for at least the next two years.
We sell our products directly through our sales force in the United States and indirectly through distributors internationally. Domestic sales were 86% of our net revenues in 1997, 81% of our net revenues in 1998, 90% of our net revenues in 1999 and 86% of our net revenues in the six months ended June 30, 2000. We plan to expand our international operations significantly because we believe international markets represent a significant growth opportunity. Consequently, we anticipate that international revenues will increase as a percent of net revenues in the future. If international sales increase, we may not experience corresponding growth in operating income due to the higher cost of selling outside of the United States.
We record revenues upon shipment of products to our customers and distributors. Revenues from extended warranty contracts are deferred and recognized on a straight line basis over the contractual period. We provide allowances for estimated warranty costs at the time of revenue recognition based on our historical results. To date, warranty and extended warranty costs have been in line with projected amounts. However, our past product warranty experience may not be indicative of those we may experience in the future. We provide ALGO screening equipment to our customers on loan without charge while we repair or service their screening equipment.
We enter into general sales contracts with our distributors, and those distributors are required to purchase a specified minimum amount of our products. Our only remedy if these distributors fail to purchase the required amounts is to cancel the contract. We rely on our distributors to submit purchase orders for specific quantities of our products. Our sales are final and not subject to a right of return. We do not consider backlog to be a meaningful measure of future revenues because our customers can generally cancel orders without penalty.
Large one-time sales of equipment or disposables may cause our gross profits to be unpredictable from quarter to quarter. Our gross profit may also be adversely affected by the level of sales to international distributors, large individual customers, members of group purchasing organizations or groups of customers, each of which receive volume discounts. Our gross profit may also be affected by changes in manufacturing efficiencies.
Significant investment in research and development has been, and we believe it will continue to be, required to develop new products and enhance existing products to allow us to further penetrate our markets. In
addition, research and development costs are impacted by the timing of development activities, including clinical trials, which can have a significant impact on costs in a given period.
During the six months ended June 30, 2000, we granted options to purchase 451,100 shares of our common stock at a weighted average exercise price of $1.53 per share. The weighted average exercise price was below the weighted average deemed fair value of $3.57 per share. We recorded cumulative deferred stock compensation on our balance sheet of $1.5 million in connection with these stock option grants. We will amortize this deferred stock compensation to expense on an accelerated method over the four year vesting periods of the related options. During the remainder of 2000, we expect to amortize stock compensation expense of $425,000. We expect to amortize aggregate stock compensation of approximately $432,000 during 2001, $201,000 during 2002, $63,000 during 2003 and $1,000 during 2004. The amount of stock compensation expense to be recorded in future periods could decrease if options for which accrued but unrecognized compensation has been recorded are forfeited.
As of December 31, 1999, we had approximately $8.4 million of federal net operating loss carryforwards for tax reporting purposes available to offset future taxable income. These net operating loss carryforwards expire beginning in 2002. We have not recognized any benefit from the future use of loss carryforwards for these periods or for any other period since inception because of uncertainty surrounding their realization. We may not be able to utilize our net operating loss carryforwards before they expire if we continue to generate net losses. The amount of net operating losses that we can utilize may be limited under tax regulations in circumstances including a cumulative stock ownership change of more than 50% over a three year period. Accordingly, even if we have net income, the amount of net operating loss carryforwards we can use in any given year may be limited, and we may not be able to use some portion or all of our net operating loss carryforwards. This offering may result in a cumulative change in ownership sufficient to limit our ability to use our net operating loss carryforwards.
Since our inception, we have incurred significant net losses, including net losses available to common stockholders of $1.9 million in 1997, $1.6 million in 1998, $1.4 million in 1999 and $1.0 million in the six months ended June 30, 2000. In addition, we had an accumulated deficit of $19.5 million as of June 30, 2000. We expect to continue to incur net losses for at least the next 12 months.
Our net loss available to common stockholders includes accretion charges to increase over time the carrying amount of our redeemable convertible preferred stock to the amount we would be required to pay if the preferred stock were to be redeemed. Our redeemable convertible preferred stock will convert to common stock on a one to one basis upon the closing of this offering. We will not pay accrued dividends on the redeemable convertible preferred stock when it converts, and accrued but unpaid dividends will become additional paid-in capital.
Results of Operations
The following table sets forth the results of our operations expressed as a percent of net revenues. Our historical operating results are not necessarily indicative of the results for any future period.
Percent of Revenue
-------------------------------------
Six Months
Years Ended Ended
December 31, June 30,
--------------------- -------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
Net revenues.......................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues...................... 36.0 35.1 33.5 34.6 35.5
----- ----- ----- ----- -----
Gross profit........................ 64.0 64.9 66.5 65.4 64.5
----- ----- ----- ----- -----
Operating expenses:
Marketing and selling............... 42.5 39.5 38.8 41.0 39.9
Research and development............ 16.0 17.1 12.4 14.4 14.6
General and administrative.......... 12.3 10.3 12.1 11.4 10.5
Amortization of deferred stock
compensation....................... -- -- -- -- 2.5
----- ----- ----- ----- -----
Total operating expenses.......... 70.8 66.9 63.3 66.8 67.5
----- ----- ----- ----- -----
Income (loss) from operations......... (6.8) (2.0) 3.2 (1.4) (3.0)
Other income (expense), net........... 1.0 0.7 0.1 0.1 0.1
----- ----- ----- ----- -----
Income (loss) before taxes............ (5.8) (1.3) 3.3 (1.3) (2.9)
Income tax expense.................... -- -- 0.1 -- --
----- ----- ----- ----- -----
Net loss.............................. (5.8) (1.3) 3.2 (1.3) (2.9)
Accretion of redeemable convertible
preferred stock...................... 12.9 8.7 10.5 7.8 6.3
----- ----- ----- ----- -----
Net loss available to common
stockholders..................... (18.7)% (10.0)% (7.3)% (9.1)% (9.2)%
===== ===== ===== ===== =====
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For the six months ended June 30, 2000, cost of revenues includes amortization of deferred stock compensation of 0.7%. Amortization of deferred stock compensation for the six months ended June 30, 2000 includes marketing and selling of 0.8%, research and development of 0.4% and general and administrative of 1.3%.
Six Months Ended June 30, 2000 and 1999
Net revenues consist almost exclusively of revenues from the sale of ALGO screening equipment and its related disposables. Our net revenues increased $2.1 million, or 23.4%, from $8.9 million in the six months ended June 30, 1999 to $11.0 million in the six months ended June 30, 2000. These increases were primarily attributable to increased sales of disposables. Net revenues from disposables increased $2.3 million, or 52.4%, from $4.5 million in the six months ended June 30, 1999 to $6.8 million in the six months ended June 30, 2000. As a percent of net revenues, net revenues from sales of disposables increased from 50.3% in the six months ended June 30, 1999 to 62.1% in the six months ended June 30, 2000. No end customer accounted for more than 10% of our net revenues in either of the six month periods ended June 30, 1999 or 2000. Sales to our Japanese distributor accounted for 12% of our net revenues in the six months ended June 30, 2000.
Net revenues from indirect sales outside the United States increased $1.1 million, or 275%, from $400,000 in the six months ended June 30, 1999 to $1.5 million in the six months ended June 30, 2000. This increase was due primarily to the expansion of our operations in Japan and other countries. One factor relating to the increase in net revenues in the Japanese market was the commencement of the Japanese Ministry of Health and Welfare's pilot newborn hearing screening program.
Cost of revenues includes materials costs, personnel expenses, amortization of deferred stock compensation, packaging and shipping costs, other manufacturing costs, warranty expenses and technology
license fees. To date, technology license fees have not been material. Our cost of revenues increased $826,000, or 26.8%, from $3.1 million in the six months ended June 30, 1999 to $3.9 million in the six months ended June 30, 2000. The increase in the cost of revenues in absolute dollars was primarily due to the increased volume of screening equipment and disposable supplies sold during the most recent six month period. Cost of revenues did not include any amortization of deferred stock compensation in the six months ended June 30, 1999 but did include amortization of $75,000 of deferred stock compensation in the six months ended June 30, 2000. As a percent of net revenues, the cost of revenues increased from 34.6% in the six months ended June 30, 1999 to 35.5% in the six months ended June 30, 2000. The increase in cost of revenues as a percent of net revenues was attributable to the higher percentage of international sales and the lower per unit selling prices associated with those sales. In addition, our cost of revenues in the six months ended June 30, 2000 was impacted by amortization of deferred stock compensation. Excluding amortization of deferred stock compensation, cost of revenues increased from 34.6% of net revenues in the six months ended June 30, 1999 to 34.8% of net revenues in the six months ended June 30, 2000.
Gross profit increased $1.3 million, or 21.7%, from $5.8 million in the six months ended June 30, 1999 to $7.1 million in the six months ended June 30, 2000. Gross profit as a percentage of net revenues decreased from 65.4% in the six months ended June 30, 1999 to 64.5% in the six months ended June 30, 2000. The decrease in gross profit as a percentage of net revenues was primarily due to a higher percentage of international sales. Excluding the deferred compensation charge, gross profit as a percent of net revenues was 65.4% in the first six months of 1999 and 65.2% in the six months ended June 30, 2000.
Marketing and selling expenses consist primarily of salaries, commissions, travel, promotional and advertising costs. Our marketing and selling expenses increased $741,000, or 20.3%, from $3.7 million in the six months ended June 30, 1999 to $4.4 million in the six months ended June 30, 2000. The absolute dollar increase in marketing and selling expenses was primarily attributable to the hiring of additional marketing and selling personnel, increases in commissions due to increased sales and the expansion of our sales efforts. As a percent of net revenues, marketing and selling expenses decreased from 41.0% in the six months ended June 30, 1999 to 39.9% in the six months ended June 30, 2000. The decrease in marketing and selling expenses as a percent of net revenues was primarily attributable to the increase in net revenues for the six months ended June 30, 2000.
Research and development expenses consist of engineering costs to develop new products, enhance existing products and perform design quality assurance activities. Our research and development expenses increased $317,000, or 24.6%, from $1.3 million in the six months ended June 30, 1999 to $1.6 million in the six months ended June 30, 2000. As a percent of net revenues, research and development expenses were 14.4% in the six months ended June 30, 1999 and 14.6% in the six months ended June 30, 2000. This increase in research and development expenses was primarily attributable to the hiring of additional engineers and consultants.
General and administrative expenses consist of corporate, finance, human resource, administrative and legal expenses. Our general and administrative expenses increased $131,000, or 12.8%, from $1.0 million in the six months ended June 30, 1999 to $1.2 million in the six months ended June 30, 2000. The absolute dollar level increase in general and administrative expenses was primarily attributable to the hiring of additional personnel, as well as increased legal, accounting and other consulting fees. As a percent of net revenues, general and administrative expenses decreased from 11.4% in the six months ended June 30, 1999 to 10.5% in the six months ended June 30, 2000. The decrease in general and administrative expenses as a percent of net revenues was primarily attributable to the increase in net revenues in the six months ended June 30, 2000.
We recorded no amortization of deferred stock compensation in the six months ended June 30, 1999. We recorded aggregate amortization of $353,000 of deferred stock compensation in the six months ended June 30, 2000, of which $75,000 was included in cost of revenues.
Other income (expense), net consists of interest income, interest expense and other miscellaneous expenses. Our other income (expense), net increased $7,000, or 140%, from $5,000 in the six months ended June 30, 1999 to $12,000 in the six months ended June 30, 2000. The increase was primarily due to higher interest earned on increased average cash balances in the six months ended June 30, 2000.
Years Ended December 31, 1999 and 1998
Net revenues increased $3.9 million, or 24.5%, from $15.9 million in 1998 to $19.8 million in 1999. These increases were primarily attributable to substantial growth in our installed base of screening equipment, as well as additional sales of disposables to our existing customers. Net revenues from disposables increased $3.6 million, or 51.1%, from $7.1 million in 1998 to $10.7 million in 1999. As a percent of net revenues, net revenues from sales of disposables increased from 44.6% in 1998 to 54.1% in 1999. No end customer accounted for more than 10% of our net revenues in either 1998 or 1999. However, our Japanese distributor accounted for 14% of our net revenues in 1998.
Net revenues from indirect sales outside the United States fell $1.1 million, or 35.4%, from $3.1 million in 1998 to $2.0 million in 1999. The decrease was due to a large one time equipment purchase in 1998 by a local government agency in Belgium that instituted a universal newborn hearing screening program.
Cost of revenues increased $1.0 million, or 18.8%, from $5.6 million in 1998 to $6.6 million in 1999. The increase in the cost of revenues in absolute dollars was primarily due to the increased volume of screening equipment and disposable supplies sold during 1999. As a percent of revenues, the cost of revenues decreased from 35.1% in 1998 to 33.5% in 1999.
Gross profit increased $2.9 million, or 27.7%, from $10.3 million in 1998 to $13.2 million in 1999. Gross profit as a percentage of net revenues increased from 64.9% in 1998 to 66.5% in 1999. The increase in gross profit and the corresponding decrease in cost of revenues as a percent of net revenues was primarily due to increased domestic direct sales and greater efficiencies in our manufacturing and procurement operations.
Marketing and selling expenses increased $1.4 million, or 22.5%, from $6.3 million in 1998 to $7.7 million in 1999. The absolute dollar increase in marketing and selling expenses was primarily attributable to the hiring of additional marketing and selling personnel and increases in commissions due to increased sales. As a percent of net revenues, marketing and selling expenses decreased marginally from 39.5% in 1998 to 38.8% in 1999. The decrease in marketing and selling expenses as a percent of net revenues was primarily attributable to the increase in net revenues in 1999.
Research and development expenses decreased $254,000, or 9.4%, from $2.7 million in 1998 to $2.5 million in 1999. As a percent of net revenues, research and development expenses decreased from 17.1% in 1998 to 12.4% in 1999. This decrease in research and development expenses was primarily attributable to reduced spending on CO-Stat development and clinical trials.
General and administrative expenses increased $746,000, or 45.5%, from $1.6 million in 1998 to $2.4 million in 1999. As a percent of net revenues, general and administrative expenses increased from 10.3% in 1998 to 12.1% in 1999. The increase in general and administrative expenses was primarily attributable to the hiring of additional personnel, as well as increased legal, accounting and other consulting fees. In addition, we elected not to pursue an acquisition of a private company to which we had loaned $200,000, in connection with which we received an exclusive, three month option to purchase substantially all of the assets of the company. We subsequently wrote off the related promissory note, which was in default and deemed uncollectible.
Other income (expense), net decreased $98,000, or 83.1%, from $118,000 in 1998 to $20,000 in 1999, as a result of reduced interest income on a lower level of invested cash balances.
Years Ended December 31, 1997 and 1998
Net revenues increased $5.9 million, or 58.3%, from $10.0 million in 1997 to $15.9 million in 1998. This increase was primarily attributable to growth in existing product sales and the introduction of the ALGO Portable product. Net revenues from disposables increased $2.1 million, or 42.0%, from $5.0 million in 1997 to $7.1 million in 1998. As a percent of net revenues, net revenues from sales of disposables decreased from 49.8% in 1997 to 44.6% in 1998, due primarily to a large one-time supply purchase by a single customer in 1997. No end customer accounted for more than 10% of our net revenues in either 1997 or 1998. However, our Belgian distributor accounted for 12% of our net revenues in 1997, and our Japanese distributor accounted for 14% of our net revenues in 1998.
Net revenues from sales outside the United States increased $1.7 million, or 121%, from $1.4 million in 1997 to $3.1 million in 1998. This increase was due to expansion of our operations in Japan, Belgium and other countries.
Cost of revenues increased $2.0 million, or 54.4%, from $3.6 million in 1997 to $5.6 million in 1998. The absolute dollar increase in the cost of revenues was due primarily to the increased volume of screening equipment and disposables sold during the year. As a percent of revenues, the cost of revenues decreased from 36.0% in 1997 to 35.1% in 1998. The decrease in cost of net revenues as a percent of net revenues was primarily due to efficiencies achieved on the greater volume of product shipments.
Gross profit increased $3.9 million, or 60.6%, from $6.4 million in 1997 to $10.3 million in 1998. As a percent of net revenues, gross profit increased from 64.0% in 1997 to 64.9% in 1998. The increase in both absolute dollars and as a percent of net revenues was primarily attributable to increased net revenues and efficiencies achieved in the manufacturing process.
Marketing and selling expenses increased $2.0 million, or 47.3%, from $4.3 million in 1997 to $6.3 million in 1998. As a percent of net revenues, marketing and selling expenses decreased from 42.5% in 1997 to 39.5% in 1998. This increase in absolute dollars was primarily attributable to increased personnel costs, increased trade show and travel costs, and to a lesser extent, the expansion of our marketing and selling activities in Europe.
Research and development expenses increased $1.1 million, or 69.2%, from $1.6 million in 1997 to $2.7 million in 1998. As a percent of net revenues, research and development expenses increased from 16.0% in 1997 to 17.1% in 1998. The increase in research and development expenses was primarily attributable to an increase in the number of engineers we employed for the enhancement of existing products and the development of new products, including the CO-Stat products.
General and administrative expenses increased $407,000, or 33.1%, from $1.2 million in 1997 to $1.6 million in 1998. As a percent of net revenues, general and administrative expenses decreased from 12.3% in 1997 to 10.3% in 1998. The absolute dollar level increase of general and administrative expenses was primarily attributable to hiring of additional personnel.
Other income (expense), net increased $21,000, or 21.6%, from $97,000 in 1997 to $118,000 in 1998. The increase in other income (expense), net was primarily due to lower interest expense in 1998 as a result of lower borrowings under our credit facilities and higher interest earnings on available cash balances.
Quarterly Results of Operations
The following table presents our operating results for each of the six quarters in the period from January 1, 1999 through June 30, 2000. The information for each of these quarters is unaudited and has been prepared on the same basis as our audited financial statements appearing elsewhere in this prospectus. In the opinion of our management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere in this prospectus.
Quarters Ended
-----------------------------------------------------
Dec.
Mar. 31, June 30, Sept. 30, 31, Mar. 31, June 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- ------ -------- --------
(in thousands)
Net revenues ........... $4,341 $4,577 $4,715 $6,150 $4,912 $6,097
Cost of revenues........ 1,508 1,574 1,654 1,888 1,766 2,142
------ ------ ------ ------ ------ ------
Gross profit.......... 2,833 3,003 3,061 4,262 3,146 3,955
Gross margin.......... 65.3% 65.6% 64.9% 69.3% 64.0% 64.9%
Operating expenses:
Marketing and
selling.............. 1,691 1,963 1,914 2,116 2,043 2,352
Research and
development ......... 703 585 587 582 743 862
General and
administrative....... 460 561 562 801 563 589
Amortization of
deferred stock
compensation......... -- -- -- -- 27 251
------ ------ ------ ------ ------ ------
Total operating
expenses........... 2,854 3,109 3,063 3,499 3,376 4,054
------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (21) (106) (2) 763 (230) (99)
Other income (expense),
net.................... 1 4 7 8 19 (7)
------ ------ ------ ------ ------ ------
Income (loss) before
taxes.................. (20) (102) 5 771 (211) (106)
Income tax expense...... -- -- -- 10 -- --
------ ------ ------ ------ ------ ------
Net income (loss)....... (20) (102) 5 761 (211) (106)
Accretion of redeemable
convertible preferred
stock.................. 347 348 347 1,043 346 346
------ ------ ------ ------ ------ ------
Net loss available to
common stockholders.... $ (367) $ (450) $ (342) $ (282) $ (557) $ (452)
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Cost of revenues includes amortization of deferred stock compensation of $10,000 in the three months ended March 31, 2000 and $65,000 in the three months ended June 30, 2000. The amortization of deferred stock compensation allocated to operating expenses in the three months ended March 31, 2000 was comprised of marketing and selling expenses of $9,000, research and development expenses of $6,000 and general and administrative expenses of $12,000. The amortization of deferred stock compensation allocated to operating expenses in the three months ended June 30, 2000 was comprised of marketing and selling expenses of $82,000, research and development expenses of $42,000 and general and administrative expenses of $127,000.
When compared to the comparable quarter from the prior year, net revenues generally have increased each quarter due to sales of a larger number of screening equipment units and disposables to our customers, as well as from increases in the size and productivity of our sales force and broader international distribution. We believe seasonal factors in our business have caused and in the future will continue to cause revenues in the quarter ended March 31 to decrease from the revenues in the immediately preceding quarter. These seasonal factors include patterns in the capital budgeting and purchasing cycles of our current and prospective customers and the economic incentives to our sales force that generally occur in the last quarter of the calendar year. In addition, bulk purchases by a state or agency of a foreign government can cause a significant fluctuation in revenue for any quarter. For example, we received a large order from a state during the quarter ended March 31, 1999 that increased revenues in the quarter significantly.
Our operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate in the future. The quarterly fluctuations are caused by a number of factors, including:
. the budgeting cycle of our customers;
. the size and timing of specific sales, such as large purchases of screening equipment or disposables by government agencies or hospital systems;
. product and price competition;
. the timing and market acceptance of new product introductions and product enhancements by us and our competitors, such as the expected reduction in demand for our ALGO 2e Color screener prior to the announced launch date of our ALGO 3 screener;
. the length of our sales cycle;
. the loss of key sales personnel or international distributors; and
. changes caused by the rapidly evolving market for newborn screening products.
Many of these factors are beyond our control, and therefore, we believe that results of operations for interim periods should not be relied upon as any indication of the results to be expected in any future period.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private sales of convertible preferred stock and common stock, equipment financing and cash generated from product sales. As of June 30, 2000, we had cash and cash equivalents of $1.5 million, an accumulated deficit of $19.5 million and working capital of $3.9 million.
Net cash used by operating activities was $939,000 for the year ended December 31, 1997 and resulted primarily from net losses in that period offset by increases in accrued liabilities and accounts payable. Net cash used by operating activities was $298,000 for the year ended December 31, 1998 and resulted primarily from net losses in that period and increases in accounts receivable and inventory. These uses of cash were partially offset by increases in accrued liabilities and accounts payable. Net cash provided by operating activities was $1.3 million for the year ended December 31, 1999 and resulted primarily from net income. Net cash used by operating activities was $159,000 for the six months ended June 30, 2000 and resulted from increases in inventory and other working capital items.
Net cash used in investing activities was $579,000 for the year ended December 31, 1997, $950,000 for the year ended December 31, 1998, $1.4 million for the year ended December 31, 1999 and $414,000 for the six months ended June 30, 2000. Net cash used in investing activities during these periods was primarily for purchases of new computers, equipment and furniture as we expanded operations, loans to a foreign distributor in the form of convertible notes and the purchase of a long-term investment.
Net cash provided by financing activities was $3.5 million for the year ended December 31, 1997 and resulted primarily from our Series D convertible preferred stock financing. Net cash provided by financing activities was $350,000 for the year ended December 31, 1998 and resulted primarily from borrowings under a bank line of credit and issuance of common stock upon the exercise of employee options. Net cash provided by financing activities was $519,000 for the year ended December 31, 1999 and resulted primarily from the proceeds from the exercise of warrants to purchase series C convertible preferred stock and issuance of common stock upon the exercise of employee stock options. Net cash used by financing activities was $4,000 for the six months ended June 30, 2000 and resulted primarily from the repayment of short-term debt but was offset largely by the proceeds from issuance of common stock upon the exercise of employee stock options.
As of June 30, 2000, we had $75,000 outstanding under a term equipment loan that will be repaid through December 31, 2000.
Our future liquidity and capital requirements will depend on numerous factors, including:
. the amount and timing of revenues;
. the extent to which our existing and new products gain market acceptance;
. the extent to which we make acquisitions;
. the cost and timing of expansion of product development efforts and the success of these development efforts;
. the cost and timing of expansion of marketing and selling activities; and
. available borrowings under line of credit arrangements and the availability of other means of financing.
We believe that the net proceeds from this offering, together with our current cash and investment balances and any cash generated from operations and from current or future debt financing, will be sufficient to meet our operating and capital requirements for at least the next 18 months. However, it is possible that we may require additional financing within this period. We have no current plans, and we are not currently negotiating, to obtain additional financing following the completion of this offering. We intend to continue to invest heavily in the development of new products and enhancements to our existing products. The factors described above will affect our future capital requirements and the adequacy of our available funds. In addition, even if we raise sufficient funds to meet our anticipated cash needs during the next 18 months, we may need to raise additional funds beyond this time. We may be required to raise those funds through public or private financings, strategic relationships or other arrangements. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants.
Qualitative and Quantitative Disclosures about Market Risk
We develop products in the United States and sell those products primarily in the United States, Japan and Europe. Our revenues for sales outside the United States were approximately 10% of our net revenues in 1999 and approximately 14% in the six months ended June 30, 2000. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Our sales are generally denominated in United States dollars; however, we expect that a portion of our operating expenses and revenues in international locations will be denominated in local currencies in the future. Historically, our exposure to foreign exchange fluctuations has been minimal; however, as our international sales and operations expand, we anticipate that our exposure to foreign currency fluctuations will increase. As all of our sales are currently made in United States dollars, a strengthening of the dollar could make our products less competitive in foreign markets.
Our interest income is sensitive to changes in the general level of interest rates in the United States, particularly since the majority of our investments are in short-term instruments. Due to the nature of our short-term investments, we have concluded that we do not have material market risk exposure.
Our investment policy requires us to invest funds in excess of current operating requirements in:
. obligations of the United States government and its agencies;
. investment grade state and local government obligations;
. securities of United States corporations rated A1 or P1 by Standard & Poors' or the Moody's equivalents; or
. money market funds, deposits or notes issued or guaranteed by United States and non-United States commercial banks meeting certain credit rating and net worth requirements with maturities of less than two years.
As of June 30, 2000, our cash and equivalents consisted primarily of demand deposits and money market funds held by large institutions in the United States. The recorded carrying amounts of cash and cash equivalents approximate fair value due to their short-term maturities.
Recent Accounting Pronouncements
In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements, or SAB 101, which summarizes certain of the SEC staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. We have not yet determined what the impact of the adoption of SAB 101, if any, will have on our financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS 133. SFAS 133 defines derivatives, requires all derivatives to be carried at fair value and provides for hedge accounting when certain conditions are met. We will be subject to SFAS 133 commencing in 2001. We have not yet determined what the impact of the adoption of SFAS 133, if any, will have on our financial position or results of operations.
BUSINESS
Overview
We are focused on developing, manufacturing and marketing screening products for the identification and monitoring of common medical disorders that may occur during the time from conception to a baby's first birthday. This period is critical to a child's development. By allowing for early detection and treatment, we believe our products can help reduce costs and minimize the probability of unnecessary retesting or hospital readmission. We design our products to deliver accurate results in a rapid and reliable manner. In addition, our products address the standard of care guidelines set forth by the American Academy of Pediatrics.
We have two product lines that have been cleared for marketing by the FDA:
the ALGO and the CO-Stat. We are selling our ALGO products for newborn hearing
screening, and, in early 2001, we expect to begin actively marketing our CO-
Stat products for the evaluation of newborn jaundice. Both of our current
product lines are comprised of hardware units and single-use disposable
components.
Our ALGO products use automated ABR to enable simple, non-invasive and accurate screening for hearing impairment in newborns. The ALGO screener delivers sound stimuli to a newborn's ears and analyzes the resulting brain wave responses to produce a "Pass" or "Refer" result. The procedure can be performed within hours after birth. In addition, the ALGO meets the American Academy of Pediatrics' guidelines without requiring a trained audiologist to operate the equipment. We currently sell our ALGO products in the United States, Europe, Japan, Australia and New Zealand.
Our CO-Stat analyzer enables physicians, within hours after birth, to assess the likelihood that serious newborn jaundice will not occur, thereby allowing physicians to keep newborns with higher risk of developing serious newborn jaundice in the hospital or under observation. Jaundice may be a sign of an abnormally high rate of hemolysis. Our CO-Stat analyzers accurately and non- invasively measure the rate of hemolysis by detecting the level of carbon monoxide in exhaled breath. In addition, we are currently investigating the use of the CO-Stat for monitoring and analysis of other conditions, including pregnancy induced hypertension. To date, our CO-Stat products have been sold primarily for clinical research.
Our Opportunity
Approximately 10.5 million children are born every year in industrialized countries, including approximately 3.8 million in the United States. The most critical time in a child's development is from conception to a baby's first birthday. If a baby experiences a medical problem or disease during this period of rapid growth and development, there can be profound and lasting effects on his or her development and long-term societal and financial impacts on the child's family and community.
Early detection of treatable disorders helps to achieve the best possible outcome for the child and can reduce the impact and cost of the disorder. As a result, governments and physician groups in industrialized countries have adopted policies and guidelines for standard medical practices, known as standards of care. The guidelines suggest that physicians should conduct childhood screening and take preventative measures for common and potentially serious disorders. Examples of standards of care include prenatal care offered to pregnant women, universal newborn screening for common disorders and infant immunization for common infections.
Hearing impairment and jaundice are among the more common disorders that a baby may face after birth. Impaired hearing is one of the most common permanent disabilities in infants and affects approximately six per every 1,000 newborns in the United States. Jaundice affects approximately 60% of newborns in the United States and may be a symptom of serious disorders that can cause permanent brain damage or death. Other medical conditions that may occur during pregnancy and the first year after birth include miscarriage and spontaneous abortion, genetic abnormalities, premature labor and delivery, infection before birth, metabolic problems and respiratory disorders. Despite the importance of early identification and treatment of medical conditions in pregnant women and infants, there are limited products for cost-effective and reliable detection of common disorders.
Our Solution
We believe our products deliver specific, sensitive results in a rapid and reliable manner and are simple to use and cost-effective. We believe our products offer the following benefits:
. Accuracy. Our products are designed to provide highly sensitive, specific and reliable results and meet applicable guidelines developed by the American Academy of Pediatrics.
. Immediate crib-side results. Clinicians can use our products to screen newborns hours after birth. By obtaining the results of the newborn's screening before the baby is discharged from the hospital, the child's physician is able to assess whether discharge or further assessment is appropriate. If the results indicate a potential hearing impairment or that jaundice is likely to develop or worsen, the physician can begin to develop a treatment plan or begin treatment before the baby is discharged.
. Ease of use. Our products are designed to operate with a simple set-up procedure and to be used by hospital staff with only a minimal level of training. Our products are non-invasive and are designed to perform screenings quickly.
. Cost-effectiveness. By identifying the disease or condition early, we believe our products can reduce the long-term costs of care by enabling the physician to begin treatment early. In addition, we believe the accuracy of our devices minimizes erroneous and misleading results and, therefore, lowers the costs of unnecessary retesting or hospital readmission.
. Designed to meet standard of care guidelines. We design our products to meet the standard of care requirements for universal screening programs so that health care providers can obtain reimbursement for newborn screening. Health care providers may not receive reimbursement if their equipment cannot meet the applicable standard of care. We will continue to work with states, other governmental organizations and other third party payor groups to develop standard of care guidelines that include universal hearing screenings.
Our Strategy
Our goal is to become the leading provider of equipment and single-use disposable supplies for detection of common, treatable medical disorders that occur during the period from conception to the baby's first birthday. The key elements of our strategy include:
. Increase awareness. We plan to continue to use the following methods to increase awareness of our products and the need for universal screening:
-- marketing our products to key clinical audiences including neonatologists, pediatricians, obstetricians, ear, nose and throat physicians, pediatric nurses and audiologists;
-- educating physicians and other clinicians about the benefits of newborn screening;
-- supporting the publication of additional clinical research to provide data supporting the expanded use of our products; and
-- expanding our domestic direct sales force and international distribution channels.
. Focus on government and physician groups to promote universal screening of newborns. We believe that clinical education of hospital administrators and government officials will improve awareness of the benefits of universal screening and the advantages of our products. For example, we focus substantial marketing and selling efforts on state and foreign government agencies that fund special education and other services for hearing impaired children. We encourage these state agencies to require universal hearing screening of all newborns and to provide reimbursement or grants to purchase screening equipment. We intend to pursue a similar strategy for future products.
. Continue to advance technology. We intend to aggressively pursue ongoing research and development to introduce new products and improve our existing products and technologies. We believe a number of additional opportunities exist for the screening of newborns and pregnant women.
. Enhance Natus brand by introducing new products. Through our relationships with key clinicians and administrators and the market acceptance of our hearing screening technology, we believe we are well positioned to distribute existing products and introduce new products into the nursery and neonatal intensive care unit. In addition, we intend to expand our product offerings to address diseases and conditions that affect both babies and pregnant women during the period of time from conception to a baby's first birthday. As recognition of the Natus brand grows, we believe we can introduce a number of new products, which can be marketed to the same clinical audience as our existing ALGO and CO-Stat product lines.
. License our technology to strategic partners for use in screening adults. We intend to enter into strategic partnerships to conduct clinical studies of our products for adult indications including blood disorders, heart and lung diseases and respiratory disorders.
Clinical Background
Hearing Impairment
Overview
Approximately 3.8 million babies are born each year in the United States, and hearing impairment affects approximately six per every 1,000 of those newborns. Until the introduction of universal newborn hearing screening programs, screening was generally performed only on those newborns who had risk factors for hearing impairment, including a family history of hearing impairment, infection prior to birth, low birth weight, skull or facial anomalies or bacterial meningitis. However, screening only those newborns with risk factors for hearing impairment overlooks approximately half of newborns with some level of hearing impairment.
Early identification of hearing impairment and early intervention has been shown to improve language development significantly. Babies identified at birth as deaf or hearing impaired, who begin immediate therapy, can learn and progress at a rate comparable to children with normal hearing, regardless of the severity of hearing loss. However, undetected hearing impairment often results in the failure to learn, process spoken language and speak. A 1997 study conducted at the University of Colorado, Boulder evaluated the impact of a hearing impairment on language and speech. All of the children evaluated in the study were born with a hearing impairment but differed by the age at which it was detected. The study concluded that those children whose hearing loss was detected and received treatment early had significantly better language skills and vocabularies than those children whose hearing loss was detected later.
Prior to universal newborn hearing screening, the average age of hearing impairment detection was two and one-half years after birth. The following chart from the Marion Downs National Center for Infant Hearing at the University of Colorado, Boulder compares the vocabulary at 36 months of age of hearing impaired children to the vocabulary of children with normal hearing. The following chart illustrates the impact of early identification and intervention.
[Graphic: Diagram showing range of high and low and average number of vocabulary words of children at 36 months of age with normal hearing and with hearing impairment identified at (1) birth, (2) six months and (3) two years.]
The Marion Downs Center estimates that the cost of profound neonatal hearing impairment to society is approximately $79 billion per year in the United States due to increased educational costs, lower lifetime income and higher unemployment. The Marion Downs Center also estimates that profound hearing impairment can cost a child's family and society up to one million dollars during his or her lifetime. Effective and early newborn hearing screening can help to reduce these costs by enabling a newborn with hearing impairment to obtain treatment. Early identification and therapy for hearing impaired children has the potential to reduce the cost of special services and education substantially for state governments. The State of Colorado estimates that a state can save as much as $400,000 per child over his or her lifetime in special services and educational costs alone.
The University of Colorado, Boulder's study also demonstrates that early identification of hearing impairment has a significant impact on the child's development regardless of the degree of hearing impairment. Treatment options for hearing impaired children, include:
. amplification, such as hearing aids;
. therapies for language acquisition, such as sign language;
. oral approaches, such as lip reading; and
. surgical intervention, such as cochlear implants.
These treatments, when begun early, allow the child to learn, listen, speak and process spoken language at more advanced levels throughout his or her life.
Newborn Hearing Screening
Newborn hearing screening has been performed in the United States since 1964 but has been generally limited to babies with risk factors for hearing impairment. We believe the lack of accurate, low cost screening devices and the subjective nature of other currently used tests has limited the willingness of governments and physicians to adopt hearing screening as a standard of care for all newborns. In recent years, the clinical evidence in support of early detection for hearing impairment combined with the introduction of new screening technology has increased support for universal newborn hearing screening programs. In 1993, the National Institutes of Health and, in 1994, the Joint Committee on Infant Hearing endorsed universal newborn hearing screening. The combined clinical benefit and cost savings provided incentives for states to begin mandating universal newborn hearing screening as early as 1995.
Thirty-one states have universal newborn hearing screening mandates in place with legislation pending in another six states. The majority of the mandates currently allow for implementation over a two to three year period. An additional four states have voluntary programs in place. We defined states that voluntarily comply to be states without mandated universal newborn screening but in which at least 50% of newborns are screened using ALGO equipment. In these states, the state health departments may purchase and distribute hearing screening equipment even though screening is not mandated. We estimate that approximately 94% of births in 2000 will occur in states with mandates, pending mandates or voluntary programs in place.
Status of Universal Newborn Hearing Screening by State
(as of May 2000)
Voluntary
Mandatory(1) Compliance Legislation Pending No Active Programs
1995 1999 Texas Arizona New Mexico Alabama
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Hawaii Arkansas Wisconsin Michigan Ohio Alaska
Rhode Island Georgia Wyoming Montana Pennsylvania Delaware
1997 Illinois 2000 Nevada Tennessee Idaho
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Connecticut Indiana Florida Vermont Iowa
Mississippi Kansas Kentucky Washington Minnesota
1998 Louisiana Maine New Hampshire
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California Maryland New Jersey North Dakota
Colorado Missouri Oklahoma South Dakota
Massachusetts Nebraska South Carolina
Utah New York
Virginia North Carolina
West Virginia Oregon
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(1) The year listed reflects the year the particular state passed legislation or implemented regulations to require universal newborn hearing screening.
The following graphic illustrates the impact of state newborn hearing screening programs and the estimated number of babies screened annually, each in terms of the estimated number of births in 2000. The differences in the estimated number of births in states with mandated universal screening and the estimated number of babies screened is primarily due to the time it takes hospitals to implement mandated programs, as well as voluntary compliance in states with no mandates.
[Graphic description consisting of 2 pie charts.
Mandatory Universal Newborn Hearing Screening Coverage
Mandated 75% 2.9 million births Mandate pending 13% 0.5 million births Voluntary 6% 0.2 million births No mandate 6% 0.2 million births |
Estimated Newborns Screened Not Screened 57% 2.3 million births Screened 43% 1.7 million births]
Recognizing that only 50% of children with hearing impairment have a risk factor, the American Academy of Pediatrics stated that selectively screening babies at high risk was inadequate, and it has recommended that all babies be screened for hearing impairment. In 1999, the American Academy of Pediatrics' Task Force on Newborn and Infant Hearing published guidelines for universal newborn hearing screening programs. These guidelines are intended to establish the standard of care and provide that:
. at least 95% of all newborns should be screened;
. the screening method used must have the ability to detect all infants with a hearing impairment of at least 35 decibels in the better ear;
. the screening method should not refer more than 4% of all children tested for further evaluation;
. no more than 3% of children with normal hearing who are screened should receive results that indicate they have a hearing impairment, a screening error known as a false positive result; and
. no child whose hearing is impaired should receive a normal result, a screening error known as a false negative result.
Because positive results are referred to an audiologist or physician for additional testing and evaluation, the cost of a newborn screening program is reduced by limiting the number of further evaluations stemming from false positive results. In addition, false positive results can cause unnecessary emotional trauma for parents.
In order to meet the guidelines set forth by the American Academy of Pediatrics, a hearing screening program needs to employ a screening method that focuses on two parameters: sensitivity and specificity. Sensitivity is the capacity to detect the disease or disorder in those infants with the disease or disorder. A sensitivity of 100% indicates that no newborns with a hearing impairment receive results indicating the absence of a hearing impairment. Specificity is the capacity to detect those infants without the disease or disorder. A specificity of 100% indicates that no newborns who actually have normal hearing receive results suggesting the presence of a hearing impairment.
Screening Techniques
Traditional methods of screening for hearing impairment include subjective behavioral tests and more expensive objective diagnostic processes. We believe widespread acceptance of screening newborns for hearing impairment requires a relatively inexpensive screening method that produces sensitive, specific and reliable results. The two traditional technologies used to screen newborns for hearing impairment are auditory brainstem response and otoacoustic emissions.
Auditory brainstem response (ABR). ABR is the most accurate and comprehensive method for characterizing hearing impairment in adults and infants. ABR uses sensors placed on the head to measure the response of the brain and auditory nerves to sounds delivered through earphones. Hearing impairment is evaluated by monitoring the brain's response to varying the frequency and volume of the sounds. Trained clinicians must operate the ABR screening equipment, and the screening results must be interpreted by an audiologist or trained physician. ABR is primarily used to assess the degree of hearing impairment in adults and children and is not widely used for newborn screening due to the high cost, lengthy procedure time and unavailability of trained specialists in many neonatal nurseries.
Otoacoustic emissions (OAE). OAE screening is a method of detecting hearing impairment in adults and children. Otoacoustic emissions are sounds created by the active biomechanical processes within the sensory cells of normal ears. Since otoacoustic emissions are present in normal ears, an absence of otoacoustic emissions is a sign of irregular function of these sensory cells, which could result in hearing impairment. OAE screening uses a probe placed in the ear to deliver auditory stimulus and measures the response of the sensory cells with a sensitive microphone. OAE screening does not evaluate the function of the entire hearing pathway because it does not assess the neural pathways. Therefore, OAE can fail to detect disorders affecting the neural pathways. An individual OAE screening is relatively inexpensive. However, OAE screening can result in an excessive number of false positive results, which require retesting. These false positive results occur because in the first days after birth newborns commonly have fluid in their ears from the birth process, which can impair the ability to accurately assess hearing impairment with one screening.
Automated ABR. In order to address the limitations of other screening techniques, our ALGO product family utilizes automated ABR to provide accurate and non-invasive hearing screening for newborns. The ALGO screener, like ABR devices, utilizes a number of sensors placed on the head to measure the response of the brain and auditory nerves to sounds delivered through earphones. Unlike ABR devices, however, our ALGO screener does not require a trained clinician to conduct the screening or an audiologist or physician to interpret the results. The ALGO screener uses algorithms to perform the screening and draw a conclusion as to whether a baby needs to be referred to an audiologist for further evaluation. We estimate that the annual market for our ALGO products is approximately $140 million.
Hemolysis and Jaundice
Overview
Babies are generally born with a quantity of red blood cells necessary for fetal life but in excess of their needs as newborns. These excess red blood cells are normally broken down by the body in a process known as hemolysis. The two products of hemolysis are a yellow pigment called bilirubin and a proportional amount of carbon monoxide, or CO. Abnormal rates of hemolysis cause abnormal levels of carbon monoxide and bilirubin. An abnormal rate of hemolysis may also be an indicator of a number of other disorders including anemia, infection and some genetic disorders.
High amounts of bilirubin in the body can cause a yellowing of the skin and eyes called jaundice. The high level of bilirubin can result either from too much bilirubin being produced by hemolysis or from the body's failure to excrete the bilirubin. Extremely high levels of bilirubin, or hyperbilirubinemia, are toxic and may cause irreversible brain damage and potentially result in death.
The American Academy of Pediatrics Committee on Fetus and Newborns estimates that each year 60% of the four million newborns in the United States become jaundiced. According to the Journal of the American Medical Association, neonatal jaundice is the single largest cause for hospital readmission of newborns in the United States and account for 50% of readmissions. Hyperbilirubinemia occurs in approximately 6% to 10% of newborns. Because of the serious consequences of hyperbilirubinemia, the American Academy of Pediatricians recommends that all newborns be closely monitored for jaundice and has called for the physician to determine the presence or absence of an abnormal rate of hemolysis to establish the appropriate treatment for the newborn. We believe that the hospitals in the United States spend approximately $1.3 billion per year to treat neonatal jaundice in the hospital. Of this amount, approximately half is due to treatment of readmitted newborns. By identifying those infants with high rates of hemolysis before they are discharged, fewer newborns would need to be readmitted and treatment could begin earlier.
Depending on its cause, jaundice can be treated by helping the newborn to excrete the bilirubin or to reduce bilirubin production. In the early stages, jaundice can be treated with blue light, known as phototherapy, hydration and frequent feedings. Dangerous or toxic levels of bilirubin are treated by blood exchange transfusion, which is a high-risk procedure for newborns. If a physician can assess the levels of bilirubin being created and excreted by a newborn, the physician can tailor the treatment appropriately, reduce the number of invasive tests required to monitor the levels of bilirubin, evaluate the long-term effects of the jaundice and determine the appropriate term of hospitalization. In full term infants, the level of bilirubin in their blood is highest at approximately 72 hours after birth. However, infants are being discharged from the hospital before 48 hours after birth due to cost considerations. Thus, some infants may develop a potentially dangerous elevation in bilirubin levels after discharge. With early discharge, clinical reports show that the number of cases of brain damage caused by hyperbilirubinemia is on the rise.
Our CO-Stat product measures a baby's exhaled carbon monoxide to indicate the rate at which bilirubin is being produced and may assist the clinician in determining the cause of neonatal jaundice. If the rate of production, or hemolysis, is normal or low, the baby is not producing excessive levels of bilirubin and may be a candidate for early discharge. If the rate of hemolysis is high, this may be an indication of potentially serious disorders and increases the likelihood of neonatal jaundice. If the baby is producing high levels of bilirubin and does not develop jaundice in the first few days, the baby is assumed to be eliminating bilirubin efficiently but the underlying cause of the hemolysis may require treatment. If the baby develops jaundice, monitoring the rate of hemolysis with our CO-Stat product can help determine if jaundice is caused by excessive bilirubin production or inadequate bilirubin excretion.
Screening Techniques
Current means of identifying newborns with high or increasing bilirubin levels include visual observation, blood tests to assess bilirubin levels, antibody tests and the use of devices that measure the amount of yellow in the skin.
Total Serum Bilirubin Test. The total serum bilirubin test is a blood test that measures the total amount of bilirubin in the blood but does not differentiate between increased bilirubin production or decreased bilirubin elimination. As a result, the test does not give the clinician the information necessary to determine the cause of the increased bilirubin level and the most appropriate treatment for the newborn.
The Coombs Test. The Coombs test is another frequently administered blood test that determines whether a specific antibody is affixed to the baby's red blood cells. This antibody is often associated with a high rate of hemolysis in newborns. However, other conditions may result in the presence of the antibody, and the antibody's absence does not rule out a high rate of hemolysis or excessive levels of bilirubin. In addition, the Coombs test does not measure the rate of hemolysis. Even given these limitations, the Coombs test remains the most frequently used indicator of high levels of hemolysis and, in developed countries, it is currently administered to 50% to 60% of newborns prior to hospital discharge.
Skin Tone Assessment. In recent years, a number of devices have been introduced to monitor changes in bilirubin levels by measuring the amount of yellow in the skin. They are convenient because they do not require a blood sample. However, the reliability of tests performed with these devices is complicated by the variations in skin pigmentation, the baby's age and birth weight. As with the blood sampling methods, measuring the amount of yellow in the skin does not identify the factors contributing to the elevated bilirubin level.
Natus CO-Stat Analyzer. In order to address the limitations of other means of analyzing hemolysis, our CO-Stat product family measures a baby's exhaled carbon monoxide to assess the rate of hemolysis accurately. Hemolysis produces bilirubin and carbon monoxide in equal amounts, so that the rate of bilirubin production can be estimated by an analysis of the carbon monoxide in a newborn's exhaled breath, while correcting for the carbon monoxide existing in the screening environment. The physician can measure the level of exhaled carbon monoxide to assess the rate of hemolysis. An assessment of how rapidly a newborn is producing bilirubin can help to identify those newborns who are more likely to develop jaundice after discharge from the hospital. If a newborn develops jaundice, knowing how rapidly a newborn is producing bilirubin can also help physicians determine whether jaundice stems from excessive bilirubin production or failure to excrete bilirubin adequately. We estimate that the annual market for our CO-Stat products is approximately $200 million.
Our Products
Our products include the ALGO, MiniMuff and CO-Stat products. The ALGO screeners and single use disposable supplies are designed to objectively test newborn hearing shortly after birth and prior to discharge. We also make the MiniMuff, a single use protective ear cover, which reduces the noise newborns in neonatal intensive care units hear. The CO-Stat analyzer and disposable supplies are designed to provide a measure of the rate of hemolysis in order to monitor the cause of elevation in the level of bilirubin. The following table provides a list of our current products.
Hearing Products Description Approved Markets
ALGO 2e Color Screener Newborn hearing screening station United States, Europe,
Japan, Australia and New
Zealand
ALGO Portable Screener Portable newborn hearing screening station United States, Europe
and Japan
ALGO Disposable Kit: Single use disposables including earphones
and United States, Europe,
Ear Couplers Jelly electrodes Japan, Australia and
Button Sensors New Zealand
MiniMuff Single use disposable ear cover to reduce United States, Europe
noise (no approval required),
Australia and
New Zealand
Jaundice/Hemolysis Products
CO-Stat Breath Analyzer Newborn screening station to analyze the United States and Europe
rate of hemolysis
CO-Stat Disposable Kit: Single use disposables including tubing and United States and Europe
Sample Tubing Filters filter unit for patient sampling
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Hearing Products
ALGO Product Family
Our ALGO product family utilizes automated ABR technology to provide accurate and non-invasive hearing screening for newborns. The ALGO screener delivers thousands of soft clicking sounds at 35 decibels to the newborn's ears through sound cables and disposable ear phones connected to the instrument. Each click elicits a series of identifiable brain waves, which are detected by disposable sensors placed on the baby's forehead and shoulder and at the nape of the neck. The ALGO screener automatically extracts the infant's brainwave responses from the background noise and noise caused by muscle activity. These brainwave responses are then compared to a template based on the brainwave responses of infants with normal hearing. The ALGO screener displays a "Pass" message when it collects sufficient data to establish that the baby's responses are normal with a 99.96% level of statistical confidence. If a determination cannot be reached after 15,000 clicks, the ALGO screener displays a "Refer" message, indicating that the infant should be referred for more detailed evaluation. We believe that by using AABR technology our ALGO products have a number of advantages:
. Accuracy. Tests using automated ABR have the highest documented specificity and sensitivity for newborn hearing screening of devices not requiring a specially trained audiologist.
. Compliant with standard of care guidelines. Our ALGO screener meets the requirements of the American Academy of Pediatricians for universal newborn hearing impairment.
. Immediate crib-side results. Our screening tests can be conducted within hours after birth. Middle ear fluid and ear canal debris, which are often still present in the first 12 to 24 hours of after birth, do not significantly affect the results of our test.
. Non-invasive. No probes are used to conduct our tests.
. Ease of use. Our test can be administered by nurses or other hospital staff with minimal training because it does not require a trained audiologist to conduct the screening or interpret the results.
. Objective results. Our test produces objective "Pass" or "Refer" results, which do not require interpretation by an audiologist or other trained clinician.
. Rapid results. ALGO hearing screenings can be performed and results can be obtained prior to discharge from the hospital.
The ALGO Newborn Hearing screener line was first introduced in 1985. We have since introduced five new versions of the ALGO and currently market the ALGO 2e Color and the ALGO Portable.
ALGO 2e Color Screener. In December 1998, we introduced the ALGO 2e Color, which incorporates a laptop computer containing our circuit boards and uses commercially available operating system software. This system uses our software to conduct simultaneous screening of both ears and also conducts tests at 40 decibels and 70 decibels. The ALGO 2e Color uses our software to store results from every test automatically, which facilitates prompt follow-up and tracking of patient results. Users can print daily, weekly or monthly reports, create backup files and integrate screening results into statewide databases. The ALGO 2e Color also is designed to allow for future software and hardware upgrades. The current list price of the ALGO 2e Color is $17,500.
ALGO Portable Screener. In June 1998, we introduced the ALGO Portable, which is compact and weighs less than five pounds. The ALGO Portable screener provides the flexibility to screen newborns in the newborn nursery, doctor's office, clinic or home. The ALGO Portable comes with an attachable printer and is sold primarily in Europe and to low-volume birthing centers and hospitals. The current list price of the ALGO Portable is $10,900.
ALGO Disposable Kit. For infection control and accuracy, each hearing impairment test conducted with the ALGO is carried out with the ALGO disposable kit that includes single use earphones, which we call Ear
Couplers, and electrodes, which we call Jelly Button Sensors. All of our screening supplies are alcohol and latex-free, and our adhesives are specially formulated for newborns. The current list price of our ALGO disposable kit is $9.75 per kit.
Currently some hospitals use our ALGO products to screen only those newborns with risk factors for hearing losses while other hospitals use our ALGO products in their universal newborn screening programs.
MiniMuff Neonatal Noise Attenuators
In 1995, we introduced our MiniMuff neonatal noise attenuators, which are disposable earmuffs designed to decrease noise exposure for babies in neonatal intensive care units. The MiniMuff fits securely over a baby's ear and reduces sound levels by at least seven decibels, representing a reduction of sound pressure by more than 50%. Our MiniMuff products are sold in the United States and meet health care infection control standards through a single use design. They adhere to the baby's head with a non-toxic adhesive and are designed for a single use on a single patient for one day. The current list price of our MiniMuff product is $5.00.
Hemolysis Products
CO-Stat Product Family
Our CO-Stat product measures a baby's exhaled carbon monoxide to indicate the rate at which bilirubin is being produced and may assist the clinician in determining the cause of neonatal jaundice. We believe that our CO-Stat products have a number of advantages, which include:
. Accuracy. We believe our CO-Stat analyzer produces reliable results because it separates environmental carbon monoxide from carbon monoxide in exhaled breath.
. Address standard of care guidelines. Our CO-Stat products can be used by physicians to address the guidelines of the American Academy of Pediatrics, which recommends the monitoring of the rate of hemolysis in newborns.
. Immediate crib-side results. Screening procedures using the CO-Stat analyzer can be conducted in less than 10 minutes and within hours after birth.
. Non-invasive. No invasive probes or needles are used to conduct hemolysis screening with the CO-Stat analyzer.
. Objective results. The CO-Stat test results are not affected by variations in skin tone or the after effects of the birth process on skin color.
. Ease of use. Our CO-Stat test can be administered by nurses or other hospital staff with minimal training.
. Important clinical data provided. The CO-Stat analyzer indexes the rate at which the baby is producing new bilirubin to aid physicians in determining the cause of newborn jaundice and selecting appropriate therapies.
By measuring and subtracting the environmental carbon monoxide during the screening procedure, CO-Stat isolates trace levels of carbon monoxide produced primarily through the breakdown of red blood cells. This information helps physicians distinguish between the jaundice stemming from bilirubin production rather than the body's failure to excrete bilirubin. The CO-Stat assists clinicians to assess bilirubin production, but does not determine the level of bilirubin.
CO-Stat End Tidal Breath Analyzer. Our CO-Stat End Tidal Breath Analyzer is a patient-side device used for the non-invasive, quantitative measurement of respiratory rate, carbon dioxide concentration and carbon monoxide concentration in the breath. We believe that the CO-Stat analyzer is the only commercially available product that can detect the rate of hemolysis in newborns. We received FDA clearance for use of our CO-Stat products to monitor hemolysis in March 1998. However, we have not yet begun to actively market our CO-Stat products. We intend to market the CO-Stat analyzer upon release of a study of the cost-effectiveness and reliability of jaundice monitoring with CO- Stat as compared to the Coombs test. This study is scheduled to be completed by the University of Chicago in early 2001.
CO-Stat Disposables. A small plastic tube containing filters attaches to the CO-Stat analyzer and is placed at the opening of the baby's nostril. To ensure proper infection control and accuracy of the test, the tube and filters used to sample the baby's breath and environmental carbon monoxide are disposed of after a single use. The sampling of environmental carbon monoxide alters the tube and filters so that they cannot be reused for another test.
Development Status
We conducted a two year study of the CO-Stat analyzer at ten sites with 1,200 newborns to evaluate the ability of the carbon monoxide analysis alone and in combination with blood-based bilirubin testing to identify newborns who are at risk for developing hyperbilirubinemia. Principal clinical investigators in the United States included researchers from Stanford University, University Hospital of Cleveland, Women & Infants' Hospital in Providence, Rhode Island, the University of Pennsylvania and William Beaumont Hospital in Royal Oak, Michigan. Investigators from hospitals in Israel, Hong Kong and Japan also participated. Based on the data gathered during the study, the investigators concluded that a high rate of hemolysis is an important contributing factor in the majority of cases of hyperbilirubinemia. In addition, the investigators concluded that the CO-Stat enables clinicians to rule out excessive rates of hemolysis and thereby identify those babies who potentially may be discharged early because they are not likely to develop hyperbilirubinemia. In addition, the study also concluded that the preferred means of conducting pre-symptomatic jaundice monitoring is assessing bilirubin production and elimination concurrently. The CO-Stat assists clinicians to assess bilirubin production, but does not determine the level of bilirubin in the blood or bilirubin elimination.
In addition, the University of Chicago is conducting a clinical study of approximately 600 babies to assess the cost-effectiveness and reliability of the CO-Stat as compared to the Coombs test.
Customers
Our customers include neonatologists, physicians, audiologists, hospitals and government agencies. We have sold 2,570 ALGO screeners. Our ALGO products have been installed in approximately 40% of the approximately 4,000 hospitals with birthing facilities in the United States.
Of our customers, which made purchases from us in 1999, 87% also made purchases from us in the first seven months of 2000. We sold disposable supplies to conduct approximately 1.2 million tests in 1999 and approximately 770,000 tests in the six months ended June 30, 2000. While the majority of our sales have been to customers in the United States, we have also sold ALGO screeners in 22 countries, including Austria, Australia, Belgium, Germany, Japan, New Zealand and the United Kingdom.
In general, our customers initially buy ALGO screening equipment and a small supply of disposables and then increase the purchase of disposables over time for screening of high risk newborns. We intend to sell our existing ALGO products more extensively within our existing customer sites and sell new products, such as CO-Stat, as we expand our product offerings. We will also continue to pursue state and hospital system sales as appropriate. We have not yet begun to actively market our CO-Stat analyzer. In 1999 and the six months ended June 30, 2000, no single end customer comprised more than 10% of our net revenues.
Marketing and Sales
Our ALGO products have been commercially available since 1985, and we began selling our MiniMuff products in 1995. We intend to begin marketing our CO-Stat products for commercial use in 2001. We intend to use similar methods to sell our CO-Stat products as we currently use to sell our ALGO products.
Marketing
Our marketing strategy is to attempt to distinguish our products by their level of sensitivity, specificity and reliability, ease of use and pre- discharge testing advantages. Our marketing staff consists of 13 persons. We attempt to educate customers and potential customers about our products through:
. participation in physician group and health care agency conferences;
. efforts by our clinical educators;
. publications in professional journals;
. our web site;
. print and direct mail advertising;
. participation in seminars; and
. electronic mail notification to customers about new products.
We believe that educational efforts directed at government agencies and other third party payors about the benefits of universal screening in terms of patient outcomes and long-term treatment costs are a key element of our marketing strategy.
Direct Sales
We have a direct sales force in the United States. As of June 30, 2000, our sales force consisted of 14 sales representatives, two of whom focus exclusively on state programs and national accounts, 12 clinical educators and two telesales representatives. Following each sale, our clinical educators visit the customer to provide training, ongoing customer and technical support and program development.
In the United States, we sell our ALGO screeners and MiniMuffs to three groups of potential purchasers:
. States. To reduce the cost of special education and state funded rehabilitation programs, many states have mandated universal newborn hearing screening through legislation or provided funding for screening at hospitals. Some of these states purchase hearing screening units directly from us and loan them to hospitals. New Mexico, Mississippi, Georgia, North Carolina and Oklahoma have each purchased ALGO products for hospital placement.
. Hospitals. Hospitals often purchase hearing screeners from us directly, either in response to a state mandate requiring universal newborn hearing screening or in conjunction with a voluntary screening program.
. Neonatologists, pediatricians and audiologists. Our sales force often identifies these professionals as the advocate of universal hearing screening programs within the hospital. We focus our sales efforts on these individuals who tend to be knowledgeable about the cost and treatment benefits of universal newborn hearing screening.
Direct sales accounted for approximately 90% of our net revenues in 1999 and approximately 86% of our net revenues in the six months ended June 30, 2000.
Indirect Sales
In addition to our direct sales force, outside the United Sates we have historically relied heavily on indirect sales channels. Revenues from sales through distributors were approximately 10% of net revenues in 1999 and approximately 14% of net revenues in the six months ended June 30, 2000. Our distributors either assist our direct sales staff or are our sole sales and support representatives in their territories. We have established a network of distributors in Europe, Asia and Australia. Our distributors typically perform marketing, sales and technical support functions in their country or region. Each one may distribute directly to the customer, via other distributors or resellers or both. We actively train our distributors in both product and sales methods. Although we have previously relied exclusively on distributors in Japan, we have recently established a Japanese subsidiary and intend to commence direct sales in Japan in late 2001.
In addition, approximately 90% of the hospitals in the United States are members of group purchasing organizations, which negotiate large volume purchase prices for member hospitals, group practices and other clinics. We have recently signed agreements with Novation and AmeriNet, Inc. and we intend to enter into similar agreements with other group purchasing organizations in the future. These group purchasing organizations are not required to continue to negotiate prices with us, and the members of these organizations are not required to purchase our products. Sales to members of Novation accounted for approximately 20.6% of our net revenues in the six months ended June 30, 2000. The members of these group purchasing organizations receive volume discounts and other special pricing considerations from us. Many of our existing customers are members of group purchasing organizations including Novation and AmeriNet.
Customer Service and Support
Our ALGO products are sold with a one-year warranty. We intend to make available a similar warranty for the CO-Stat analyzer for an additional fee. We also sell extended warranty agreements for our ALGO products. We provide service to our domestic customer base through our Cottonwood, California service center. This facility is equipped to perform full service, repair, and calibration services to customers on a warranty and fee basis. Service for our international customers is provided either by TriVirix International, Inc., our European contract manufacturer, Nippon Eurotec, our Japanese distributor, or our Cottonwood facility. We have certified TriVirix to perform all levels of service and repair on ALGO products.
Third Party Reimbursement
In the United States, health care providers that purchase products like ours generally rely on third party payors, including private health insurance plans, federal Medicare, state Medicaid and managed care organizations, to reimburse all or part of the cost of the procedure in which the product is used. Our ability to commercialize our products successfully in the United States will depend, in part, on the extent to which reimbursement is available for screenings performed with the ALGO screening or CO-Stat analyzer. Third party payors can affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement these payors, such as insurance companies or health maintenance organizations, provide for testing services.
The current cost reduction orientation of third party payors makes it difficult for new medical screening and testing devices and tests performed with them to be eligible for reimbursement. Often, it is necessary to convince these payors that the new devices or procedures will establish an overall cost savings compared to the cost of those that are currently reimbursed or long- term treatment for the condition if the screening does not occur early. While we believe that our products possess economic advantages that will be attractive, third party payors may not make reimbursement decisions based upon these advantages. Third party payors are increasingly scrutinizing and challenging the prices charged for medical products and services. In addition, certain hospitals and physicians are moving toward a managed care system in which the hospital or physician contracts to provide comprehensive health care for a fixed cost per patient.
Effective October 1, 1991, the United States' Health Care Finance Administration, or HCFA, adopted regulations that provide for the inclusion of capital related costs in the prospective payment system for hospital inpatient services. Under this system most hospitals are reimbursed by Medicare on a per diagnosis basis at fixed rates unrelated to actual costs incurred in making the diagnosis. Under this system of reimbursement, equipment costs generally are not reimbursed separately, but rather are included in a single, fixed rate per patient reimbursement for screening based on approved current procedural terminology codes. These regulations are being phased in over a ten year period. Recently enacted Medicare reform legislation required the HCFA to implement a prospective payment system for outpatient hospital services by 1999 as well. This system also provides for a per-patient fixed rate reimbursement for outpatient department capital costs. Although the full implications of these changes cannot be known, we believe that the regulations will place more pressure on hospitals' operating margins, causing them to limit capital expenditures. These regulations
could cause hospitals to decide to defer purchasing equipment like our products as a result of limitations on their capital expenditures. The recent Medicare legislation also requires HCFA to adopt uniform coverage and administration policies for laboratory tests.
In addition to traditional third party reimbursement, universal newborn hearing screening may be either paid for directly by the state or through private insurance coverage required by state legislation. Thirty-one states have passed legislation requiring newborns to be screened for hearing impairment prior to hospital discharge.
In the United States, we have found the state to be the most appropriate level of government to implement universal newborn hearing screening. At the state level, the cost of newborn hearing screening can most directly be weighed against the much higher cost to the state of education and treatment programs required for the hearing impaired. A key element of our reimbursement strategy for the ALGO products has been to promote the adoption of universal newborn hearing screening legislation and equipment purchases at the state level.
States typically implement universal newborn hearing screening in the following manners:
. Voluntary. Hospitals are not required to provide universal newborn hearing screening, but the state supports programs with grants. The state may also purchase the equipment and disposables directly and provide them to hospitals.
. Mandate with equipment purchase. The state has mandated universal newborn hearing screening, and the state purchases equipment and disposables for birthing facilities.
. Mandate with state reimbursement. The state has mandated universal newborn hearing screening and reimburses hospitals on a per-test basis.
. Mandate without state reimbursement. The state has mandated universal newborn hearing screening and requires third party reimbursement, usually as a part of the newborn birth process amount.
We help our customers understand the applicable regulations in their state and provide them with copies of published public policies. We also provide hospitals with local references so that customers may learn more about reimbursement in their states.
Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursement approvals must be obtained on a country-by-country basis or a region-by-region basis. In addition, reimbursement systems in international markets may include both private and government sponsored insurance.
There are currently no states that have passed legislation related to universal newborn hemolysis monitoring.
Manufacturing
A significant portion of the components of our products are manufactured for us by other manufacturers. However, we perform final assembly, testing and packaging ourselves to control quality and manufacturing efficiency. In order to reduce costs and to add additional capacity, in the future we may move some labor intensive operations to less costly manufacturing locations or outsourcing processes. For example, we entered into an agreement with TriVirix in December 1998 for the manufacture of our ALGO Portable product.
We use contract vendors to manufacture our disposable products, and we perform monthly quality audits of these vendors. We expect to hire additional personnel to assemble our CO-Stat products. We will also need to enhance our manufacturing operations to increase our capacity once we begin commercial sale of these products.
We purchase materials and components from qualified suppliers that are subject to our stringent quality specifications and inspections by us. We conduct quality audits of our key suppliers, several of which are experienced in the supply of components to manufacturers of finished medical devices or disposables for use with these medical devices. Most of our purchased components are available from more than one supplier. For those components for which relatively few alternate supply sources exist, we are currently trying to locate additional suppliers that meet our quality standards as well as specific regulatory compliance standards.
Currently, only one supply source exists for the adhesive used in our ALGO disposables and our MiniMuff product. The adhesive, called hydrogel, is manufactured by a supplier that also sells the product to a variety of other medical device manufacturers. We are in the process of identifying other sources of hydrogel for ongoing supply, but, in the meantime, our disposables manufacturer has scheduled long term delivery of hydrogel for our products in an amount that we believe will be sufficient to allow us time to locate and qualify a new supplier should our current supplier fail to fulfill our needs. Other formulations of hydrogel exist. However, if a new adhesive is incorporated into our products, then those products may require new regulatory clearance by the FDA, as well as by similar regulatory agencies outside the United States. In addition, we have used a single source to obtain electrochemical sensors for our CO-Stat analyzer. Other sources of supply exist for this component, but we could experience a delay in production of our CO- Stat analyzers if we were unable to obtain a sufficient quantity from our current vendor.
Our manufacturing facility and service and repair facility are subject to periodic inspection by United States, state and foreign regulatory authorities. Our quality assurance system is subject to regulation of both the FDA and the State of California. We are required to conduct our product design, testing, manufacturing and control activities in conformance with the FDA's quality system regulations and to maintain our documentation of these activities in a prescribed manner. Our manufacturing and service and repair facilities are registered and/or licensed by the FDA and the California Department of Health Services, Food and Drug Branch. We have passed all quality system regulations inspections of our facilities conducted by the FDA and the State of California. In addition, our facility has received ISO 9001/EN46001 certification. ISO 9001/EN46001 certification standards for quality operations have been developed to ensure that companies know the standards of quality on a worldwide basis. We have also received the EC Certificate pursuant to the European Union Medical Device Directive 93/42/EEC, which allowed us to place a CE mark on our products after assembling appropriate documentation.
We entered into a manufacturing agreement with TriVirix to serve as our European manufacturing, service and distribution center. We qualified TriVirix's Belfast, Northern Ireland facility to produce the ALGO Portable in April 1999. TriVirix is also an FDA registered manufacturing facility with a full quality system in place in accordance with the FDA's Quality System Regulation and ISO 9002. TriVirix currently supplies all of our ALGO Portable units.
Research and Development
We believe that strong product development capabilities are essential to our strategy of enhancing our core technology and developing additional test applications for our current products.
ALGO 3
We are developing the ALGO 3, a new ALGO screener, which will incorporate software designed to increase ease of use. In addition, we believe the added features will enable the ALGO 3 to generate greater accuracy to further reduce the percentage of false negatives. We expect to begin clinical trials of the ALGO 3 in the fourth quarter of 2000. We cannot market the ALGO 3 without FDA clearance, and we intend to request FDA clearance upon completion of the clinical trials.
Expanded Indications for CO-Stat
We believe our CO-Stat analyzer may have additional applications for testing of other diseases and common conditions. For example, we believe the CO-Stat may be used to detect pregnancy induced
hypertension in its early stages. Exhaled carbon monoxide may be a clinical indicator for disorders such as sudden infant death syndrome, pneumonia, asthma and blood disorders. However, there are no current commercial uses for our CO- Stat analyzer in diagnosing or monitoring these conditions and we cannot be sure we will ever market a device to monitor or screen for these or any other disorders.
Our research and development expenses were $1.6 million in 1997, $2.7 million in 1998, $2.5 million in 1999 and $1.6 million in the six months ended June 30, 2000. As of June 30, 2000, we had 16 people engaged in research and development activities.
Proprietary Rights
Our products rely on our internally developed intellectual property and other proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our intellectual property and other proprietary rights. However, we believe that these measures afford only limited protection. We have eight United States patents, five patent applications pending before the United States Patent and Trademark Office and seven patent applications pending before foreign governmental bodies of which one European patent office application has been allowed and will be registered in nine European countries. Our ALGO screeners and CO-Stat analyzers use our proprietary software to produce their results, which we license under shrink wrap licenses that are included as part of the product packaging. Shrink wrap licenses are not negotiated with or signed by individual customers and purport to take effect upon the opening of the product package or use of the screening equipment. We also generally enter into confidentiality agreements with our employees and technical consultants. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or improperly obtain and use information that we regard as proprietary. Monitoring unauthorized use of our products is difficult and we are unable to determine the extent to which unauthorized use of our products exists. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. Our means of protecting our proprietary rights may be inadequate and enforcing our intellectual property rights could be costly and time consuming and may divert our management's attention and resources. Enforcing our intellectual property rights could also result in the loss of intellectual property rights.
We are not aware that our products employ technologies that infringe any valid proprietary rights of third parties and no assertions of infringement have been made by any third parties. However, the medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. As the number of entrants into our market increases, the possibility of an infringement claim against us grows. While we attempt to ensure that our products do not infringe other parties' patents and proprietary rights, our competitors may assert that our products and the methods we employ now or in the future may be covered by U.S. patents held by these competitors. In addition, our competitors may assert that the products and the methods we employ now or in the future infringe their other proprietary rights. Any infringement claims, with or without merit, could be time consuming to defend or result in costly litigation or damage awards. Any claim could divert management's attention and resources or cause a significant disruption in our revenues while we redesign products if we are found to infringe. A claim also could cause product shipment delays or cessation or require us to enter into royalty or licensing agreements. These royalty or licensing agreements may not be available on terms acceptable to us, if at all.
Competition
We compete in intensely competitive and rapidly evolving markets. We face competition primarily from medical device companies that manufacture hearing screening products, testing products for determining bilirubin levels based on skin color and chemicals used to conduct the Coombs test or blood-based bilirubin monitoring tests. We have experienced and expect to continue to experience increased competition from current and potential competitors, many of which have significantly greater financial, technical, marketing and other resources.
Companies offering competitive products vary in scope and breadth. With respect to our hearing impairment screening products, our competitors include:
. ETYMOTIC Research, Kedly, Inc., Nicolet Biomedical/Grason-Stadler, Inc., Madsen Electronics, Otodynamics, Ltd., Starkey Laboratories, Inc. and Welch Allyn, Inc., which sell OAE products;
. Bio-Logic Systems, Intelligent Hearing Systems and Sonamed Corp., which sell enhanced ABR and OAE products; and
. SLE Ltd., which sells ABR products.
With respect to our CO-Stat products, our competitors include:
. Johnson & Johnson and Roche, which sell laboratory equipment and chemicals used to conduct the Coombs test or to measure bilirubin levels in the blood; and
. Chromatics Color Sciences, Minolta and SpectRx, which sell equipment to measure the yellowness of the skin.
We believe the principal factors that will draw clinicians and other buyers to a newborn testing product, including hearing testing and hemolysis monitoring products, include:
. the level of specificity, sensitivity and reliability of the product;
. the time required to run tests with the product;
. the relative ease of use of the product;
. the depth and breadth of the product's features;
. the quality of customer support for the product;
. the frequency of product updates;
. the extent to which third party reimbursement for the purchase of the product or the screening is available;
. the extent to which the products conform to standards of care guidelines; and
. the price of the product.
We believe that we compete favorably on these factors. However, we expect competition in the newborn screening to increase significantly as new companies enter the market and current competitors expand their product lines and services. Many of these potential competitors are likely to enjoy substantial competitive advantages, including greater resources that can be devoted to the development, promotion and sale of their products. In addition, these potential competitors may have more established sales channels, greater product development experience or greater name recognition.
Government Regulation
FDA's Premarket Clearance and Approval Requirements
Unless an exemption applies, the FDA must either clear or approve in advance each medical device that we wish to market in the United States, pursuant to the Federal Food, Drug, and Cosmetic Act of 1938, as amended. Unless an exemption applies, each medical device that we wish to market in the United States must receive in advance from the FDA either:
. clearance pursuant to Section 510(k) of the Food, Drug, and Cosmetics Act; or
. premarket approval pursuant to Section 515 of the Food, Drug, and Cosmetics Act, if the FDA has determined that the medical device in question poses a greater risk of injury.
The FDA's 510(k) clearance process usually takes from four to 12 months, but can take longer. The process of obtaining premarket approval is much more costly, uncertain and may take from one to three years or even longer. We cannot be sure that 510(k) clearance or premarket approval will be obtained for products we propose to market.
The FDA decides whether a device must undergo either the 510(k) clearance or premarket approval process based upon statutory criteria. These criteria include the level of risk that the agency perceives to be associated with the device and a determination of whether the product is a type of device that is substantially equivalent to devices that are already legally marketed. The FDA places devices deemed to pose relatively less risk in either class I or class II, which requires the manufacturer to submit a premarket notification requesting 510(k) clearance, unless an exemption applies. The premarket notification must demonstrate that the proposed device is substantially equivalent in intended use and in safety and effectiveness to an existing legally marketed device that is either in class I, class II, preamendment class III device or any of those for which the FDA has not yet called for submission of a premarket approval. The FDA has classified our ALGO and CO-Stat products as class II devices.
After a device receives 510(k) clearance, any modification made to the device requires the manufacturer to determine whether the modification could significantly affect its safety or effectiveness. If it does not, the manufacturer's decision must be documented. If the modification could significantly affect the device's safety and effectiveness, then the modification requires at least a new 510(k) clearance or, in rare instances, could require a premarket approval. The FDA requires each manufacturer to make this determination, but the FDA can review any manufacturer's decision. If the FDA disagrees with a manufacturer's decision, the agency may retroactively require the manufacturer to seek 510(k) clearance or premarket approval. The FDA also can require the manufacturer to cease marketing the modified device or recall the modified device or both until 510(k) clearance or premarket approval is obtained.
The FDA places devices deemed to pose the greatest risk, such as life- sustaining, life-supporting or implantable devices, or devices deemed to be not substantially equivalent to a predicate device, in class III. The FDA requires these devices to undergo the premarket approval process in which the manufacturer must prove the safety and effectiveness of the device to the FDA's satisfaction. A premarket approval application must provide extensive pre- clinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. After any premarket approval, a new premarket approval or premarket approval Supplement may be required in the event of significant modifications to the device, its labeling or its manufacturing process.
The FDA may require results of clinical trials in support of a 510(k) submission and generally requires clinical trial results for a premarket approval application. In order to conduct a clinical trial, the FDA requires manufacturers to apply for and obtain in advance an investigational device exemption, or IDE. An IDE approval provides for a specified clinical protocol, including the number of patients and study sites. If the FDA deems the product a nonsignificant risk device, the product will be eligible for more abbreviated IDE requirements. The IDE application must be supported by appropriate data, such as animal and laboratory testing results. If the FDA and the Institutional Review Boards at the clinical trial sites approve the IDE application, the manufacturer may begin the clinical trial.
The following chart shows the regulatory status of the products we currently sell:
FDA Japanese Clearance Australia and
Natus Product 510(k) Clearance CE Marking (Shonin) New Zealand
ALGO Portable June 1998 July 1999 Pending Pending
ALGO 2e Color December 1998 July 1999 September 1997 June 2000
CO-Stat March 1998 July 1999 Pending Pending
MiniMuff February 1995 N/A Pending June 2000
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Pervasive and Continuing FDA Regulation
Numerous FDA regulatory requirements apply to our marketed devices. These requirements include:
. the FDA's quality system regulation which requires manufacturers to create, implement and follow numerous elaborate design, testing, control, documentation and other quality assurance procedures;
. medical device reporting regulations, which require that manufacturers report to the FDA certain types of adverse and other events involving their products; and
. the FDA's general prohibition against promoting products for unapproved uses.
Class II devices may also be subject to special controls applied to them, such as performance standards, post-market surveillance, patient registries and FDA guidelines that may not apply to class I devices. We could be required to change our compliance activities if the FDA changes its existing regulations or adopts new requirements.
We are subject to inspection and market surveillance by the FDA to determine compliance with regulatory requirements. If the FDA finds that we have failed to adequately comply, the agency can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:
. fines, injunctions and civil penalties;
. recall or seizure of our products;
. the issuance of public notices or warnings;
. the imposition of operating restrictions, partial suspension or total shutdown of production;
. the refusal of our requests for 510(k) clearance or premarket approval of new products;
. the withdrawal of 510(k) clearance or premarket approval already granted; and
. criminal prosecution.
The FDA also has the authority to require repair, replacement or refund of the cost of any medical device manufactured or distributed by us. Our failure to comply with applicable requirements could lead to an enforcement action that may have an adverse effect on our financial condition and results of operations.
Other United States Regulations
We also must comply with numerous additional federal, state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection, biohazards, fire hazard control and hazardous substance disposal. We cannot be sure that we will not be required to incur significant costs to comply with these laws and regulations in the future or that these laws or regulations will not hurt our business and results of operations. Unanticipated changes in existing regulatory requirements or adoption of new requirements could hurt our business, results of operations and financial condition.
Foreign Regulation
Our products are also regulated outside the United States as medical devices by foreign governmental agencies, similar to the FDA, and are subject to regulatory requirements, similar to the FDA's, in the foreign countries in which we plan to sell our products. Our ALGO products carry a CE Mark for sale in Europe and our ALGO 2E Color carries a TGA approval for sale in Australia. Our facility has been audited and certified to be ISO9001/EN46001 compliant, which allows us to sell our products in Europe. Our facility is subject to CE Mark and ISO 9001 inspection by TUV Rheinland. We plan to seek approval to sell our products in additional countries. The time and cost required to obtain market authorization from other countries and the requirements for licensing a product in another country may differ significantly from FDA requirements.
Employees
As of June 30, 2000, we had 101 full time employees, including 16 in research and development and related customer support services, 38 in sales, 13 in marketing and 34 in manufacturing, finance and administration. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.
Facilities
Our principal offices are located in a leased 26,000 square foot facility in San Carlos, California and house substantially all of our manufacturing, research and development and related customer support services employees, as well as all marketing, administration and finance employees. Our lease on the San Carlos facility expires in December 2003. In addition, we lease a 1,500 square foot service and support center in Cottonwood, California, and our lease for this center expires in December 2001. We expect that our current leased facilities will be sufficient for our needs over the next 12 months, except that we intend to lease a small facility in Tokyo, Japan to support our Asian sales efforts.
Legal Proceedings
We are not currently a party to any material legal proceeding, nor are we aware of any material threatened actions.
MANAGEMENT
Executive Officers and Directors
The following table shows specific information about our executive officers and directors as of June 30, 2000:
Name Age Position(s)
------------------------------- --- ------------------------------------------
Tim C. Johnson................. 43 Chief Executive Officer, President, Chief
Operating Officer, Secretary and Director
William New, Jr., M.D, Ph.D. .. 58 Chairman, Chief Technology Officer and
Director
William H. Lawrenson........... 52 Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Terese M. Baker................ 41 Vice President, Marketing
Lucille A. Ferus............... 43 Vice President, Engineering
Bryan P. Flaherty, Ph.D. ...... 36 Vice President, Research and Development
Thomas Waugh................... 55 Vice President, Operations
James J. Bochnowski............ 57 Director
William M. Moore............... 51 Director
David Nierenberg............... 47 Director
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Tim C. Johnson has served as our chief executive officer since July 1999, as our president since March 1996, as our chief operating officer since October 1995 and as our secretary since April 1992. Mr. Johnson also was our controller from July 1990 to June 1991 and served as director of finance and administration from July 1991 to March 1992. In April 1992 Mr. Johnson was named vice president of finance and chief financial officer and served in that capacity until December 1997. Prior to joining our company, Mr. Johnson served in various capacities at Cray Research, Inc. and was previously an auditor with Coopers & Lybrand. Mr. Johnson holds a Bachelor of Science degree in Accounting from the University of Minnesota and a Masters of Business Administration degree from Stanford University.
William New, Jr., M.D., Ph.D., one of our co-founders, has served as our chairman, chief technology officer and director since 1987. Dr. New also served as our chief executive officer from 1992 to July 1999. Dr. New served as a member of the clinical anesthesia faculty at Stanford University Medical Center from 1975 to August 2000. Dr. New served as the chairman of the Board of Visitors of the Duke University Medical Center from 1994 to 1998. Dr. New was a co-founder and the chairman of Nellcor Incorporated. Dr. New holds a Bachelor of Science degree and a Masters of Science degree in Engineering from Stanford University, a Doctor of Medicine degree from Duke University and a Doctorate degree in Physiology from the University of California at Los Angeles.
William H. Lawrenson has served as our vice president of finance and chief financial officer since December 1997. Mr. Lawrenson also has served as our assistant secretary since July 2000. Since July 1998, Mr. Lawrenson has also served as president of Saratoga Knowledge Systems, Inc., which he and his wife own. Mr. Lawrenson served as a consultant to IDG Interactive Services, Inc., a wholly owned subsidiary of International Data Group, Inc., a publishing company, from September 1996 to December 1997. From September 1995 to September 1996, Mr. Lawrenson was a vice president and chief operating officer of IDG Interactive Services. From December 1984 to March 1995, Mr. Lawrenson served in various capacities at Dialog Information Services, Inc., an information services company, the most recent of which was as vice president of business development, and he also served as vice president of finance and administration. Mr. Lawrenson is a certified public accountant and a South African chartered accountant. Mr. Lawrenson was educated at the University of Port Elizabeth, South Africa.
Terese M. Baker has served as our vice president of marketing since January 1998. From April 1996 to January 1998, Ms. Baker served as a director of marketing. Prior to joining our company, Ms. Baker served as director of marketing at River Medical Inc., subsequently acquired by ALARIS Medical Systems, Inc. from May 1993 to October 1995. Ms. Baker served as a director of marketing at Sulzer Calcitek, Inc. from March 1989 to April 1993. From March 1982 to March 1989, Ms. Baker held several management positions in the McGaw division of American Hospital Supply. Ms. Baker holds a Bachelor of Arts degree in Economics from the University of California at Irvine and a Masters of Business Administration degree from Pepperdine University.
Lucille A. Ferus has served as our vice president of engineering since December 1997. Ms. Ferus served as our director of software operations from October 1996 to December 1997. From May 1991 to October 1996, Ms. Ferus served as an engineering manager at Ventritex Corporation, a medical device company. Ms. Ferus was a software engineer at Nellcor from June 1986 to April 1991. From April 1983 to May 1986, Ms. Ferus served as a computer science engineer at Thoratec Laboratories Corporations, a medical device company. Ms. Ferus served as design engineer at Picker/Cambridge Medical from February 1981 to April 1983 and as a project engineer at the Howmedica division or Pfizer, Inc. from January 1979 to February 1981. Ms. Ferus holds a Bachelor of Science degree in Electrical Engineering and a Master of Science degree in Bioengineering from Fairleigh Dickenson University.
Bryan P. Flaherty, Ph.D. has served as our vice president of research and development since February 2000. Dr. Flaherty was our director of research and development from July 1998 to February 2000. Dr. Flaherty served as our manager of advanced product engineering from November 1996 to July 1998. From June 1994 to November 1996, Dr. Flaherty served as a senior development engineer of Vital Insite, Inc., a medical monitoring technology company. From September 1993 to June 1994, Dr. Flaherty served as a consultant at Failure Analysis Associates, an engineering consulting company. From September 1992 to September 1993, Dr. Flaherty served as a staff engineer at Rush Medical College, and from September 1989 to September 1992, he served as a staff engineer at Hines VA Rehabilitation Research and Development Center. Dr. Flaherty holds a Bachelor of Science degree in Mechanical Engineering from the University of California at Davis and Master of Science and Doctorate degrees in Bioengineering from the University of Illinois, Chicago.
Thomas Waugh has served as our vice president of operations since January 2000. Prior to joining our company, Mr. Waugh was vice president of operations of Surface/Interface, Inc., a semiconductor equipment manufacturer from September 1999 to January 2000. From April, 1999 to September 1999, Mr. Waugh worked as an independent consultant. From January 1998 to April 1999, Mr. Waugh served as vice president of manufacturing of VidaMed, Inc., a medical device company. From May 1997 to January 1998, Mr. Waugh served as vice president of operations of ChemTrak, Inc., a medical diagnostics company, and from November 1996 to May 1997, he served as consultant to Tissue Technologies, Inc., a medical laser company. From February 1992 to November 1996, Mr. Waugh served as vice president of operations at American Dental Technologies, Inc. Mr. Waugh holds a Bachelor of Science degree in Electrical Engineering from the University of Colorado, Boulder and a Masters of Science degree in Electrical Engineering from Stanford University.
James J. Bochnowski has served as a director of our company since August 1991. From 1988 to present, Mr. Bochnowski has been a general partner of Delphi Ventures, a venture capital firm, which he co-founded. Mr. Bochnowski has served as a director of Applied Molecular Evolution, Inc. from 1997 to the present. Mr. Bochnowski holds a Bachelor of Science degree in Aerospace Engineering from the Massachusetts Institute of Technology and a Masters of Business Administration degree from Harvard University.
David Nierenberg has served as a director of our company since August 1991. From January 1996 to present, Mr. Nierenberg has been the president of Nierenberg Investment Management Company, Inc., which manages the D3 Family Fund, a private investment partnership. From November 1986 to date, Mr. Nierenberg has been a general partner of six venture funds associated with Trinity Ventures, a venture capital firm. Mr. Nierenberg also sits on the board of Mexican Restaurants, Inc., formerly Casa Ole Restaurants, Inc., an operator and franchiser of restaurants. Mr. Nierenberg holds a Bachelor of Arts degree in History from Yale College and a Doctor of Jurisprudence degree from Yale Law School.
William M. Moore has served as a director of our company since inception and is one of our co-founders. From April 1989 to May 1992, Mr. Moore served as our chief executive officer. Mr. Moore has served as chief executive officer of MetaSensors, Inc. a medical device company, from February 1997 to present. From June 1992 to January 1997, Mr. Moore was a general partner of Alpine Partners, a venture capital firm. Mr. Moore holds a Bachelor of Science degree in Business from the University of Utah.
Our board of directors currently consists of five members, each of whom is currently subject to election at our annual meeting of stockholders. Upon the closing of this offering, our board of directors will be able to change the number of our directors without the approval of our stockholders. At the time of the closing of this offering, our board of directors will be divided into three classes, with each director serving a three-year term and one class being elected at each year's annual meeting of stockholders. Mr. Bochnowski will be in the class of directors whose initial term expires at the 2001 annual meeting of stockholders. Messrs. Moore and New will be in the class of directors whose initial term expires at the 2002 annual meeting of the stockholders. Messrs. Johnson and Nierenberg will be in the class of directors whose initial term expires at the 2003 annual meeting of stockholders.
Executive officers are elected by the board of directors on an annual basis and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors, officers or key employees.
Director Compensation
We do not currently pay our directors any cash compensation for their service as members of our board of directors, except for reimbursement for reasonable travel expenses in connection with attendance at board and committee meetings. Under our 1991 stock option plan and our 2000 stock option plan, nonemployee directors are eligible to receive stock option grants at the discretion of the board of directors. After this offering is completed, nonemployee directors will receive stock options pursuant to the automatic option grant program in effect under the 2000 director option plan. See "-- Incentive Stock Plans" for more information about the automatic grant program.
Board of Directors Committees
We have established an audit committee and a compensation committee. Messrs. Bochnowski, Moore and Nierenberg are members of both the audit and the compensation committees.
The audit committee:
. reviews our internal accounting procedures; and
. consults with and reviews the services provided by our independent auditors.
The compensation committee:
. reviews and recommends to the board of directors the compensation and benefits for all of our officers; and
. establishes and reviews general policies relating to compensation and benefits of our other employees.
Compensation Committee Interlocks and Insider Participation
Our board of directors established its compensation committee in September 1991. Prior to establishing the compensation committee, our board of directors as a whole performed the functions delegated to the compensation committee. No interlocking relationship exists between any member of our compensation committee and any member of any other company's board of directors or compensation committee.
Executive Compensation
The following table sets forth the compensation earned including salary, bonuses, commissions, stock options and other compensation during the fiscal year ended December 31, 1999 by Tim C. Johnson, our chief executive officer, and our four next most highly compensated executive officers, each of whose total annual compensation exceeded $100,000 in 1999. We refer to these officers as our named executive officers elsewhere in this prospectus.
Summary Compensation Table
Annual Long-term
Compensation Compensation
---------------- ------------
Securities
Underlying All Other
Name and Position(s) Salary Bonus Options Compensation
------------------------------------ -------- ------- ------------ ------------
Tim C. Johnson...................... $227,558 $ -- 14,000 $1,038
Chief Executive Officer, President,
Chief Operating Officer, Secretary
and Director
William New, Jr., M.D., Ph.D. ...... 167,192 -- -- 5,015
Chairman, Chief Technology Officer
and Director
William H. Lawrenson................ 144,068 -- 26,200 736
Vice President, Finance and Chief
Financial Officer
Lucille A. Ferus.................... 145,382 -- 5,200 766
Vice President, Engineering
June Fallon(1)...................... 135,000 39,504 2,000 796
Vice President, Sales
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The amounts in the column titled "All Other Compensation" represent premiums for life insurance paid by us for Messrs. Johnson, New and Lawrenson and Ms. Ferus and Ms. Fallon. The amount for Dr. New includes health insurance premiums for Dr. New's family.
The following summarizes stock options granted to each named executive officer during the year ended December 31, 1999. For grants to the named executive officers in 2000, see "Related Party Transactions--Option Grants to Directors and Executive Officers." All of the options were granted under our 1991 stock option plan. Options under the 1991 stock option plan generally vest ratably monthly over four years.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
of Stock
Percent of Price
Number of Total Appreciation
Securities Options for Option
Underlying Granted to Exercise Term
Options Employees Price per Expiration -------------
Name Granted in 1999(1) Share(2) Date 5% 10%
------------------------ ---------- ---------- --------- ---------- ------ ------
Tim C. Johnson.......... 14,000 10.3% $2.25 07/06/09 $ $
William New, Jr., M.D.,
Ph.D. ................. -- -- -- --
William H. Lawrenson.... 20,000 14.7 2.25 05/05/09
6,200 4.6 2.25 07/06/09
Lucille A. Ferus........ 5,200 3.8 2.25 07/06/09
June Fallon............. 2,000 1.5 2.25 07/06/09
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(2) The exercise price per share of each option was equal to the fair market value of the common stock as determined by the board of directors on the date of grant. The potential realizable values assume that the initial public offering price of $ per share was the fair market value of the common stock on the date of grant and that the price of the applicable stock increases from the date of grant until the end of the ten-year option term of the annual rates specified. There is no assurance provided to any 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.
The following table provides information concerning exercises of options by our named executive officers and the number and value of exercisable and unexercisable options held by the named executive officers as of December 31, 1999.
Aggregate Option Exercises in Last Fiscal Year and Option Values 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
------------------------ ----------- ----------- ----------- ------------- ----------- -------------
Tim C. Johnson.......... 23,111 $ 170,181 88,710 $ $
William New, Jr., M.D.,
Ph.D. ................. -- -- 130,000 -- --
William H. Lawrenson.... -- -- 27,669 48,531
Lucille A. Ferus........ -- -- 26,523 36,426
June Fallon............. -- -- 12,124 29,876
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(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 $ 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 price of the option.
Employment Agreements and Change in Control Arrangements
We do not have any employment, noncompete or change in control arrangements or agreements with our current officers that are in effect as of the date of this prospectus. For a description of arrangements with our former officers, directors and five percent stockholders, see "Relationships and Related Party Transactions."
Stock Plans
1991 Stock Option Plan
Our 1991 stock option plan was adopted by our board of directors in July 1991 and approved by our stockholders in August 1991. It was amended most recently in May 2000. A total of 2,393,482 shares of common stock have been reserved for issuance under our 1991 stock option plan and, after the effective date of this offering, we do not intend to grant additional options under the 1991 stock option plan. In July 2000, our board of directors approved the termination of the 1991 stock option plan as to future grants, effective upon the closing of this offering. However, options outstanding under the 1991 stock option plan will continue and will be governed by the terms of the 1991 stock option plan.
The 1991 stock option plan provided for grants of incentive stock options to our employees, including officers and employee directors, and nonstatutory stock options to our consultants including nonemployee directors. The purposes of our 1991 stock option plan were to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees and consultants to our company and to promote the success of our business. At the request of the board of directors, the compensation committee administers our 1991 stock option plan and determines the optionees and the terms of options granted, including the exercise price, number of shares subject to the option and the exercisability of the options.
The term of the options granted under the 1991 stock option plan is set forth in the option agreement. However, the term of an incentive stock option may not exceed ten years and, in the case of an option granted to an optionee who owns more than 10% of our outstanding stock at the time of grant, the term of an option may not exceed five years. Options granted under the 1991 stock option plan vest and become exercisable as set forth in each option agreement.
With respect to any optionee who owns more than 10% of our outstanding stock, the exercise price of any stock option granted must be at least 110% of the fair market value of our common stock on the grant date.
No incentive stock options may be granted to an optionee, which, when combined with all other incentive stock options becoming exercisable in any calendar year that are held by that person, would have an aggregate fair market value in excess of $100,000.
If, within four years after the effective date of this offering, we merge with or into another corporation or sell all or substantially all of our assets and our stockholders before the transaction hold less than 50% of the stock of the corporation surviving such a transaction immediately after the transaction, the surviving corporation may assume the options outstanding under our 1991 stock option plan or substitute equivalent options for those options outstanding. If an optionee's status as an employee is terminated within 12 months after such a transaction other than voluntarily or for cause, that employee's options will accelerate and become fully exercisable. If the optionee's options are not substituted for or assumed by the successor corporation, the options will accelerate and become fully exercisable prior to the closing of the transaction. In the event a transaction like those described above occurs more than four years after the effective date of this offering, the administrator of our 1991 stock option plan has discretion to provide for any of the following:
. the assumption of options or substitution of equivalent options;
. the acceleration of exercisability of options after an assumption or substitution if an optionee's status as an employee is terminated other than voluntarily or for cause within 12 months of the change in control;
. the termination of the 1991 stock option plan and exercise of options to the extent already vested; and
. the acceleration of any portion or all of the outstanding options.
Notwithstanding these provisions, until we have 800 record holders of our common stock as of the record date for our annual meeting of stockholders, each option under the 1991 stock option plan will be substituted for or assumed by the successor corporation in the event of a change in control. Should the surviving corporation refuse to assume or substitute for outstanding options, the options will terminate on the closing of the change in control transaction.
As of June 30, 2000, we had issued 750,729 shares of common stock upon the exercise of options granted under our 1991 stock option plan, we had outstanding options to purchase 1,326,123 shares of common stock at a weighted average exercise price of $1.09 per share and 316,514 shares remained available for future option grants under our 1991 stock option plan until the closing of this offering.
2000 Stock Option Plan
Our 2000 stock option plan was adopted by our board of directors and approved by our stockholders in July 2000. A total of 1,500,000 shares of common stock have been reserved for issuance under our 2000 stock option plan, together with an annual increase in the number of shares of common stock reserved under the plan beginning on the first day of our fiscal year, commencing January 1, 2002, in an amount equal to the lesser of:
. 1,500,000 shares of common stock;
. 7% of our outstanding shares of common stock on the last day of the prior fiscal year; or
. an amount determined by our board of directors.
As a result of these annual increases, a maximum of 13,500,000 additional shares of common stock could be issued over the ten year life of the 2000 stock option plan.
The 2000 stock option plan provides for grants of incentive stock options to our employees including officers and employee directors and nonstatutory stock options to our consultants including nonemployee directors. The purposes of our 2000 stock option plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees and consultants to our company and to promote the success of our business. At the request of the board of directors, the compensation committee administers our 2000 stock option plan and determines the optionees and the terms of options granted, including the exercise price, number of shares subject to the option and the exercisability thereof.
The term of the options granted under the 2000 stock option plan is set forth in the option agreement. However, the term of an incentive stock option may not exceed ten years and, in the case of an option granted to an optionee who owns more than 10% of our outstanding stock at the time of grant, the term of an option may not exceed five years. Options granted under the 2000 stock option plan vest and become exercisable as set forth in each option agreement.
With respect to any optionee who owns more than 10% of our outstanding stock, the exercise price of any stock option granted must be at least 110% of the fair market value of our common stock on the grant date.
No incentive stock options may be granted to an optionee, which, when combined with all other incentive stock options becoming exercisable in any calendar year that are held by that person, would have an aggregate fair market value in excess of $100,000. In any fiscal year, we may not grant any employee options to purchase more than 1,000,000 shares or 1,500,000 shares in the case of an employee's initial employment.
The 2000 stock option plan will terminate in July 2010, unless our board of directors terminates it sooner.
If, within four years after the effective date of this offering, we merge with or into another corporation or sell all or substantially all of our assets and our stockholders before the transaction hold less than 50% of the stock of the corporation surviving such a transaction immediately after the transaction, the surviving corporation may assume the options outstanding under our 2000 stock option plan or substitute equivalent options for those options outstanding. If an optionee's status as an employee is terminated other than voluntarily or for cause within 12 months after the transaction, that employee's options will accelerate and become fully exercisable. If the optionee's options are not substituted for or assumed by the successor corporation, the options will accelerate and become fully exercisable prior to the closing of the transaction. In the event a transaction like those described above occurs more than four years after the effective date of this offering, the administrator of our 2000 stock option plan has discretion to provide for any of the following:
. the assumption of options or substitution of equivalent options;
. the acceleration of exercisability of options after an assumption or substitution if an optionee's status as an employee is terminated other than voluntarily or for cause within 12 months of the change in control;
. the termination the 2000 stock option plan and exercise of options to the extent already vested; and
. the acceleration of any portion or all of the outstanding options.
Notwithstanding these provisions, until we have 800 record holders of our common stock as of the record date for our annual meeting of stockholders, each option under the 2000 stock option plan will be substituted for or assumed by the successor corporation in the event of a change in control. Should the surviving corporation refuse to assume or substitute for outstanding options, the options will terminate on the closing of the change in control transaction.
As of June 30, 2000, we had neither granted any options nor issued any shares of common stock upon the exercise of options granted under our 2000 stock option plan, and 1,500,000 shares remain available for future option grants under our 2000 stock option plan.
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan was adopted by our board of directors and our stockholders in July 2000 and will become effective upon the closing of this offering. We have reserved a total of 1,000,000 shares of common stock for issuance under the 2000 employee stock purchase plan, together with an annual increase in the number of shares of common stock reserved under the plan beginning on the first day of our fiscal year commencing January 1, 2002 in an amount equal to the lesser of:
. 650,000 shares of common stock;
. 4% of our outstanding common stock on the last day of the prior fiscal year; or
. an amount determined by our board of directors.
As a result of these annual increases, a maximum of 5,850,000 additional shares of common stock could be sold over the ten year life of the employee stock purchase plan.
Our employee stock purchase plan is administered by the board of directors and is intended to qualify under Section 423 of the Internal Revenue Code. Our employees, including our officers and employee directors but excluding our 5% or greater stockholders, are eligible to participate if they are customarily employed for at least 30 hours per week and for more than five months in any calendar year. With respect to the initial offering period, each of our employees as of the effective date of the offering will be automatically enrolled in the plan with the maximum deduction. Our employees will be permitted to reduce or terminate participation in the employee stock purchase plan after this offering has closed and we have filed a registration statement related to the employee stock purchase plan. Our 2000 employee stock purchase plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed the lesser of 15% of
an employee's cash compensation, defined as Form W-2 compensation plus contributions to our 401(k) plan or $25,000 per annum.
Our 2000 employee stock purchase plan will be implemented in a series of overlapping 24 month offering periods, and each offering period consists of four six month purchase periods. The initial offering period under our employee stock purchase plan will begin on the effective date of this offering, and the subsequent offering periods will begin on the first trading day on or after May 1 and November 1 of each year. Each participant will be granted an option on the first day of the offering period and the option will be automatically exercised on the date six months later, the end of a purchase period, throughout the offering period. If the fair market value of our common stock on any purchase date is lower than the fair market value of our common stock on the start date of that offering period, then all participants in that offering period will be automatically withdrawn from that offering period and re- enrolled in the immediately following offering period. The purchase price of our common stock under our 2000 employee stock purchase plan will be 85% of the lesser of the fair market value per share on the start date of the offering period or at the end of the purchase period. Employees may end their participation in an offering period at any time, and their participation ends automatically on termination of employment with our company.
Our 2000 employee stock purchase plan will terminate in July 2010, unless our board of directors terminates it sooner.
2000 Director Option Plan
Our 2000 director option plan was adopted by our board of directors and our stockholders in July 2000 and will become effective upon the effective date of this offering. We have reserved a total of 400,000 shares of common stock for issuance under the 2000 director option plan, together with an annual increase in the number of shares of common stock reserved under the plan beginning on the first day of our fiscal year commencing January 1, 2002 equal to the lesser of:
. 100,000 shares of common stock;
. one-half of one percent of the outstanding shares of our common stock on the last day of the prior fiscal year; or
. an amount determined by the board of directors.
As a result of these annual increases, a maximum of 900,000 additional shares of common stock could be issued over the ten year life of the 2000 director option plan.
The option grants under the 2000 director option plan are automatic and nondiscretionary, and the exercise price of the options is 100% of the fair market value of our common stock on the grant date.
Nonemployee directors are eligible for grants under our 2000 director option plan. The 2000 director option plan provides for an initial grant to a new nonemployee director of an option to purchase 30,000 shares of common stock. Subsequent to the initial grants, each nonemployee director will be granted an option to purchase 10,000 shares of common stock at the next meeting of the board of directors following the annual meeting of stockholders, if on the date of the annual meeting, the director has served on the board of directors for six months.
The term of the options granted under the 2000 director option plan is ten years, but the options expire three months following the termination of the optionee's status as a director or twelve months if the termination is due to death or disability. The initial 30,000 share grants will become exercisable at a rate of 1/36th of the shares per month. The subsequent 10,000 share grants will become exercisable at the rate of 1/12th of the shares per month.
The 2000 director option plan will terminate in July 2010, unless our board of directors terminates it sooner.
401(k) Plan
In March 1992, we adopted a retirement savings and investment plan, the 401(k) plan, covering our full-time employees located in the United States. The 401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k) plan by employees or by us, and the investment earnings on those contributions are not taxable to the employees until withdrawn. If our 401(k) plan qualifies under Section 401(k) of the Internal Revenue Code, our contributions will be deductible by us when made. Our employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit of $10,500 in 2000 and to have those funds contributed to the 401(k) plan. The 401(k) plan permits us, but does not require us, to make additional matching contributions on behalf of all participants. Beginning January 1, 2000, we commenced matching contributions to the 401(k) plan for each participant of up to a maximum of $500 per year.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of our directors and executive officers for monetary damages for breach of their fiduciary duties 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 our company 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 in Section 174 of the Delaware General Corporation Law; or
. any transaction from which the director derived an improper personal benefit.
The limits on a director or officer's liability in our certificate of incorporation do not apply to liabilities arising under the federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation together with our bylaws provide that we must indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. 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 that capacity, regardless of whether our bylaws would otherwise permit indemnification. We believe that the indemnification provisions of our certificate of incorporation and bylaws are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.
Prior to the effective time of this offering, we expect to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. These agreements will provide for indemnification for related expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions and agreements are necessary to attract and retain qualified persons as our directors and executive officers.
At present we are not aware of any pending litigation or proceeding involving any director, officer, employee or agent of our company where indemnification will be required or permitted. Nor are we aware of any threatened litigation or proceeding that might result in a claim for indemnification.
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.
Stock Issuances to our Directors, Officers and Principal Stockholders
In connection with our founding, we issued 320,000 shares of common stock in June 1987 at the then fair market value price of $0.25 per share to two of our founders, Maurizio Liverani and John Porter, for aggregate proceeds of $80,000.
In May 1989, we issued 460,000 shares of common stock at the then fair market value price of $0.50 per share to John Porter, William New, Jr., M.D. and the family trusts of Brian Prinn and William W. Moore, each of whom are our founders, for aggregate proceeds of $230,000.
In December 1989, we issued 160,000 shares of common stock at the then fair market value price of $2.50 to Maurizio Liverani, William New, Jr., M.D., John Porter and the family trusts of Brian Prinn and William M. Moore, each of whom are our founders, for aggregate proceeds of $400,000.
In May and June 1990, we issued 80,000 shares of common stock at the then fair market value price of $5.00 to John Porter, William New, Jr., M.D. and the family trusts of Brian Prinn and William W. Moore, each of whom are our founders, for aggregate proceeds of $400,000.
In December 1990, we issued 94,339 shares of common stock to William New, Jr., M.D. and the family trust of William M. Moore, each of whom are our founders, at the then fair market value price of $5.30 per share for aggregate proceeds of $500,000.
In February 1991, we issued 114,739 shares of common stock at the then fair market value price of $5.30 to William New, Jr., M.D., John Porter and the family trusts of Brian Prinn and William W. Moore, each of whom are our founders, for aggregate proceeds of $608,117.
We reclassified our outstanding common stock as Series A convertible preferred stock in May 1991.
From August 1991 to June 30, 2000, we have issued shares of additional preferred stock in private placement transactions as follows:
. an aggregate of 1,428,683 shares of Series B convertible preferred stock at $1.75 per share in August 1991;
. an aggregate of 2,532,209 shares of Series B convertible preferred stock at $1.75 per share in December 1992;
. an aggregate of 6,228 shares of Series B convertible preferred stock at $1.75 per share in January 1993;
. an aggregate of 375,027 shares of Series C convertible preferred stock at $1.75 per share in June 1995;
. an aggregate of 76,319 shares of Series C convertible preferred stock at $1.75 per share in August 1995;
. an aggregate of 600,000 shares of Series C convertible preferred stock at $1.75 per share and warrants to purchase 1,314,188 shares of Series C convertible preferred stock at a per share exercise price of $1.75 in November 1995;
. an aggregate of 377,222 shares of Series C convertible preferred stock at $1.75 per share and warrants to purchase 471,526 shares of Series C convertible preferred stock at a per share exercise price of $1.75 in March and April 1996; and
. an aggregate of 1,232,392 shares of Series D convertible preferred stock at $3.125 per share in April and May 1997.
Upon closing of this offering, all shares of outstanding convertible preferred stock will be automatically converted into shares of common stock on a one for one basis. The purchasers of our convertible preferred stock include the following holders of five percent or more of our securities and their affiliated entities, if any, and those stockholders purchased the following securities from us:
Shares of Convertible Preferred Stock
-----------------------------------------------
Warrants to
Purchase
Investor Series A Series B Series C Series C(1) Series D
------------------------------ -------- -------- -------- ----------- --------
Entitles or Persons Affiliated
with Delphi Ventures:
Delphi Ventures, L.P. ........ -- 654,821 94,311 117,890 --
Delphi Ventures II, L.P. ..... -- 198,877 219,714 274,644 --
Delphi BioInvestments, L.P. .. -- 2,323 335 419 --
Delphi BioInvestments II,
L.P. ........................ -- 1,123 1,125 1,405 --
James Bochnowski(2)........... -- -- -- -- --
Entities or Persons Affiliated
with Trinity Ventures:
Trinity Ventures II, L.P. .... -- 644,261 237,130 296,412 --
Trinity Ventures III, L.P. ... -- 178,367 65,650 82,063 --
Trinity Side-by-Side I,
L.P. ........................ -- 34,518 12,705 15,881 --
David Nierenberg(3)........... -- -- 13,714 17,143 --
Entities or Persons Affiliated
with Nikko Capital:
Nikko Capital Co. Ltd......... -- -- -- -- 96,000
Nikko Capital No. 2 Investment
Enterprise Partnership
(Asia)....................... -- -- -- -- 256,000
Nikko Capital No. 7 Investment
Enterprise Partnership
(Asia)....................... -- -- -- -- 128,000
John Porter or Entities
Affiliated with John Porter:
John Porter................... 94,703 201,060 -- -- --
Rabobank Nominees Guernsey
Limited...................... 210,000 -- -- -- --
Gracechurch Co. .............. -- -- 114,286 178,572 --
Toxford Corporation SA........ -- -- 28,572 -- --
Other Entities or Persons:
Landmark Equity Partners V,
L.P.......................... -- 761,905 38,096 47,619 --
Pantheon International
Participations............... -- 952,381 -- -- --
William M. Moore and Patricia
A. Moore, Family Trust....... 217,908 16,684 -- -- --
William New, Jr., M.D.,
Ph.D. ....................... 447,797 74,278 229,710 287,213 --
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(2) Mr. Bochnowski, one of our directors, is a managing member of Delphi Management Partners, L.L.C. and Delphi Management Partners II, L.L.C. Delphi Management Partners, L.L.C. is the general partner of Delphi Ventures, L.P. and Delphi BioInvestments, L.P. Delphi Management Partners II, L.L.C. is the general partner of Delphi Ventures II, L.P. and Delphi BioInvestments II, L.P. Mr. Bochnowski disclaims beneficial ownership of the shares held by each of the entities listed above as affiliated with Delphi Ventures, except to the extent of his pecuniary interest therein.
(3) Mr. Nierenberg, one of our directors, is a general partner of Trinity Ventures II, L.P., Trinity Ventures III, L.P. and Trinity Side-by-Side I, L.P. Mr. Nierenberg disclaims beneficial ownership of the shares held by each of the entities listed above as affiliated with Trinity Ventures, except to the extent of his pecuniary interest therein.
Option Grants to our Directors and Executive Officers
Stock option grants to our directors and executive officers are described under the captions "Management--Board Compensation" and "--Executive Compensation." From January 1997 to the present, we have granted options to our directors and current executive officers, including the named executive officers as follows:
Number
of Grant Exercise
Name Shares Date Price
------------------------------------------------------ ------- -------- --------
Tim C. Johnson........................................ 200,000 04/23/97 0.25
20,000 04/22/98 1.88
14,000 07/06/99 2.25
100,000 02/15/00 1.50
William H. Lawrenson.................................. 40,000 12/17/97 1.00
10,000 10/23/98 1.88
20,000 05/05/99 2.25
6,200 07/06/99 2.25
40,000 02/15/00 1.50
Terese M. Baker....................................... 10,000 04/23/97 0.25
20,000 01/21/98 1.00
10,000 10/23/98 1.88
7,200 07/06/99 2.25
4,000 09/01/99 2.25
40,000 02/15/00 1.50
Lucille A. Ferus...................................... 20,000 12/17/97 1.00
20,000 03/04/98 1.00
4,000 10/23/98 1.88
5,200 07/06/99 2.25
40,000 02/15/00 1.50
Bryan Flaherty, Ph.D.................................. 4,000 04/22/98 1.88
2,000 10/23/98 1.88
12,000 07/06/99 2.25
40,000 02/15/00 1.50
Thomas Waugh.......................................... 40,000 01/10/00 1.50
20,000 02/15/00 1.50
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Loans to Executive Officers
In February 1999, in connection with the purchase of his home, we loaned Mr. Johnson $250,000 under a secured, promissory note at the rate of 4.62%, compounded monthly. Mr. Johnson repaid the promissory note in full with interest in March 1999. Upon repayment we provided collateral of $310,000 to a commercial bank against a loan to Mr. Johnson for $250,000, which he had received from that bank. Mr. Johnson pledged 111,111 shares of our common stock that he owns to us to provide us a security interest in the event our $310,000 is not released by the bank. We have no recourse against Mr. Johnson other than the pledged shares in the event he defaults.
PRINCIPAL STOCKHOLDERS
The following tables set forth information about the beneficial ownership of our common stock as of June 30, 2000, and as adjusted to reflect the sale of shares of common stock in this offering, by:
. each person known to us to be the beneficial owner of more than five percent of our common stock;
. each of our named executive officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Except as otherwise noted below, the address of each beneficial owner noted in the tables is c/o Natus Medical Incorporated, 1501 Industrial Road, San Carlos, California 94070.
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 9,684,520 shares of common stock outstanding on June 30, 2000 and shares of common stock outstanding upon completion of this offering.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of June 30, 2000. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Asterisks represent beneficial ownership of less than one percent.
Executive Officers and Directors
Percent of Shares
and Options
Exercisable
Within 60 days of
Options June 30, 2000
Number of Exercisable Beneficially
Shares of Within Owned
Common Stock 60 Days of -----------------
Beneficially June 30, Before After
Name of Beneficial Owner Owned 2000 Offering Offering
----------------------------------- ------------ ----------- -------- --------
Tim C. Johnson..................... 183,111 187,512 3.8
William New, Jr., M.D., Ph.D. ..... 895,451 130,000 10.4
William H. Lawrenson............... -- 46,202 *
Lucille A. Ferus................... 47,050 26,422 *
June Fallon........................ -- -- -- --
James Bochnowski(1)................ 1,369,809 -- 14.1
William M. Moore(2)................ 234,592 -- 2.4
David Nierenberg(3)................ 1,400,667 -- 14.5
All executive officers and
directors as a group (10
persons).......................... 4,197,180 432,104 45.8
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(1) The beneficial ownership reported for James Bochnowski includes 808,077 shares held by Delphi Ventures, L.P., 555,913 shares held by Delphi Ventures II, L.P., 2,868 shares held by Delphi BioInvestments, L.P. and 2,951 shares held by Delphi BioInvestments II, L.P. Mr. Bochnowski disclaims beneficial ownership of the shares held by these entities except to the extent of his proportional interest in the entities.
(2) The beneficial ownership reported for Mr. Moore includes 234,592 shares held by Mr. Moore's family trust.
(3) The beneficial ownership reported for David Nierenberg includes 1,029,597 shares held by Trinity Ventures II, L.P., 285,049 shares held by Trinity Ventures III, L.P., 55,164 shares held by Trinity Side-By-Side I, L.P. and 30,857 shares held in Mr. Nierenberg's irrevocable trust. Mr. Nierenberg is a general partner of each of these partnerships. Mr. Nierenberg disclaims beneficial ownership of the shares held by these entities except to the extent of his proportional interest in the entities.
Five Percent or Greater Stockholders
Percent of Shares
and Options
Exercisable Within
Options 60 days of June 30,
Number of Exercisable 2000 Beneficially
Shares of Within Owned
Common Stock 60 Days of -----------------------
Name and Address of Beneficially June 30, Before After
Beneficial Owner Owned 2000 Offering Offering
--------------------------- ------------ ----------- ---------- ---------
Delphi Ventures
Entities(1)............... 1,369,809 -- 14.1%
3000 Sand Hill Road
Bldg. 1, Suite 135
Menlo Park, CA 94025
Trinity Ventures
Entities(2)............... 1,400,667 -- 14.5
3000 Sand Hill Road
Bldg. 4, Suite 160
Menlo Park, CA 94025
Pantheon International
Participations PLC(3)..... 952,381 -- 9.8
23 Cathedral Yard
Exeter
Devon EX1 1HB
England
Landmark Equity Partners V,
L.P.(4)................... 847,620 -- 8.8
760 Hopemeadow Street
Simsburg, CT 06070
John Porter Entities(5).... 755,764 7.8
Nikko Capital Entities(6).. 480,000 -- 5.0
c/o International Division
2-3, Higashi Gotanda 2-
chome
Shinagawa-Ku, Tokyo
Japan 141
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(2) The beneficial ownership reported for the Trinity Ventures Entities includes 1,029,597 shares held by Trinity Ventures II, L.P., 285,049 shares held by Trinity Ventures III, L.P., 55,164 shares held by Trinity Side-By-Side I, L.P. and 30,857 shares held in Mr. Nierenberg's irrevocable trust. Mr. Nierenberg is a general partner of each of these partnerships. Mr. Nierenberg disclaims beneficial ownership of the shares held by these entities except to the extent of his proportional interest in the entities.
(3) Pantheon International Participations, PLC is an investment company publicly traded on the London Stock Exchange.
(4) The general partner of Landmark Equity Partners V, L.P. is Landmark Advisors, Inc.
(5) Includes 295,763 shares held by Mr. Porter, 210,000 shares held by Rabobank Nominees Guernsey Limited, 114,286 shares held by Gracechurch Co. and 135,715 shares held by Toxford SA.
(6) Includes 256,000 shares held by Nikko Capital No. 2 Investment Enterprise Partnership (Asia), 128,000 shares held by Nikko Capital No. 7 Investment Enterprise Partnership (Asia) and 96,000 shares held by Nikko Capital Co. Ltd. Nikko Capital No. 2 and Nikko Capital No. 7 are managed by Nikko Capital Co., Ltd.
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue 120,000,000 shares of common stock, $0.001 par value, and 10,000,000 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 June 30, 2000, we had 9,684,520 shares of common stock outstanding held by approximately 168 stockholders of record.
The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably any dividends that may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the closing of this offering will be fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of our convertible preferred stock will be converted into an aggregate of 8,931,534 shares of common stock. Thereafter, our board of directors will have the authority, without further action by the stockholders, to designate and issue preferred stock in one or more series in order to provide us with flexibility in connection with possible acquisitions and other corporate purposes. The board of directors may also designate the rights, preferences and privileges of each series of preferred stock, any or all of which may be superior to the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of our company without further action by the stockholders.
We have no present plans to issue any shares of preferred stock.
Holders of Registration Rights Can Require Us to Register Shares of Our Stock for Resale
As of June 30, 2000, the holders of 8,832,558 shares of common stock issuable upon the conversion of preferred stock or their permitted transferees are entitled to require us to register their shares under the Securities Act of 1933, as amended. These rights are provided under the terms of our agreement with the holders of registrable securities. Under these registration rights, holders of at least a majority of the then outstanding registrable securities may require on two occasions that we register their shares for public resale. We are obligated to register these shares if the holders of 20% of the eligible shares request registration
or if the shares to be registered have an anticipated public offering price of at least $7,500,000. In addition, holders of 20% of the registrable securities or holders of a lesser amount, if the anticipated aggregate offering price is at least $1,000,000, may require that we register their shares for public resale on Form S-3 or similar short-form registration, if we are eligible to use Form S-3 or similar short-form registration. If we elect to register any of our shares of common stock for any public offering, the holders of registrable securities are entitled to include shares of common stock in the registration. However, we may reduce the number of shares proposed to be registered in view of market conditions. We will pay all expenses in connection with any registration, other than underwriting discounts and commissions.
Anti-Takeover Effects of Some Provisions of Delaware Law and Our Charter Documents
A number of the provisions of Delaware law and our certificate of incorporation and bylaws could make the acquisition of our company through a tender offer, a proxy contest or other means more difficult and could also make the removal of incumbent officers and directors more difficult. These provisions include the protections of Section 203 of the Delaware Code, as described below, as well as our reservation of 10,000,000 shares of blank check preferred stock and our staggered board of directors. We expect these provisions to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with our board of directors. We believe that the benefits provided by our ability to negotiate with the proponent of an unfriendly or unsolicited proposal outweigh the disadvantages of discouraging such proposals. We believe the negotiation of an unfriendly or unsolicited proposal could result in an improvement of its terms.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. 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:
. prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
. the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding
. shares owned by persons who are directors and also officers; and
. shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
. on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. 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, owned 15% or more of a corporation's outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. Section 203 may also discourage transactions that might result in a premium over the market price for the shares of common stock held by stockholders.
Charter Documents
Upon completion of this offering, our certificate of incorporation will provide for our board of directors to be divided into three classes serving staggered terms. Approximately one-third of the board of directors will be elected each year. The provision for a classified board could prevent a party who acquires control of a majority of the outstanding voting stock from obtaining control of the board of directors until the second annual stockholders meeting following the date the acquirer obtains the controlling stock interest. The classified board provision could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company and could increase the likelihood that incumbent directors will retain their positions. Our certificate of incorporation provides that directors may be removed:
. with cause by the affirmative vote of the holders of at least a majority of the outstanding shares of voting stock; or
. without cause by the affirmative vote of the holders of at least 66 2/3% of the then-outstanding shares of the voting stock.
Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. At an annual meeting, stockholders may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors. Stockholders may also consider a proposal or nomination by a person who:
. was a stockholder of record on the record date for the meeting;
. is entitled to vote at the meeting; and
. has given to our corporate secretary timely written notice, in proper form, of his or her intention to bring that business before the meeting.
The bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting of the stockholders. However, our bylaws may have the effect of precluding the conduct of that item of business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of our company.
Under Delaware law, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in our certificate of incorporation or bylaws. The following persons are authorized to call a special meeting of stockholders:
. a majority of our board of directors;
. the chairman of the board;
. the chief executive officer; or
. 30% of our stockholders entitled to vote at the special meeting.
The limitation on the right of our stockholders to call a special meeting will make it more difficult for a stockholder to force stockholder consideration of a proposal over the opposition of the board of directors by calling a special meeting of stockholders. The restriction on the ability of stockholders to call a special meeting also will make it more difficult to replace the board until the next annual meeting.
Although Delaware law provides that stockholders may execute an action by written consent in lieu of a stockholder meeting, it also allows us to eliminate stockholder actions by written consent. Elimination of written consents of stockholders may lengthen the amount of time required to take stockholder actions since actions by written consent are not subject to the minimum notice requirement of a stockholders meeting.
However, we believe that the elimination of stockholders written consents may deter hostile takeover attempts. Without the availability of stockholder's actions by written consent, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a stockholders meeting. The holder would have to obtain the consent of a majority of the board of directors, the chairman of the board or the chief executive officer to call a stockholders meeting and satisfy the notice periods determined by the board of directors. Our certificate of incorporation provides for the elimination of actions by written consent of stockholders upon the closing of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is BankBoston, N.A., which is located at 150 Royall Street, Canton, Massachusetts 02021. BankBoston, N.A.'s telephone number is (781) 575-3120.
Nasdaq Stock Market Listing
We have applied to have our common stock listed for quotation on the Nasdaq National Market under the symbol "BABY."
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 contractual and legal restrictions that apply to 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.
Sales of Restricted Shares and Lock-up Agreements
Upon completion of this offering, we will have an aggregate of shares of common stock outstanding, based upon shares outstanding as of June 30, 2000, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options after June 30, 2000. If the underwriter's over-allotment option is exercised in full, we will have an aggregate of shares of common stock outstanding based on 9,684,520 shares outstanding as of June 30, 2000. All of the shares sold in this offering, plus any share sold if the over-allotment option is exercised, will be freely tradable without restriction under the Securities Act, except for any shares purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. Affiliates include but are not limited to those persons who hold 10% or more of our outstanding stock, our officers and our directors.
The remaining 9,684,520 shares of common stock outstanding are held by
existing stockholders and "restricted" shares as that term is defined in Rule
144. We issued and sold the restricted shares in private transactions in
reliance upon exemptions from registration under the Securities Act. Restricted
shares may be sold in the public market only if they are registered under the
Securities Act or if they qualify for an exemption from registration, such as
Rule 144 or 701 under the Securities Act, which are summarized below. Sales of
the restricted securities in the public market or the availability of those
shares for sale could adversely affect the market price of our common stock.
Our officers, directors, employees and other stockholders, who collectively hold an aggregate of 9,684,520 restricted shares, have entered into lock-up agreements in connection with this offering. These lock-up agreements provide that, with limited exceptions, our officers, directors, employees and stockholders have agreed not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any of our common stock or any securities exercisable for or convertible into our common stock, except that they may exercise stock options for a period of 180 days after the effective date of the final prospectus for this offering. Salomon Smith Barney Inc. may, in its sole discretion and at any time without prior notice, release all or any portion of the shares subject to these lock-up agreements. We also have entered into an agreement with Salomon Smith Barney Inc. that we will not offer, sell or otherwise dispose of our common stock until 180 days after the effective date of this offering.
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 Inc. Taking into account the lock-up agreements, and assuming Salomon Smith Barney Inc. does not release stockholders from these agreements, beginning 180 days after the effective date, approximately 9,684,520 shares will be eligible for sale.
Following the expiration of the lock-up period, shares issued upon exercise of options granted by us prior to the completion of this offering will also be available for sale in the public market pursuant to Rule 701 under the Securities Act unless those shares are held by one of our affiliates, directors or officers.
Rule 144
In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including the holding period of any prior owner except an affiliate, 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, which will equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 also are subject to manner of sale provisions that require arm's length sales through a stockbroker, notice requirements with respect to sales by our officers, directors and greater than 5% stockholders and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been an affiliate of our company at any time during the six months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years including the holding period of any prior owner except an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701
Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares under a written compensatory plan or contract to resell these shares in reliance upon Rule 144. 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 these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144.
We intend to file, shortly after the effectiveness of this offering, a registration statement on Form S-8 under the Securities Act covering all shares of common stock reserved for issuance under the stock plans and subject to outstanding options under our 1991 stock option plan and 2000 stock option plan, if any. See "Management--Stock Plans." Shares of common stock issued upon exercise of options under the Form S-8 will be available for sale in the public market, subject to Rule 144 volume limitations applicable to affiliates and subject to the contractual restrictions described above. As of June 30, 2000, options to purchase 1,326,123 shares of common stock were outstanding of which approximately 663,047 options were then vested and exercisable. Beginning on the date that is 180 days after the effective date of this offering, approximately 897,161 shares issuable upon the exercise of vested stock options will become eligible for sale in the public market, if such options are exercised.
Following this offering, the holders of an aggregate of 8,832,558 shares of outstanding common stock as of June 30, 2000, have the right to require us to register their shares for sale upon meeting requirements to which the parties have previously agreed. See "Description of Capital Stock--Holders of Registration Rights Can Require Us to Register Shares of Our Stock for Resale" for additional information regarding registration rights.
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 addition our bank line of credit generally prohibits us from paying cash dividends. 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 Unites 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 severally 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. .........................................
Dain Rauscher Incorporated.........................................
Prudential Securities Incorporated.................................
----
Total............................................................
====
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The underwriting agreement provides that the obligations of the several 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., Dain Rauscher Incorporated and Prudential Securities Incorporated 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 up to % of the shares to be offered, or shares, as directed shares for sale at the initial public offering price to our directors, officers and employees, as well as to individuals associated with us or our employees, who have advised us of their desire to purchase these shares. This directed share program will be administered by Salomon Smith Barney Inc. The number of shares available for sale to the general public will be reduced to the extent these individuals purchase directed shares. Any directed shares not purchased will be offered by the underwriters to the general public 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 shares have agreed that, for a period of 180 days from the date of this prospectus, we and they 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 public 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 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 "BABY."
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 Natus
-------------------------
No Exercise Full Exercise
----------- -------------
Per share.......................................... $ $
Total.............................................. $ $
|
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 short-sales, syndicate covering transactions and stabilizing transactions. Short-sales involve 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. Covered short sales are sales of shares made in an amount up to the number of shares represented by the underwriters' over- allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make "naked" short sales of shares in excess of the over- allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of the bids for or purchases of shares in the open market while the offering is in progress.
The underwriters also may 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 otherwise would 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, payable by us in connection with this offering will be approximately $1,550,000.
Prudential Securities Incorporated facilitates the marketing of new issues online through its PrudentialSecurities.com division. Clients of Prudential Advisor, a full service brokerage firm program, may view offering terms and a prospectus online and place orders through their financial advisors.
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
The validity of the common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Legal matters specified by the underwriters in connection with this offering will be passed upon for the underwriters by Cravath, Swaine & Moore, New York, New York. Members of Wilson Sonsini Goodrich & Rosati and investment funds associated with that firm hold 46,350 shares of Natus common stock.
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 and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and have been so included in reliance upon the reports of such firm given upon the authority of such firm as experts in auditing and accounting.
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.
NATUS MEDICAL INCORPORATED
Index to Financial Statements
Page
----
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1998 and 1999 and June 30, 2000
(Unaudited).............................................................. F-3
Statements of Operations for Each of the Three Years in the Period Ended
December 31, 1999 and for the Six Months Ended June 30, 1999 and 2000
(Unaudited).............................................................. F-4
Statements of Stockholders' Deficit for Each of the Three Years in the
Period Ended December 31, 1999 and for the Six Months Ended June 30, 2000
(Unaudited).............................................................. F-5
Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1999 and for the Six Months Ended June 30, 1999 and 2000
(Unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Natus Medical Incorporated:
We have audited the accompanying balance sheets of Natus Medical Incorporated (the "Company") as of December 31, 1998 and 1999, and the related statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of 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 of America.
Deloitte & Touche LLP
San Jose, California
March 10, 2000 (August 16, 2000 as to Note 14)
NATUS MEDICAL INCORPORATED
BALANCE SHEETS
(in thousands, except share amounts)
Pro Forma
December 31, (Note 1)
------------------ June 30, June 30,
1998 1999 2000 2000
-------- -------- -------- ---------
(unaudited)
ASSETS
Current assets:
Cash and equivalents.................. $ 1,664 $ 2,087 $ 1,510
Short-term investments................ 279 289 295
Accounts receivable, net of allowance
for doubtful accounts of $138 in
1998, $201 in 1999 and $225 in
2000................................. 2,807 3,128 3,334
Inventories........................... 1,180 1,253 1,799
Prepaid expenses and other current
assets............................... 241 140 257
-------- -------- --------
Total current assets................ 6,171 6,897 7,195
Property and equipment, net............ 1,154 1,277 1,339
Convertible notes receivable........... -- 95 106
Long-term investment................... -- 315 317
Deposits and other assets.............. 93 115 102
-------- -------- --------
Total assets........................ $ 7,418 $ 8,699 $ 9,059
======== ======== ========
LIABILITIES, CONVERTIBLE PREFERRED
STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Long-term debt, current portion....... $ 150 $ 150 $ 75
Accounts payable...................... 959 974 755
Accrued liabilities................... 1,546 1,526 2,008
Deferred revenues..................... 310 433 498
-------- -------- --------
Total current liabilities........... 2,965 3,083 3,336
-------- -------- --------
Long-term debt, net of current
portion............................... 150 -- --
-------- -------- --------
Total liabilities................... 3,115 3,083 3,336
-------- -------- --------
Commitments and contingencies (Notes 1,
6, 9 and 12)..........................
Convertible preferred stock:
Series A convertible preferred stock,
$0.001 par value; 1,241,842 shares
authorized; 1,241,841 shares issued
and outstanding in 1998, 1999 and
2000, none pro forma; aggregate
liquidation value of $3,629 in 1999
and $3,716 in 2000................... 2,227 2,227 2,227 $ --
Redeemable convertible preferred
stock, $0.001 par value; 8,781,412
shares authorized; outstanding
shares: aggregate liquidation value
of $23,794 in 1999 and $24,486 in
2000 and aggregate redemption value
of $21,615 in 1999 and $22,307 in
2000:
Series B: 3,967,126 shares
authorized; 3,967,120 shares issued
and outstanding in 1998, 1999 and
2000, none pro forma............... 11,050 11,764 12,121 --
Series C: 3,214,286 shares
authorized; shares issued and
outstanding: 1,428,568 in 1998,
2,490,181 in 1999 and 2000, none
pro forma.......................... 3,168 5,416 5,640 --
Series D: 1,600,000 shares
authorized; 1,232,392 shares issued
and outstanding in 1998, 1999 and
2000, none pro forma............... 4,151 4,435 4,546 --
Warrants--Series C redeemable
convertible preferred stock........ 558 -- -- --
-------- -------- -------- --------
Total convertible preferred stock... 21,154 23,842 24,534 --
-------- -------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value;
120,000,000 shares authorized;
shares issued and outstanding:
515,632 in 1998, 597,689 in 1999,
752,986 in 2000 and 9,684,520 pro
forma................................ 212 278 1,824 26,358
Deferred stock compensation........... -- -- (1,122) (1,122)
Accumulated deficit................... (17,063) (18,504) (19,513) (19,513)
-------- -------- -------- --------
Total stockholders' equity
(deficit).......................... (16,851) (18,226) (18,811) $ 5,723
-------- -------- -------- ========
Total liabilities, convertible
preferred stock and stockholders'
deficit............................ $ 7,418 $ 8,699 $ 9,059
======== ======== ========
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The accompanying notes are an integral part of these financial statements.
NATUS MEDICAL INCORPORATED
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December Six Months
31, Ended June 30,
------------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------ -------
(unaudited)
Net revenues....................... $10,031 $15,884 $19,783 $8,918 $11,009
Cost of revenues*.................. 3,612 5,577 6,624 3,082 3,908
------- ------- ------- ------ -------
Gross profit....................... 6,419 10,307 13,159 5,836 7,101
------- ------- ------- ------ -------
Operating expenses:
Marketing and selling............ 4,259 6,275 7,684 3,654 4,395
Research and development......... 1,602 2,711 2,457 1,288 1,605
General and administrative....... 1,231 1,638 2,384 1,021 1,152
Amortization of deferred stock
compensation*................... -- -- -- -- 278
------- ------- ------- ------ -------
Total operating expenses....... 7,092 10,624 12,525 5,963 7,430
------- ------- ------- ------ -------
Income (loss) from operations...... (673) (317) 634 (127) (329)
Interest income.................... 105 116 35 14 17
Interest expense and other......... (8) 2 (15) (9) (5)
------- ------- ------- ------ -------
Income (loss) before taxes......... (576) (199) 654 (122) (317)
Income tax expense................. -- -- 10 -- --
------- ------- ------- ------ -------
Net income (loss).................. (576) (199) 644 (122) (317)
Accretion of redeemable convertible
preferred stock................... 1,292 1,389 2,085 695 692
------- ------- ------- ------ -------
Net loss available to common
stockholders...................... $(1,868) $(1,588) $(1,441) $ (817) $(1,009)
======= ======= ======= ====== =======
Basic and diluted net loss per
share............................. $ (7.62) $ (3.63) $ (2.56) $(1.47) $ (1.59)
======= ======= ======= ====== =======
Shares used in computing basic and
diluted net loss per share........ 245 438 562 557 633
Pro forma basic and diluted net
loss per share (Note 1)........... $ (0.17) $ (0.11)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share (Note 1).................... 8,478 9,565
*Amortization of deferred stock
compensation:
Included in cost of revenues..... $ -- $ -- $ -- $ -- $ 75
======= ======= ======= ====== =======
Marketing and selling............ $ -- $ -- $ -- $ -- $ 91
Research and development......... -- -- -- -- 48
General and administrative....... -- -- -- -- 139
------- ------- ------- ------ -------
$ -- $ -- $ -- $ -- $ 278
======= ======= ======= ====== =======
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The accompanying notes are an integral part of these financial statements.
NATUS MEDICAL INCORPORATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share amounts)
Common Stock Deferred
-------------- Stock Accumulated
Shares Amount Compensation Deficit Total
------- ------ ------------ ----------- --------
Balances, January 1, 1997.... 114,469 $ 63 $ -- $(13,607) $(13,544)
Accretion to redemption value
on Series B, C and D
redeemable convertible
preferred stock............. (1,292) (1,292)
Exercise of stock options.... 197,352 49 49
Net loss..................... (576) (576)
------- ------ ------- -------- --------
Balances, December 31, 1997.. 311,821 112 -- (15,475) (15,363)
Accretion to redemption value
on Series B, C and D
redeemable convertible
preferred stock............. (1,389) (1,389)
Stock compensation expense... 40 40
Exercise of options.......... 203,811 60 60
Net loss..................... (199) (199)
------- ------ ------- -------- --------
Balances, December 31, 1998.. 515,632 212 -- (17,063) (16,851)
Accretion to redemption value
on Series B, C and D
redeemable convertible
preferred stock............. (1,389) (1,389)
Accretion to redemption value
of shares issued on exercise
of warrants on Series C
redeemable convertible
preferred stock............. (696) (696)
Exercise of options.......... 82,057 66 66
Net income................... 644 644
------- ------ ------- -------- --------
Balances, December 31, 1999.. 597,689 278 -- (18,504) (18,226)
Accretion to redemption value
on Series B, C and D
redeemable convertible
preferred stock*............ (692) (692)
Deferred stock
compensation*............... 1,475 (1,475) --
Amortization of deferred
stock compensation*......... 353 353
Exercise of stock options*... 155,297 71 71
Net loss*.................... (317) (317)
------- ------ ------- -------- --------
Balances, June 30, 2000*..... 752,986 $1,824 $(1,122) $(19,513) $(18,811)
======= ====== ======= ======== ========
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The accompanying notes are an integral part of these financial statements.
NATUS MEDICAL INCORPORATED
STATEMENTS OF CASH FLOWS
(in thousands)
Six Months
Ended June
Year Ended December 31, 30,
--------------------------- --------------
1997 1998 1999 1999 2000
-------- ------- -------- ------ ------
(unaudited)
Operating activities:
Net income (loss)............... $ (576) $ (199) $ 644 $ (122) $ (317)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization................. 266 357 585 264 346
Amortization of deferred stock
compensation................. -- 40 -- -- 353
Writeoff of note receivable... -- -- 200 -- --
Changes in operating assets
and liabilities:
Accounts receivable......... (1,120) (689) (321) 446 (206)
Inventories................. (225) (589) (73) (490) (546)
Prepaid expenses and other
assets..................... 9 (115) 101 (76) (117)
Accounts payable............ 221 329 15 -- (219)
Accrued liabilities......... 486 568 103 449 547
-------- ------- -------- ------ ------
Net cash provided by (used
in) operating activities.. (939) (298) 1,254 471 (159)
-------- ------- -------- ------ ------
Investing activities:
Acquisition of property and
equipment...................... (496) (900) (694) (421) (395)
Deposits and other assets....... (14) (32) (36) -- --
Purchase of convertible notes
receivable..................... -- -- (95) -- (10)
Purchase of note receivable..... -- -- (200) -- --
Purchases of short-term
investments.................... (459) (547) (569) (282) (295)
Sales of short-term
investments.................... 390 529 559 282 286
Purchase of long-term
investment..................... -- -- (315) (312) --
-------- ------- -------- ------ ------
Net cash used in investing
activities................ (579) (950) (1,350) (733) (414)
-------- ------- -------- ------ ------
Financing activities:
Issuance of preferred stock..... 3,681 -- -- -- --
Exercise of warrants on Series C
preferred stock................ -- -- 603 -- --
Issuance of common stock........ 49 60 66 43 71
Borrowings on bank loans........ -- 300 -- -- --
Payments of borrowings and
capital lease obligations...... (212) (10) (150) (75) (75)
-------- ------- -------- ------ ------
Net cash provided by (used
in) financing activities.. 3,518 350 519 (32) (4)
-------- ------- -------- ------ ------
Net increase (decrease) in cash
and equivalents................. 2,000 (898) 423 (294) (577)
Cash and equivalents, beginning
of period....................... 562 2,562 1,664 1,664 2,087
-------- ------- -------- ------ ------
Cash and equivalents, end of
period.......................... $ 2,562 $ 1,664 $ 2,087 $1,370 $1,510
======== ======= ======== ====== ======
Noncash investing and financing
activities:
Accretion of redeemable
convertible preferred stock.... $ 1,292 $ 1,389 $ 2,085 $ 695 $ 692
Exercise of warrants, cashless.. $ -- $ -- $ 448 $ -- $ --
Supplemental disclosure of cash
flow information:
Cash paid for interest.......... $ 17 $ 1 $ 17 $ 8 $ 6
Cash paid for income taxes...... $ -- $ -- $ 7 $ 33 $ 28
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The accompanying notes are an integral part of these financial statements.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1998 and 1999 and for the Six Months Ended June 30, 1999 (Unaudited) and June 30, 2000 (Unaudited)
1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Natus Medical Inc. (the "Company") was incorporated in California in May 1987 (see Note 14), and was formed to design, manufacture and market newborn screening products for the identification and monitoring of common medical disorders that may occur during the critical development period of infants. The Company's main products include (1) the ALGO series, which use automated auditory brainstem technology, or AABR, to enable simple, non-invasive and accurate screening for hearing impairment in newborns and (2) the CO-Stat analyzers which accurately and non-invasively measuring the rate of hemolysis through the detection of carbon monoxide, in exhaled breath. Both the ALGO and CO-Stat products use single-use disposable supplies during the process of screening an infant.
Unaudited Interim Financial Information
The interim financial information as of June 30, 2000 and for the six months ended June 30, 1999 and 2000 is unaudited and has been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim information. Operating results for the six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.
Financial Statement Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include allowances for potentially uncollectible accounts receivable, warranty costs, sales returns, and a valuation allowance for deferred tax assets. Actual results could differ from those estimates.
Certain Significant Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist principally of cash and equivalents, investments and accounts and notes receivable. Cash and equivalents and investments consist of cash in bank accounts, money market accounts and certificates of deposit.
The Company sells its products primarily to hospitals and medical institutions and generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains allowances for estimated potential bad debt losses. No single customer accounted for more that 10% of accounts receivable at December 31, 1998 or 1999. One customer accounted for 13% of accounts receivable at June 30, 2000. See Note 4 for discussion of the terms of convertible notes receivable.
The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. For example, management believes that changes in any of the following areas could have a negative effect on the Company in terms of its future financial position, cash flows and results of operations: ability to obtain additional financing; changes in domestic and international economic and/or political conditions or regulations; fundamental changes in the technology; market acceptance of the Company's products under development; changes in the overall demand for products offered by the Company; successful and timely completion of
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
product development efforts; competitive pressures in the form of new product introductions by competitors or price reductions on current products; availability of necessary product components; development of sales channels; litigation or other claims against the Company based on intellectual property, patent, product, regulatory or other factors; and the hiring, training and retention of key employees.
Effective January 1, 2000, the Series B, C and D redeemable convertible preferred stockholders or the Board of Directors may require the Company to redeem such outstanding stock (see Note 6). The aggregate accreted values for the Series B, C and D redeemable convertible preferred stock and the corresponding aggregate redemption value totaled $21,615,000 at December 31, 1999 and $22,307,000 at June 30, 2000. The Company may, at its discretion, elect to pay any redemption obligations in quarterly installments over a three- year period commencing with the date of the redemption notice. In the event redemption is required, the Company may need to seek alternative financing or reduce its operating costs, which could have a negative effect on the Company's future financial position, cash flows and results of operations. In addition, there is no assurance that alternative financing will be available on terms acceptable to the Company or on a timely basis, if at all.
Cash and Equivalents
The Company considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents.
Short-Term Investments
The Company has classified all of its short-term investments as available- for-sale securities. While the Company's practice is to hold securities to maturity, the Company has classified all securities as available-for-sale securities, as the sale of such securities may be required prior to maturity to implement management strategies. The Company's short-term investments consist of certificates of deposit of $279,000, $289,000 and $295,000 at December 31, 1998 and 1999 and June 30, 2000, respectively, with original maturities ranging between three and six months. Cost, which approximated market value at December 31, 1998 and 1999 and June 30, 2000, is based on the specific identification method for purposes of computing realized gains or losses.
Long-Term Investment
The Company has a $310,000 interest-bearing certificate of deposit with a bank that matures in April 2004. This investment has been assigned to a bank to guarantee a loan on the primary residence of an officer totaling $250,000 plus accrued interest. The sole collateral for such guarantee is 111,111 shares of the Company's common stock that is owned by the officer. Due to this arrangement, the Company has classified the investment as held-to-maturity. The estimated fair value of the long-term investment, using discounted cash flows is approximately $272,000 at December 31, 1999.
Fair Value of Financial Instruments
The Company's financial instruments include cash and equivalents, investments, accounts receivable, convertible notes receivable and debt obligations. The recorded carrying amounts of cash equivalents, short-term investments and accounts receivable approximate their fair value due to their short-term maturities. The recorded amount of the Company's debt obligations approximate their estimated fair value due to their variable interest rates. At December 31, 1999, the difference between estimated fair value and amortized cost for the convertible notes receivable was not significant.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to five years. Equipment under capital leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life.
Patent Costs
The Company capitalizes direct costs associated with obtaining and filing patents. Such costs are amortized to expense over five years on a straight-line basis. At December 31, 1998 and 1999, capitalized patent costs, which are included in deposits and other assets in the accompanying balance sheets, totaled $108,000 and $145,000, respectively, and accumulated amortization totaled $46,000 and $60,000, respectively. During 1997, 1998 and 1999, the Company recorded amortization expense in association with capitalized patent costs of $10,000, $10,000 and $14,000, respectively.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of that asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the discounted cash flows compared to the carrying amount. No impairment charge has been recorded in any of the periods presented.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment. A provision for estimated warranty costs and sales returns is recorded at the time of sale. Revenues from extended warranty contracts are recognized ratably over the warranty period. Advance payments from customers are recorded as deferred revenue until shipment of the related product.
Research and Development
Costs incurred in research and development are charged to operations as incurred.
Income Taxes
Deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A valuation allowance is recorded to reduce net deferred tax assets to amounts that are more likely than not to be realized.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board ("APB") No. 25, Accounting for Stock Issued to Employees. The
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company accounts for stock-based awards to nonemployees in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation and Emerging Issues Task Force ("EITF") 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.
Comprehensive Income (Loss)
In accordance with SFAS No. 130, Reporting Comprehensive Income, the Company
is required to report by major components and as a single total, the change in
its net assets during the period from nonowner sources. Comprehensive income
(loss) was the same as net income (loss) for all periods presented.
Net Loss per Share
Basic net loss per common share excludes dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted net loss per share was the same as basic net loss per share for all periods presented since the effect of any potentially dilutive securities is excluded as they are anti-dilutive (see Note 8).
Unaudited Pro Forma Net Loss per Share
Pro forma basic and diluted net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of common shares resulting from the assumed conversion of all outstanding shares of convertible preferred stock, which will occur upon the closing of the initial public offering contemplated by the Company.
Unaudited Pro Forma Information
The unaudited pro forma balance sheet presents the Company's balance sheet as if the automatic conversion upon the closing of an initial public offering of each share of convertible preferred stock into one share of common stock had occurred at June 30, 2000.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which defines derivatives and requires all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. SFAS No. 133 is effective for the Company in fiscal year 2001. The Company has not yet completed its assessment of the effect, if any, this statement will have on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which summarizes certain of the SEC Staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in the financial statements. The Company has not yet completed its assessment of the effect, if any, this SAB will have on its financial position or results of operations.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
2--INVENTORIES
Inventories consist of (in thousands):
December 31,
------------- June 30,
1998 1999 2000
------ ------ -----------
(Unaudited)
Raw materials and subassemblies.................... $ 592 $ 469 $1,098
Finished goods..................................... 588 784 701
------ ------ ------
Total............................................ $1,180 $1,253 $1,799
====== ====== ======
|
3--PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
December 31,
---------------- June 30,
1998 1999 2000
------- ------- -----------
(Unaudited)
Furniture and equipment....................... $ 876 $ 1,179 $ 1,038
Computer software and equipment............... 870 1,061 983
Demonstration and loaned equipment............ 777 970 688
Leasehold improvements........................ 82 88 222
------- ------- -------
2,605 3,298 2,931
Accumulated depreciation and amortization..... (1,451) (2,021) (1,592)
------- ------- -------
Total....................................... $ 1,154 $ 1,277 $ 1,339
======= ======= =======
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4--NOTES RECEIVABLE
During 1999, the Company agreed to loan up to $115,000 in the form of convertible notes to a foreign distributor. During 1999 and January 2000, the Company advanced $95,000 and $10,000, respectively, under such commitment. The remaining $10,000 installment available during April 2000 was not drawn by the foreign distributor. The notes bear interest at a fixed rate of 7%, and all outstanding principal and interest related thereto is due in June 2002. The notes are secured by substantially all of the assets of the foreign distributor and at the Company's sole discretion, at any time prior to repayment of all principal and interest, can be converted into a 19.9% equity interest in the foreign distributor.
During 1999, the Company agreed to loan $200,000 to a private company which included an exclusive, three month option to purchase substantially all of the assets of that company. The Company elected not to pursue the acquisition, and subsequently the private company defaulted on the promissory note, which was written off as it was deemed uncollectible.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
5--ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
December 31,
------------- June 30,
1998 1999 2000
------ ------ -----------
(Unaudited)
Compensation and related benefits.................. $ 685 $ 758 $ 885
Warranty reserve................................... 500 487 566
Other.............................................. 361 281 557
------ ------ ------
Total............................................ $1,546 $1,526 $2,008
====== ====== ======
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6--CONVERTIBLE PREFERRED STOCK
At December 31, 1999, the Company had outstanding 1,241,841; 3,967,120; 2,490,181 and 1,232,392 shares of Series A convertible preferred stock and Series B, C and D redeemable convertible preferred stock, respectively. Changes in each class of convertible preferred stock from January 1, 1997 to June 30, 2000 are as follows (in thousands):
Warrants on
--------------------------------------------
Series Series Series Series Series
A B C D C Total
------ ------- ------ ------ ------ -------
Balances, January 1, 1997.......... $2,227 $ 9,622 $2,385 $ -- $ 558 $14,792
Issuance of 1,232,392 shares of
Series D redeemable convertible
preferred stock (less issuance
costs of $171,000)................ 3,681 3,681
Accretion to redemption value on
Series B, C and D redeemable
convertible preferred stock....... 714 391 187 1,292
------ ------- ------ ------ ----- -------
Balances, December, 31, 1997....... 2,227 10,336 2,776 3,868 558 19,765
Accretion to redemption value on
Series B, C and D redeemable
convertible preferred stock....... 714 392 283 1,389
------ ------- ------ ------ ----- -------
Balances, December, 31, 1998....... 2,227 11,050 3,168 4,151 558 21,154
Issuance of 344,652 shares of
Series C redeemable convertible
preferred stock upon exercise of
warrants for cash................. 713 (110) 603
Issuance of 716,961 shares of
Series C redeemable convertible
preferred stock upon exercise of
warrants, cashless--net of shares
tendered at $3.50 per share....... 448 (448) --
Accretion to redemption value of
shares issued on exercise of
warrants on Series C redeemable
convertible preferred stock....... 696 696
Accretion to redemption value on
Series B, C and D redeemable
convertible preferred stock....... 714 391 284 1,389
------ ------- ------ ------ ----- -------
Balances, December, 31, 1999....... 2,227 11,764 5,416 4,435 -- 23,842
Accretion to redemption value on
Series B, C and D redeemable
convertible preferred stock*...... 357 224 111 -- 692
------ ------- ------ ------ ----- -------
Balances, June 30, 2000*........... $2,227 $12,121 $5,640 $4,546 $ -- $24,534
====== ======= ====== ====== ===== =======
|
Significant terms of the Series A, B, C and D convertible preferred stock ("preferred stock") are as follows:
. Each share of Series A, B, C and D preferred stock is convertible into one share of common stock (subject to certain events of dilution). Shares will automatically be converted upon a public offering of common stock in which the offering price is at least $6.75 per share and the aggregate offering proceeds exceed $7,500,000.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
. The Series B, C and D preferred stock are redeemable at the request of the holders of not less than two-thirds of the then outstanding shares of Series B, C and D preferred stock, or at the option of the Board of Directors, by paying cash equal to $1.75, $1.75 and $3.13 per share of Series B, C and D preferred stock, together with all cumulative dividends and all declared and unpaid dividends as of the date of redemption. The cumulative dividends for the Series B, C and D redeemable preferred stock are accreted annually so that the carrying value will equal the mandatory redemption amount on January 1, 2000 and thereafter. In addition, differences between the redemption amount and the net proceeds received (i.e., the costs of financing) are being accreted. The redemption amount of Series B, C and D preferred stock at December 31, 1999, including cumulative dividends, was $11,764,000, $5,416,000 and $4,435,000, respectively.
. Each share of preferred stock has the same voting rights as the common stock into which it is convertible.
. Dividends may be declared at the discretion of the Board of Directors and are cumulative. Per annum dividends of $0.14, $0.18, $0.18 and $0.18 for each share of Series A, B, C and D preferred stock, respectively, must be declared and paid before any dividends on common stock may be declared or paid. Series B, C and D are payable in preference and priority to Series A, and Series A is payable in preference and priority to common stock. Dividends in arrears for Series A preferred stock at December 31, 1999 were $1,456,000. Cumulative dividends for Series B, C and D preferred stock at December 31, 1999 of $4,821,000, $1,058,000, and $584,000, respectively, have been accreted as noted above.
. In the event of liquidation, dissolution or winding up of the Company, including a sale of substantially all of the Company's assets on a change in control, the Series D preferred stockholders are entitled to receive $3.13 per share, the Series C preferred stockholders are entitled to receive $2.63 per share, the Series B preferred stockholders are entitled to receive $1.75 per share, the Series A preferred stockholders are entitled to receive $1.75 per share, and common stockholders are entitled to $0.25 per share, plus all cumulative dividends, respectively. The distribution to Series C and Series D preferred stockholders is payable in preference and priority to Series B preferred stockholders, the distribution to Series B preferred stockholders is payable in preference and priority to Series A preferred stockholders, and the distribution to Series A preferred stockholders is payable in preference and priority to the distribution to common stockholders. After such payments have been made, any remaining assets of the Company will be distributed pro rata among all stockholders, based on the number of common shares held by each, assuming conversion of all Series A, B, C and D preferred stock at the then applicable conversion rate.
In connection with the issuance of Series C preferred stock, warrants were issued to purchase 1,785,714 shares of Series C preferred stock. The warrants were exercisable at $1.75 per share through December 31, 1999 and were valued at an aggregate of $558,000. During December 1999, 344,652 warrants were exercised for cash proceeds of $603,000; 1,433,810 warrants were exercised by net settlement in a noncash transaction resulting in the issuance of 716,961 shares, and 7,252 warrants lapsed. Additional accretion of $696,000 was recorded upon issuance of the 1,061,557 shares of such Series C preferred stock to record the carrying value at the related redemption amount.
7--STOCKHOLDERS' DEFICIT
Common Stock
At December 31, 1999, the Company had reserved an aggregate of 10,129,468 shares of common stock of which 8,931,534 shares are reserved for conversion of convertible preferred stock and 1,197,934 shares are reserved for issuance and exercise of stock options.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Option Plan
At December 31, 1999, under the Company's 1991 stock option plan (the "Plan"), incentive and nonstatutory stock options to purchase up to 1,793,482 shares of common stock (see Note 14), may be issued at not less than the fair market value of the stock at the date of grant, as determined by the Board of Directors. Options issued under the Plan become exercisable as determined by the Board of Directors and expire no more than ten years after the date of grant. Most options vest ratably over four years. However, for those optionees who, at the time the option is granted, own stock representing more than 10% of the voting power of all classes of stock of the Company, stock options may be issued at not less than 110% of the fair market value of the stock at the date of grant, and the options expire five years after the date of grant.
A summary of option activity is as follows:
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding, January 1, 1997 (389,939 exercisable at a
weighted average exercise price of $0.25 per share).... 778,080 $0.25
Granted (weighted average fair value of $0.13 per
share)............................................... 442,480 $0.43
Exercised............................................. (197,352) $0.25
Cancelled............................................. (11,712) $0.25
---------
Outstanding, December 31, 1997 (397,476 exercisable at a
weighted average exercise price of $0.28 per share).... 1,011,496 $0.33
Granted (weighted average fair value of $0.55 per
share)............................................... 306,060 $1.65
Exercised............................................. (203,811) $0.30
Cancelled............................................. (32,754) $0.53
---------
Outstanding, December 31, 1998 (471,583 exercisable at a
weighted average exercise price of $0.45 per share).... 1,080,991 $0.68
Granted (weighted average fair value of $0.73 per
share)............................................... 135,600 $2.25
Exercised............................................. (82,057) $0.80
Cancelled............................................. (40,904) $1.63
---------
Outstanding, December 31, 1999 (668,006 exercisable at a
weighted average exercise price of $0.58 per share).... 1,093,630 $0.85
Granted (weighted average fair value of $3.57 per
share)*.............................................. 451,100 $1.53
Exercised* ........................................... (155,297) $0.46
Cancelled*............................................ (63,310) $1.85
---------
Outstanding, June 30, 2000 (1,111,850 exercisable at a
weighted average exercise price of $0.68 per share)*... 1,326,123 $1.09
=========
|
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning outstanding and exercisable options outstanding at December 31, 1999:
Weighted
Average
Remaining
Contractual
Exercise Number Life Number
Price Outstanding (Years) Exercisable
-------- ----------- ----------- -----------
$ 0.25 638,917 5.5 506,221
$ 1.00 141,801 8.0 70,101
$ 1.88 180,512 8.7 68,412
$ 2.25 132,400 9.5 23,272
--------- -------
1,093,630 6.8 668,006
========= =======
|
At December 31, 1999 and June 30, 2000, options to purchase 104,304 and 316,514 shares, respectively, were available for future grants under the Plan.
Deferred Stock Compensation
During the six-month period ended June 30, 2000, the Company issued 443,100 common stock options to employees at a weighted average exercise price of $1.53 per share, which was less than the deemed weighted average fair value of $4.77 per share. The cumulative deferred stock compensation with respect to these grants totaled $1,438,000 and is being amortized to expense on a graded vesting method over the four-year vesting period of the options through June 2004.
During 1998 and for the six months ended June 30, 2000, the Company issued fully vested options to nonemployees for the purchase of 43,400 and 8,000 shares of common stock at a weighted average exercise price of $1.55 and $1.50 per share, respectively. Such options were issued for services rendered and the Company expensed the fair value of such awards on the date of grant as deferred stock compensation of $40,000 and $37,000 for the year ended December 31, 1998 and the six months ended June 30, 2000, respectively. The Black-Scholes option pricing model was used to determine the fair value with the following weighted average assumptions: contractual life of 5.5 years for 1998 and 10 years for the six months ended June 30, 2000; risk-free interest rate of 5.3% for 1998 and 6.6% for the six months ended June 30, 2000; expected volatility factor of 75% for 1998 and for the six months ended June 30, 2000.
Amortization of employee and nonemployee stock-based compensation totaled $353,000 for the six months ended June 30, 2000.
Additional Stock Plan Information
Although the Company continues to account for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25, SFAS
No. 123 requires the disclosure of pro forma net income (loss) as if the
Company had adopted the fair value method. Under SFAS No. 123, the fair value
of stock-based awards to employees is calculated through the use of the option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which differ significantly from the Company's stock option
awards. The models also require subjective assumptions, including expected time
to exercise, which greatly affect the calculated values. The weighted average
fair value of the Company's stock-based awards to employees was estimated using
the minimum value method with the following weighted average assumptions:
expected life of 5.5 years from the date of grant in 1997, 1998 and 1999; risk
free interest rate of approximately 6.0% in 1997, 1998 and 1999; and no
dividends during the expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they
occur.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
If the computed fair values of the Company's awards had been amortized to expense over the related vesting periods, pro forma net loss and net loss per share, basic and diluted, would have been as follows (in thousands):
Years Ended December
31,
-------------------------
1997 1998 1999
------- ------- -------
Net loss available to common stockholders:
As reported.................................... $(1,868) $(1,588) $(1,441)
Pro forma...................................... $(1,901) $(1,667) $(1,544)
Basic and diluted net loss per share:
As reported.................................... $ (7.62) $ (3.63) $ (2.56)
Pro forma...................................... $ (7.76) $ (3.81) $ (2.75)
|
8--NET LOSS PER SHARE
During 1997, 1998 and 1999 and for the six months ended June 30, 1999 and 2000, the Company had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded in the computation of diluted net loss per share in the periods presented, as their effect would have been antidilutive. Such outstanding securities consist of the following:
December 31, June 30,
-------------------------------- ---------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(unaudited)
Convertible preferred
stock.................. 7,869,921 7,869,921 8,931,534 7,869,925 8,931,534
Warrants for convertible
preferred stock........ 1,785,714 1,785,714 -- 1,785,714 --
Stock options........... 1,011,496 1,080,991 1,093,630 1,063,268 1,326,123
---------- ---------- ---------- ---------- ----------
Total................. 10,667,131 10,736,626 10,025,164 10,718,907 10,257,657
========== ========== ========== ========== ==========
|
9--LEASES
The Company has entered into noncancelable operating leases for its facilities through December 2003. Minimum lease payments under noncancelable operating leases as of December 31, 1999 are as follows (in thousands):
Operating
Leases
---------
Year Ending December 31,
2000............................................................. $ 456
2001............................................................. 557
2002............................................................. 574
2003............................................................. 593
------
Total minimum lease payments..................................... $2,180
======
|
Rent expense is recorded on a straight-line basis and totaled approximately $189,000 in 1997, $238,000 in 1998 and $413,000 in 1999.
10--BORROWING ARRANGEMENTS
The Company had a $1,000,000 revolving bank line of credit through March 2000. In addition, the Company financed the expansion of its information system during 1998 with a two-year note under an extension of its existing bank facility in the amount of $300,000. The remaining principal balance outstanding at December 31, 1999 of $150,000 will be repaid in monthly installments through December 2000. Borrowings
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
under the line of credit are limited to eligible accounts receivable, collateralized by substantially all of the Company's assets and bear interest at the bank's prime rate (9.5% at December 31, 1999) plus 1.0%. The Company must meet certain financial ratios to maintain the line of credit, including minimum tangible net worth, a minimum quick ratio, and total debt to tangible net worth ratio. It also must meet certain operating profitability requirements. At December 31, 1999, the Company was in compliance with all such requirements of the borrowing arrangement.
11--INCOME TAXES
Income tax expense during 1999 represents current state taxes. Deferred income taxes consist of net operating loss and tax credit carryforwards as well as the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Net deferred income tax assets are as follows (in thousands):
December 31,
----------------
1998 1999
------- -------
Net deferred tax assets:
Net operating loss carryforwards......................... $ 3,278 $ 2,956
Accruals deductible in different periods................. 626 605
Capitalized research and development costs............... 281 268
Credit carryforwards..................................... 375 370
------- -------
Total net deferred tax assets.......................... 4,560 4,199
Valuation allowance........................................ (4,560) (4,199)
------- -------
Total.................................................. $ -- $ --
======= =======
|
Due to the uncertainty surrounding the realization of its deferred tax assets, the Company has established valuation allowances sufficient to fully reserve its net deferred tax assets. Annually, management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be reduced.
The Company's amount of income tax recorded differs from the amount using the federal statutory rate as follows (in thousands):
Years Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
Federal statutory tax expense (benefit)........ $ (202) $ (70) $ 229
State tax expense (benefit).................... (33) (11) 38
Valuation allowance............................ 258 193 (361)
Other.......................................... (23) (112) 104
-------- -------- --------
$ -- $ -- $ 10
======== ======== ========
|
At December 31, 1999, the Company had federal net operating loss carryforwards of approximately $8,447,000 available to reduce future taxable income. Such carryforwards expire beginning in 2002 through 2012. At December 31, 1999, the Company had research and experimentation credit carryforwards available of approximately $260,000 for federal and $98,000 for California tax purposes.
The extent to which the federal and California operating loss and tax credit carryforwards can be used to offset future taxable income may be limited, depending on the extent of ownership changes within any three-year period, as provided in the Tax Reform Act of 1986. Such a limitation could result in the expiration of carryforwards before they are utilized.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
12--EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. Employer matching contributions are determined by the Board of Directors and are discretionary. There were no employer matching contributions in 1997, 1998 or 1999; however, the Board of Directors approved a dollar-for- dollar employer match of up to $500 per employee on employee contributions for the year ending December 31, 2000.
On September 1, 1999, the Board of Directors approved the creation of retention plans (the "Plans"), which were designed to provide eligible employees with (i) retention benefits payable upon the employee's continued employment with the Company before and through the effective date of a change in control, as defined by the Plans, and (ii) severance benefits upon certain terminations of employment before or after a change in control. Severance benefits include, among others, accelerated vesting on options outstanding to purchase the Company's common stock and cash payments, up to a defined maximum for each participant, based on the terms of the change in control event. Certain employees who are designated by the Board of Directors are eligible to participate in the Plans. The Plans terminate in September 2000, unless extended by the Board of Directors or a change in control occurs prior to termination.
13--CUSTOMER AND GEOGRAPHIC INFORMATION
The Company operates in one reportable segment and is engaged in the design, manufacture and, marketing of newborn screening products for the identification and monitoring of common medical disorders that may occur during the critical development period of infants. The nature of the Company's products and production processes as well as type of customers and distribution methods are consistent among all of the Company's devices.
Revenues from customers by geographic area are as follows (in thousands):
Years Ended December Six Months
31, Ended June 30,
----------------------- --------------
1997 1998 1999 1999 2000
------- ------- ------- ------ -------
(unaudited)
Net revenues:
United States....................... $ 8,650 $12,820 $17,804 $8,535 $ 9,511
Japan............................... 169 2,228 1,717 295 1,323
All other........................... 1,212 836 262 88 175
------- ------- ------- ------ -------
$10,031 $15,884 $19,783 $8,918 $11,009
======= ======= ======= ====== =======
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For all periods presented, all of the Company's long-lived assets were located within the United States.
In 1997 and 1999, no sales to a single customer accounted for greater than 10% of net revenues. One customer, a distributor, represented 14% of net revenues in fiscal year 1998 and 12% of net revenues for the six months ended June 30, 2000.
14--SUBSEQUENT EVENTS
Inventory Purchase
Subsequent to December 31, 1999, the Company purchased $780,000 of a major component in order to secure consistent components for its planned production needs for 2000.
1991 Stock Plan Amendment
In May 2000, the stockholders approved an amendment to increase the numbers of shares of common stock reserved for issuance under the Plan to an aggregate of 2,393,482 shares.
NATUS MEDICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Creation of Subsidiary
On July 28, 2000, the Company created and incorporated a wholly owned subsidiary in Japan.
Other Matters
On August 15, 2000, the stockholders approved the following actions:
. A two-for-five reverse stock split of the outstanding shares of common and preferred stock; accordingly, all share and per share amounts in these financial statements have been restated to give effect to the reverse stock split.
. Reincorporation of the Company in the State of Delaware, including an increase of the authorized shares of common stock to 120,000,000, and the associated exchange of one share of common stock or preferred stock of the Company for every share of common stock or preferred stock, as the case may be, of the Company's California predecessor. The reincorporation was effected on August 16, 2000. Accordingly, these financial statements have been restated to reflect the effect of the reincorporation.
. Adoption of the 2000 Employee Stock Purchase Plan to be effective upon
the effectiveness of the initial public offering contemplated by the
Company. Under the purchase plan, eligible employees are allowed to have
salary withholdings of up to 15% of their base compensation to purchase
shares of common stock at a price equal to 85% of the lower of the market
value of the stock at the beginning or end of defined purchase periods.
The initial purchase period commences upon the effective date of the
initial public offering of the Company's common stock. The Company has
initially reserved 1,000,000 shares of common stock under this plan, plus
an annual increase to be added on the first day of the Company's fiscal
year beginning January 1, 2002 equal to the lesser of (i) 650,000 shares,
(ii) 4% of the shares of common stock outstanding on the last day of the
preceding fiscal year, or (iii) an amount determined by the Board of
Directors.
. Adoption of the 2000 Stock Option Plan (the "2000 Stock Plan") and the termination of the 1991 Stock Option Plan (the "1991 Stock Plan") as to future option grants to be effective upon the effectiveness of the initial public offering contemplated by the Company. The Company has initially reserved a total of 1,500,000 shares of common stock under the 2000 Stock Plan, plus an annual increase to be added on the first day of the Company's fiscal year beginning January 1, 2002 equal to the lesser of (i) 1,500,000 shares, (ii) 7% of the shares of common stock outstanding on the last day of the preceding fiscal year, or (iii) an amount determined by the Board of Directors.
. Adoption of the 2000 Director Option Plan (the "2000 Director Plan") to be effective upon the effectiveness of the initial public offering contemplated by the Company. The 2000 Director Plan provides for an initial grant to new nonemployee directors, options to purchase 30,000 shares of common stock. Subsequent to the initial grant, each nonemployee director will be granted an option to purchase 10,000 shares of common stock at the next meeting of the Board of Directors following the annual meeting of stockholders, if on the date of the annual meeting the director has served on the board of directors for six months. The Company has initially reserved a total of 400,000 shares of common stock under the 2000 Director Plan, plus an annual increase to be added on the first day of the Company's fiscal year beginning January 1, 2002 equal to the lesser of (i) 100,000 shares, (ii) 0.5% of the shares of common stock outstanding on the last day of the preceding fiscal year, or (iii) an amount determined by the Board of Directors.
. Authorization of a new class of undesignated preferred stock totaling 10,000,000 shares, contingent upon the reincorporation of the Company in Delaware and the closing of the initial public offering contemplated by the Company.
[Artwork:
Text reads as follows: CO-Stat/R/ End Tidal Breath Analyzer passively and non- invasively measures carbon monoxide in a baby's breath to accurately identify the rate at which red blood cells are being broken down. Identifying hemolysis, the breakdown of red blood cells, is a critical component in the management of neonatal jaundice. The CO-Stat analyzer identifies the rate of hemolysis non- invasely without any patient effort at the baby's crib-side.
Picture showing the CO-Stat/R/ End Tidal Breath Analyzer in use.
Caption at bottom of page: NATUS because every baby is precious.]
Shares Natus Medical Incorporated Common Stock
[LOGO OF NATUS MEDICAL INCORPORATED APPEARS HERE]
Salomon Smith Barney
Dain Rauscher Wessels
Prudential Vector Healthcare
a unit of Prudential Securities
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 the underwriting discounts, payable by the Registrant in connection with the sale of the securities being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market System listing fee.
SEC Registration Fee............................................. $ 13,358
NASD Filing Fee.................................................. 5,560
Nasdaq National Market Listing Fee............................... 95,000
Printing Costs................................................... 250,000
Legal Fees and Expenses.......................................... 650,000
Accounting Fees and Expenses..................................... 500,000
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 16,082
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Total.......................................................... $1,550,000
==========
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is subject to Section 145 of the Delaware General Corporation Law ("Section 145"). Section 145 permits indemnification of officers and directors of the Registrant under certain conditions and subject to certain limitations, but in terms sufficiently broad to permit indemnification (including reimbursement for expenses) under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). Section 145 also provides that a corporation has the power to maintain insurance on behalf of its officers and directors against any liability asserted against such person and incurred by him or her in 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 Section 145. Article VI, Section 6.1, of the Registrant's Bylaws provides for mandatory indemnification of its directors and officers and permissible indemnification of employees and other agents to the maximum extent not prohibited by the Delaware General Corporation Law, including proceedings under the Securities Act or the Securities Exchange Act of 1934, as amended. The rights to indemnity thereunder continue as to a person who has ceased to be a director, officer, employee or agent and inure to the benefit of the heirs, executors and administrators of the person. In addition, expenses incurred by a director or executive officer in defending any civil, criminal, administrative or investigative action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Registrant (or was serving at the Registrant's request as a director or officer of another corporation) shall be paid by the Registrant in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Registrant as authorized by the relevant section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law, the Registrant's Certificate of Incorporation provides that, pursuant to Delaware law, its directors shall not be personally liable for monetary damages for breach of the directors' fiduciary duty as directors to the Registrant and its stockholders. This provision in the Certificate of Incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant for acts or omission not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of Stock repurchases or redemptions that are unlawful under
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Section 174 of the Delaware General Corporation Law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. Prior to the effective date of this offering, the Registrant will enter into indemnification agreements with each of its directors and executive officers. Generally, the indemnification agreements attempt to provide the maximum protection permitted by Delaware law as it may be amended from time to time. Moreover, the indemnification agreements provide for certain additional indemnification. Under such additional indemnification provisions, however, an individual will not receive indemnification for judgments, settlements or expenses if he or she is found liable to the Registrant (except to the extent the court determines he or she is fairly and reasonably entitled to indemnity for expenses), for settlements not approved by the Registrant or for settlements and expenses if the settlement is not approved by the court. The indemnification agreements provide for the Registrant to advance to the individual any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding. In order to receive an advance of expenses, the individual must submit to the Registrant copies of invoices presented to him or her for such expenses. Also, the individual must repay such advances upon a final judicial decision that he or she is not entitled to indemnification.
The Registrant intends to enter into additional indemnification agreements with each of its directors and executive officers to effectuate these indemnity provisions and to purchase directors' and officers' liability insurance.
In addition to the foregoing, the Underwriting Agreement contains certain provisions by which the Underwriters have agreed to indemnify the Registrant, each person, if any, who controls the Registrant within the meaning of Section 15 of the Securities Act, each director of the Registrant, each officer of the Registrant who signs the Registration Statement, with respect to information furnished in writing by or on behalf of the Underwriters for use in the Registration Statement.
At present, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the Registrant in which indemnification is being sought, nor is the Registrant aware of any threatened litigation that may result in a claim for indemnification by any director, officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our incorporation in February 1987, we have sold and issued the following securities:
1. In June 1987, May 1989, December 1989, May 1990, June 1990, December 1990 and February 1991, the Registrant issued and sold 1,229,078 shares of Common Stock to 5 of our founders for $2.22 million pursuant to Section 4(2) of the Securities Act.
3. In August 1991, December 1992 and January 1993, the Registrant issued and sold an aggregate of 3,967,120 shares of Series B Preferred Stock to 36 accredited investors for approximately $6.94 million pursuant to Section 4(2) of the Securities Act.
4. In June 1995, August 1995, November 1995, March 1996, April 1996 and May 1996, the Registrant issued and sold an aggregate of 1,428,568 shares of Series C Preferred Stock and warrants to purchase 1,785,714 shares of Series C Preferred Stock to 43 accredited investors for approximately $2.50 million pursuant to Section 4(2) of the Securities Act.
5. In April and May 1997, the Registrant issued and sold 1,232,392 shares of Series D Preferred Stock to 42 accredited investors for approximately $3.85 million pursuant to Section 4(2) of the Securities Act.
6. In December 1999, the Registrant issued and sold 1,061,613 shares of Series C Preferred Stock to 41 accredited investors for approximately $603,000 and the cancellation of Series C shares upon the exercise of warrants pursuant to Section 4(2) of the Securities Act.
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7. Pursuant to Rule 701 promulgated under the Securities Act, from July 1991 to June 30, 2000, the Registrant issued and sold 750,729 shares of Common Stock to employees and consultants for aggregate consideration of approximately $307,196 upon the exercise of stock options pursuant to the Registrant's 1991 Stock Option Plan.
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 share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as currently in effect
3.1.1 Form of Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made under this Registration
Statement
3.2 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Information and Registration Rights Agreement dated August 15, 1991 and
amendments thereto by and among the Registrant and certain
stockholders of the Registrant
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
Form of Indemnification Agreement between the Registrant and each of
10.1 its directors and officers
10.2 Amended and Restated 1991 Stock Option Plan
10.2.1 Form of Option Agreement under the 1991 Stock Option Plan
10.3 2000 Stock Option Plan
10.3.1 Form of Option Agreement under the 2000 Stock Option Plan
10.4 2000 Director Option Plan
10.4.1 Form of Option Agreement under 2000 Director Option Plan
2000 Employee Stock Purchase Plan and form of subscription agreement
10.5 thereunder
10.6+ Distribution Agreement dated June 11, 1997 between Registrant and
Nippon Eurotec Co., Ltd.
10.6.1 Addendum to Distribution Agreement dated January 1, 2000 between
Registrant and Nippon Eurotec Co., Ltd.
10.7+ Patent License Agreement dated June 30, 1998 between Registrant and The
Leland Stanford Junior University
Lease Agreement dated August 24, 1998 between Registrant and San Carlos
10.8 Co-Tenancy
10.9 Promissory Note dated March 24, 1999 between Scott Valley Bank and Tim
C. Johnson
10.9.1 Assignment of Deposit Account dated March 24, 1999 between Registrant,
Scott Valley Bank and Tim C. Johnson
10.9.2 Security Agreement dated March 26, 1999 between Registrant and Tim C.
Johnson
10.10+ Capital Equipment Supplier Agreement dated June 25, 1999 between the
Registrant and Novation, LLC
10.11+ Manufacturing Agreement dated December 3, 1998 between Registrant and
TriVirix International, Inc. (formerly CMA International, Inc.)
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II-3
Commercial Lease dated August 4, 2000 between Registrant and Concept
10.12 Development Corp.
21.1 Subsidiaries
23.1 Independent Auditors' Consent and Report on Schedule
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule
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+ Confidential treatment requested.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
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 Securities 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 Securities 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Carlos, State of California on August 18, 2000.
/s/ Tim C. Johnson
By: _________________________________
Tim C. Johnson
President, Chief Executive
Officer, Chief Operating
Officer and Director
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Tim C. Johnson and William H. Lawrenson, and each of them, as his attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments), and any and all registration statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this registration statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said registration statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
Signature Title Date
--------- ----- ----
/s/ Tim C. Johnson President, Chief Executive August 18, 2000
____________________________________ Officer, Chief Operating
Tim C. Johnson Officer and Director
(Principal Executive
Officer)
/s/ William H. Lawrenson Vice President Finance and August 18, 2000
____________________________________ Chief Financial Officer
William H. Lawrenson (Principal Financial and
Accounting Officer)
/s/ William New, Jr. Director August 18, 2000
____________________________________
William New, Jr.
/s/ James J. Bochnowski Director August 18, 2000
____________________________________
James J. Bochnowski
/s/ William M. Moore Director August 18, 2000
____________________________________
William M. Moore
/s/ David Nierenberg Director August 18, 2000
____________________________________
David Nierenberg
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II-5
Schedule II
NATUS MEDICAL INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for Doubtful Accounts
Balance at Charges to Deductions- Balance at
beginning costs and write-offs end
Year Ended of period expenses of accounts of period
---------- ---------- ---------- ----------- ----------
June 30, 2000(*)................... 201 24 -- 225
December 31, 1999.................. 138 131 (68) 201
December 31, 1998.................. 125 13 -- 138
December 31, 1997.................. 55 83 (13) 125
Warranty Reserve
June 30, 2000(*)................... 487 144 (65) 566
December 31, 1999.................. 500 185 (198) 487
December 31, 1998.................. 297 306 (103) 500
December 31, 1997.................. 244 112 (59) 297
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EXHIBITS
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as currently in effect
3.1.1 Form of Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made under this Registration
Statement
3.2 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Information and Registration Rights Agreement dated August 15, 1991 and
amendments thereto by and among the Registrant and certain
stockholders of the Registrant
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
Form of Indemnification Agreement between the Registrant and each of
10.1 its directors and officers
10.2 Amended and Restated 1991 Stock Option Plan
10.2.1 Form of Option Agreement under the 1991 Stock Option Plan
10.3 2000 Stock Option Plan
10.3.1 Form of Option Agreement under the 2000 Stock Option Plan
10.4 2000 Director Option Plan
10.4.1 Form of Option Agreement under 2000 Director Option Plan
2000 Employee Stock Purchase Plan and form of subscription agreement
10.5 thereunder
10.6+ Distribution Agreement dated June 11, 1997 between Registrant and
Nippon Eurotec Co., Ltd.
10.6.1 Addendum to Distribution Agreement dated January 1, 2000 between
Registrant and Nippon Eurotec Co., Ltd.
10.7+ Patent License Agreement dated June 30, 1998 between Registrant and The
Leland Stanford Junior University
Lease Agreement dated August 24, 1998 between Registrant and San Carlos
10.8 Co-Tenancy
10.9 Promissory Note dated March 24, 1999 between Scott Valley Bank and Tim
C. Johnson
10.9.1 Assignment of Deposit Account dated March 24, 1999 between Registrant,
Scott Valley Bank and Tim C. Johnson
10.9.2 Security Agreement dated March 26, 1999 between Registrant and Tim C.
Johnson
10.10+ Capital Equipment Supplier Agreement dated June 25, 1999 between the
Registrant and Novation, LLC
10.11+ Manufacturing Agreement dated December 3, 1998 between Registrant and
TriVirix International, Inc. (formerly CMA International, Inc.)
Commercial Lease dated August 4, 2000 between Registrant and Concept
10.12 Development Corp.
21.1 Subsidiaries
23.1 Independent Auditors' Consent and Report on Schedule
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule
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+ Confidential treatment requested.
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NATUS MEDICAL INCORPORATED
ARTICLE I.
The name of this corporation is Natus Medical Incorporated.
ARTICLE II.
The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. 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 a corporation may be organized under the General Corporation Law of Delaware.
ARTICLE IV.
The total number of shares of all classes of stock which the Corporation is authorized to issue is 130,023,254 shares, consisting of 120,000,000 shares of Common Stock, $0.001 par value, and 10,023,254 shares of Preferred Stock, $0.001 par value. The Preferred Stock consists of four series, of which 1,241,842 shares have been designated as Series A Preferred Stock (the "Series A Preferred Stock"), of which 3,967,126 shares have been designated as Series B Preferred Stock (the "Series B Preferred Stock"), of which 3,214,286 shares have been designated as Series C Preferred Stock (the "Series C Preferred Stock") and of which 1,600,000 shares have been designated as Series D Preferred Stock (the "Series D Preferred Stock").
The relative rights, preferences, privileges and restrictions granted to or imposed on the respective series or classes of capital stock or the holders thereof are as follows:
Dividends if paid, or if declared and set apart for payment, must be paid on or declared and set apart for payment on each share of Series B, Series C and Series D Preferred contemporaneously, and if less than full dividends are paid on or declared and set apart for payment, the same percentage of the dividend rate will be paid on or declared and set apart for payment on each share of Series B, Series C and Series D Preferred.
The holders of the Series A Preferred shall be entitled to receive, out of any funds legally available therefor, dividends at the rate of $0.14 per share, per annum, on each outstanding share of Series A Preferred, and no more, payable in preference and priority to any payment of any dividend on Junior Shares when and as declared by the Board of Directors. With respect to a liquidation, dissolution or winding up of the corporation pursuant to Section 3 below, with respect to a redemption of the Series A Preferred pursuant to Section 4 below and with respect to payment of any dividend on Junior Shares, the right to such dividends on the Series A Preferred shall accrue and be deemed to accrue from day to day commencing with the date of issuance of each such share, whether or not earned or declared. Such accrued dividends shall be cumulative so that if at any time such dividends on the Series A Preferred shall not have been paid, or declared and set apart for payment, the deficiency shall be fully paid or declared and set apart for payment before any dividend or other distribution shall be paid or declared or set apart for payment on any Junior Shares. An accumulation of dividends on the Series A Preferred shall not bear interest. With respect to conversion of Series A Preferred pursuant to Section 5 below, the right to such dividends on shares of Series A Preferred shall not be cumulative, and no right shall accrue to holders of Series A Preferred by reason of the fact that dividends on said shares are not declared or paid in any prior year.
Dividends if paid, or if declared and set apart for payment, must be paid on or declared and set apart for payment on each share of Series A Preferred contemporaneously, and if less than full dividends are paid on or declared and set apart for payment, the same percentage of the dividend rate will be paid on or declared and set apart for payment on each share of Series A Preferred.
After the holders of the Series A, Series B, Series C and Series D Preferred have received dividends equal to the preferential amounts set forth above, all remaining dividends shall be paid to the holders of Junior Shares in proportion to the number of shares held. Notwithstanding the foregoing, the corporation may repurchase or redeem Junior Shares from employees of the corporation upon termination of employment, pursuant to the terms of restrictive stock agreements entered into with such employees.
(a) In the event of any liquidation, dissolution or winding up of the corporation, either voluntary or involuntary, the holders of the Series C and Series D Preferred shall be entitled to receive pari passu, prior and in preference to any distribution of any assets or property of the corporation to the holders of Series A or Series B Preferred or Junior Shares by reason of their ownership thereof, the amount of $2.625 per share for each share of Series C or of $3.125 for each share of the Series D Preferred, as the case may be, then held by them, plus an amount equal to all cumulative dividends and all declared and unpaid dividends on the Series C and Series D Preferred. If upon occurrence of such event the assets and property thus distributed among the holders of the Series C and Series D Preferred shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and property of the corporation legally available for distribution shall be distributed ratably among the holders of the Series C and Series D Preferred in proportion to the number of shares of Series C and Series D Preferred held by each holder.
After payment has been made to the holders of the Series C and Series D Preferred of the full amounts to which they shall be entitled as aforesaid, the holders of the Series B Preferred shall be entitled to receive, prior and in preference to any distribution of any assets or property of the corporation to the holders of Series A Preferred or Junior Shares by reason of their ownership thereof, the amount of $1.75 per share for each share of Series B Preferred then held by them, plus an amount equal to all cumulative dividends and all declared and unpaid dividends on the Series B Preferred. If upon occurrence of such event the assets and property thus distributed among the holders of the Series B Preferred shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and property of the corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred in proportion to the number of shares of Series B Preferred held by each holder.
After payment has been made to the holders of the Series D, Series C and Series B Preferred of the full amounts to which they shall be entitled as aforesaid, the holders of Series A Preferred shall be entitled to receive prior and in preference to any distribution of any assets or property of the corporation to the holders of Junior Shares by reason of their ownership thereof, the amount of $1.75 per share for each share of Series A Preferred then held by them, plus an amount equal to all cumulative dividends and all declared and unpaid dividends on the Series A Preferred. If upon occurrence of such event the assets and property thus distributed among the
holders of the Series A Preferred shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and property of the corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred in proportion to the number of shares of Series A Preferred held by each holder.
After payment has been made to the holders of the Series D, Series C, Series B and Series A Preferred of the full amounts to which they shall be entitled as aforesaid, the holders of Junior Shares shall be entitled to receive the amount of $0.25 per share for each share of Junior Shares then held by them, plus an amount equal to all declared and unpaid dividends on the Junior Shares. If upon occurrence of such event the assets and property thus distributed among the holders of the Junior Shares shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and property of the corporation legally available for distribution shall be distributed ratably among the holders of the Junior Shares in proportion to the number of Junior Shares held by each holder.
After payment has been made to the holders of the Series D, Series C, Series B and Series A Preferred and Junior Shares of the full amounts to which they shall be entitled as aforesaid, the remaining assets of the corporation available for distribution to shareholders shall be distributed among the holders of Series D Series C, Series B and Series A Preferred and Junior Shares pro rata based on the number of shares of Common held by each assuming conversion of all such Series C, Series B and Series A Preferred at the then applicable Conversion Price taking into account all adjustments required by Sections 5(d)(iv) and 5(d)(v).
(b) For purposes of this Section 3, a merger or consolidation of the corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the corporation, shall be treated as a liquidation, dissolution or winding up, unless the shareholders of this corporation hold at least 50% of the outstanding voting equity securities of the surviving corporation; provided that nothing contained in this subsection (b) shall limit the right of a holder of Preferred to convert such shares into Common prior to the effective date of any such transaction.
(c) Each holder of an outstanding share of Preferred shall be deemed to have consented to distributions made by the corporation in connection with the repurchase of shares of Common issued to or held by employees or consultants upon termination of their employment or services pursuant to agreements providing for the right of said repurchase between the corporation and such persons.
cumulative dividends and all declared and unpaid dividends on the Series B,
Series C and Series D Preferred to the Redemption Date (such total amount is
hereinafter referred to as the "Redemption Price") in the manner provided in
Section 4(c) below.
On or at any time after January 1, 2000, upon receipt by the corporation of the written request of the holders of not less than sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Series B, Series C and Series D Preferred (the "Redemption Notice"), the corporation shall redeem the percentage of the Series B, Series C and Series D Preferred specified in such request (or, if less, the maximum amount it may lawfully redeem) by paying in cash therefor a sum per share equal to the Redemption Price in the manner provided in Section 4(c) below.
At least 15 but no more than 60 days prior to any Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series B, Series C and Series D Preferred to be redeemed, at the address last shown on the records of this corporation for the purpose of notice, or if no such address appears or is given at the place where the principal executive office of this corporation is located, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and the date on which such holder's Conversion Rights (as hereinafter defined) as to such shares terminate and calling upon such holder to surrender to this corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed (the "Second Redemption Notice"). Except as provided in the following paragraph, on or after the Redemption Date, each holder of Series B, Series C and Series D Preferred to be redeemed shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Second Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the close of business on each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the shares of Series B, Series C and Series D Preferred to be redeemed on such Redemption Date (except the
right to receive the Redemption Price without interest upon surrender of their certificate or certificates) including, without limitation, the Conversion Rights, shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of shares of Series B, Series C and Series D Preferred on any Redemption Date are insufficient to redeem the total number of shares of Series B, Series C and Series D Preferred to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed. The quarterly Redemption Price shall be cumulative, so that if for any Redemption Date or Dates, such Redemption Price requirements shall not be fully discharged as they accrue, funds legally available therefor at any time thereafter shall be applied thereto until such requirements are brought current and fully discharged. The shares of Series B, Series C and Series D Preferred not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein.
The balance of any monies deposited by this corporation pursuant to this subsection (c) remaining unclaimed at the expiration of two years following a Redemption Date shall thereafter be returned to this corporation, provided that the shareholder to which such monies would be payable hereunder shall be entitled, upon proof of its ownership of the Series B, Series C or Series D Preferred and payment of any bond requested by the Company, to receive such monies but without interest from such Redemption Date.
Each share of Series C Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred, into such number of fully paid and nonassessable shares of Common, as is determined in the case of the Series C Preferred by dividing $1.75 by the Series C Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common shall be deliverable upon conversion of the Series C Preferred (the "Series C Conversion Price") shall initially be $1.75 per share of Common. The initial Series C Conversion Price shall be subject to adjustment as hereinafter provided.
Each share of Series B Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred, into such number of fully paid and nonassessable shares of Common, as is determined in the case of the Series B Preferred by dividing $1.75 by the Series B
Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common shall be deliverable upon conversion of the Series B Preferred (the "Series B Conversion Price") shall initially be $1.75 per share of Common. The initial Series B Conversion Price shall be subject to adjustment as hereinafter provided.
Each share of Series A Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Preferred, into such number of fully paid and nonassessable shares of Common, as is determined in the case of the Series A Preferred by dividing $1.75 by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common shall be deliverable upon conversion of the Series A Preferred (the "Series A Conversion Price") shall initially be $1.75 per share of Common. The initial Series A Conversion Price shall be subject to adjustment as hereinafter provided.
deemed to have converted such Preferred until immediately prior to the closing of such sale of securities.
(A) upon conversion of the shares of Preferred authorized herein;
(B) up to 2,393,482 shares of Common Stock issued to officers, directors, and employees of, and consultants to, the corporation to be designated and approved by the Board of Directors;
(C) upon exercise of warrants to purchase up to 1,785,715 shares of Series C Preferred Stock;
(D) as a dividend or distribution on Preferred;
(E) by way of a subdivision, combination or consolidation of shares of Common described in Section 5(d)(vi) below; and
(F) pursuant to a distribution described in Section 5(d)(vii) below or pursuant to a reorganization, reclassification, exchange or substitution described in Section 5(d)(viii) below.
(A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the corporation, or change in the number of shares of Common issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or Options for Common, the only Additional Shares of Common issued were shares of Common, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange, and
(II) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were
issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (C) above.
(A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest, accrued dividends, expenses, discounts or commissions;
(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and
(C) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the corporation for consideration which
covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board.
(x) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(i) to declare any dividend or distribution upon its Common shares, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common shares outstanding involving a change in the Common shares; or
(iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the holders of the Preferred shares:
(1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common shares
shall be entitled to exchange their Common shares for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of Preferred shares at the address for each such holder as shown on the books of this corporation.
office of the directors elected by the Series B, Series C and Series D Preferred pursuant to this Section 6.2, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of Series B, Series C and Series D Preferred given at a special meeting of such shareholders duly called or by an action by written consent for that purpose. Subject to applicable law, a director who shall have been elected by the Series B, Series C and Series D Preferred pursuant to this Section 6.2 may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of Series B, Series C and Series D Preferred given at a special meeting of such shareholders duly called or by an action by written consent for that purpose, and any such vacancy thereby created may be filled by the vote of the holders of a majority of the shares of the Series B, Series C and Series D Preferred represented at such meeting or by an action by written consent of the holders of the Series B, Series C and Series D Preferred. In the case of any vacancy in the office of the directors elected by the Series A Preferred and Common pursuant to this Section 6.2, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of Series A Preferred and Common given at a special meeting of such shareholders duly called or by an action by written consent for that purpose. Subject to applicable law, a director who shall have been elected by the Series A Preferred and Common pursuant to this Section 6.2 may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of Series A Preferred and Common given at a special meeting of such shareholders duly called or by an action by written consent for that purpose, and any such vacancy thereby created may be filled by the vote of the holders of a majority of the shares of the Series A Preferred and Common represented at such meeting or by an action by written consent of the holders of the Series A Preferred and Common. In the case of any vacancy in the office of the directors elected by the Series A, Series B, Series C and Series D Preferred and Common pursuant to this Section 6.2, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of Series A, Series B, Series C and Series D Preferred and Common given at a special meeting of such shareholders duly called or by an action by written consent for that purpose. Subject to applicable law, a director who shall have been elected by the Series A, Series B, Series C and Series D Preferred and Common pursuant to this Section 6.2 may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of Series A, Series B, Series C and Series D Preferred and Common given at a special meeting of such shareholders duly called or by an action by written consent for that purpose, and any vacancy thereby created may be filled by the vote of the holders of a majority of the shares of Series A, Series B, Series C and Series D Preferred and Common represented at such meeting or by an action by written consent of the holders of the Series A, Series B, Series C and Series D Preferred and Common.
(a) amend or repeal any provision of, or add any provision to, this corporation's articles of incorporation or bylaws if such action would adversely alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit of, such series, or increase or decrease the number of shares of such series authorized hereby;
(b) authorize or issue shares of any class of stock not authorized herein having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of such series, or authorize or issue any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of Common or stock of this corporation not authorized herein.
(c) reclassify any Junior Shares into shares having any preference or priority as to dividends or assets superior to or on a parity with any such preference or priority of such series;
(d) pay or declare any dividend on any Junior Shares or Series A Preferred (except dividends payable solely in shares of Common) while the Series B, Series C or Series D Preferred remains outstanding, or apply any of its assets to the redemption, retirement, purchase or acquisition directly or indirectly, through subsidiaries or otherwise, of any Junior Shares, except from employees of this corporation upon termination of employment pursuant to the terms of restrictive stock agreements providing for the repurchase of such Junior Shares at cost entered into with such employees;
(e) authorize or take any action with respect to a liquidation or dissolution of the corporation, or with respect to a consolidation or merger with or into another corporation, or a sale of substantially all of the assets, where this corporation is not the surviving entity;
(f) issue any debt instrument, or otherwise borrow any money if, following such issuance or borrowing, the aggregate of all such indebtedness would increase the Company's indebtedness by more than $250,000 in any one calendar year;
(g) acquire another entity through asset acquisition, stock purchase or merger; or
(h) guarantee any indebtedness other than trade accounts arising from the normal course of business.
ARTICLE V.
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 the stockholders herein are granted subject to this right.
ARTICLE VI.
The Corporation is to have perpetual existence.
ARTICLE VII.
ARTICLE VIII.
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation.
ARTICLE IX.
Following the closing of a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering any of the corporation's securities (as that term is defined under the Securities Act of 1933, as then in effect), no action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws of the corporation and no action shall be taken by the stockholders by written consent.
ARTICLE X.
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 of 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 XI.
At the election of directors of the Corporation, each holder of stock or of any class or series of stock shall be entitled to as many votes as shall equal the number of votes which such stockholder would be entitled to cast for the election of directors with respect to his or her shares of stock multiplied by the number of directors to be elected and may cast all such votes for any director or for any two or more of them as such stockholder may see fit.
ARTICLE XII.
The name and mailing address of the incorporator are:
Donna Moser
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
* * *
The undersigned incorporator hereby acknowledges that the above Certificate of Incorporation of Natus Medical Incorporated is her act and deed and that the facts stated therein are true.
/s/ Donna Moser
----------------------------------
Donna Moser
Dated: July 20, 2000
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EXHIBIT 3.1.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NATUS MEDICAL INCORPORATED
Natus Medical Incorporated, a corporation organized and existing under laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Natus Medical Incorporated. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July __, 2000.
2 Pursuant to Sections 228, 242 and 245 of the General Corporation Laws of the State of Delaware, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is Natus Medical Incorporated.
SECOND: The address of the corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: This 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 130,000,000 shares. 120,000,000 shares shall be Common Stock, par value $.001 per share, and 10,000,000 shares shall be Preferred Stock, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine and alter the powers, rights, preferences and privileges and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number of shares of any series shall be so decreased, the share constituting such
decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
FIFTH: "Qualified Public Offering" as used in this Certificate of Incorporation shall mean the corporation's initial firm commitment underwritten public offering pursuant to an effective registration under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that, effective upon the closing of a Qualified Public Offering:
1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
The Board of Directors shall be divided into three classes designated as 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 following the date hereof, the term of office 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 following the date hereof, the term of office 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 following the date hereof, the term of office 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, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Each holder of voting stock or of any class or series thereof shall be entitled to cumulative voting rights as to the directors to be elected by each series or class or the combined classes in accordance with the provisions of Section 214 of the Delaware General Corporation Law.
Notwithstanding the foregoing provisions of this Article FIFTH, 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. 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. 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.
2. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend, or repeal the Bylaws of the corporation.
3. The directors of the corporation need not be elected by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins, or unless the Bylaws so provide.
4. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required for the adoption, amendment or repeal of the following sections of the corporation's Bylaws by the stockholders of this corporation: 2.3 (Annual Meeting) and 2.4 (Special Meeting).
5. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws.
6. Advance notice of stockholder nomination for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation.
7. Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock.
SIXTH: Notwithstanding any other provision in this Certificate of Incorporation or in any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Article FIFTH or this Article SIXTH.
SEVENTH: 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, except as provided in Article SIXTH of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right.
EIGHTH:
1. 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 fiduciary duty as a director.
2. The corporation may 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 or she, his or her testator or intestate is or was a director, officer or employee of the corporation or any predecessor of the corporation or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation.
3. Neither an amendment nor repeal of this Article I, nor the adoption of any provision of the corporation's Certificate of Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision.
NINTH: 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 of 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.
The foregoing Restated Certificate of Incorporation has been duly approved by the Board of Directors.
The foregoing Restated Certificate of Incorporation has been duly approved by the required vote of stockholders in accordance with Section 228 of the Delaware General Corporation Law. The total number of outstanding shares of the Corporation is _________ shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock.
[Remainder of Page Left Blank Intentionally]
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed this ____ day of __________, 2000.
NATUS MEDICAL INCORPORATED
By: ______________________________________
Tim C. Johnson
President, Chief Executive Officer and
Chief Operating Officer
ATTEST:
EXHIBIT 3.2
BYLAWS
OF
NATUS MEDICAL INCORPORATED
Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
Notwithstanding the other provisions of the charter documents of the Corporation or these Bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned 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 such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called.
(b) At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) calendar days in advance of the date specified in the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the Corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the Board of Directors, any person nominated
by a stockholder for election as a Director shall furnish to the Secretary of
the Corporation that information required to be set forth in the stockholder's
notice of nomination, which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrants, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
meetings of stockholders may be called at any time by a majority of the Board of Directors, by the Chairman of the Board, by the Chief Executive Officer or by the holders of at least 30% of the shares of the Corporation's capital stock entitled to vote at such meeting, but such special meetings may not be called by any other person or persons.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, in accordance with Article 7,
Section 7.3 of these Bylaws notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. The record date for
determining stockholders for any other purpose (other than the consenting to
corporate action in writing without a meeting) shall be at the close of business
on the day on which the Board of Directors adopts the resolution 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.
For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If the Board of Directors does not fix the record date, 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 first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation at its registered office in the state of incorporation of the Corporation or at its principal place of business. If the Board of Directors does not fix the record date, and prior action by the Board of Directors is necessary, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation.
No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies representing such shares divided by the total number of shares represented by such proxies.
All voting, except as required by the charter documents of the Corporation or where otherwise required by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The directors of the Corporation need not be elected by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins, or unless the Bylaws so provide.
At any meeting at which a vote is taken by written ballots, the chairman of the meeting may appoint one or more inspectors; each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. Such inspector shall receive the written ballots, count the votes, and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector.
Each holder of voting stock or of any class or series thereof shall be
entitled to cumulative voting rights as to the directors to be elected by each
series or class or the combined classes in accordance with the provisions of
Section 214 of the Delaware General Corporation Law.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to the chairman in order.
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.
Effective upon the closing of the Corporation's IPO and the date that the Corporation is no longer subject to Section 2115 of the California Corporations Code, no action of stockholders shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with the notice requirements of Section 2.6 above and no action of the stockholders shall be taken by written consent.
Notwithstanding anything contained in these Bylaws to the contrary, at any time that a valid agreement among the stockholders is in force with respect to the nomination, election and removal of directors or similar matters, such agreement is hereby recognized and directors shall be nominated, elected and removed in accordance therewith.
The number of directors which shall constitute the whole Board of Directors shall be determined from time to time by the Board of Directors (provided that no decrease in the number of directors which would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). Each director shall hold office for the term for which such director is elected, and until such director's successor shall have been elected and qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the charter documents of the Corporation, directors need not be stockholders nor resident of the state of Delaware.
of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these bylaws, vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Notwithstanding the foregoing, however, effective upon the closing of the Corporation's IPO and the date that the Corporation is no longer subject to Section 2115 of the California Corporations Code, the number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
Unless otherwise provided in the Certificate of Incorporation or these bylaws:
(i) 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.
(ii) 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.
Unless otherwise restricted by the charter documents of the Corporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone connection or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
charter documents of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, or amending, altering or repealing these Bylaws or adopting new bylaws for the Corporation. Any such designated committee may authorize the seal of the Corporation to be affixed to all papers, which may require it. In addition to the above, such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by the Board of Directors.
Committee (if any), the President shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the President by the Board of Directors. The President shall preside at all meetings of the stockholders and of the Board of Directors.
these Bylaws and as from time to time may be assigned to each Assistant Treasurer by the Board of Directors, the President, or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability or refusal to act.
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 upon its books.
Whenever notice is required to be given by law, the charter documents of the Corporation or under any of the provisions of 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, including without limitation a director, at 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, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the charter documents of the Corporation or these Bylaws.
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 (i) who is or was an employee or agent of the Corporation, (ii) 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 (iii) 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.
EXHIBIT 4.2
NATUS MEDICAL INCORPORATED
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
AUGUST 15, 1991
TABLE OF CONTENTS
Page
----
1. Certain Definitions................................................... 1
2. Financial Statements and Reports to Shareholders...................... 2
3. Additional Information................................................ 2
4. Inspection............................................................ 3
5. Use of Information; Termination of Covenants.......................... 3
6. Demand Registration................................................... 3
7. Piggyback Registration................................................ 6
8. Expenses of Registration.............................................. 7
9. Registration Procedures............................................... 8
10. Information Furnished by Holder....................................... 8
11. Indemnification....................................................... 8
12. Limitations on Registration Rights Granted to other Securities........ 11
13. Transfer of Rights.................................................... 11
14. Market Stand-Off...................................................... 11
15. Reports Under Securities Exchange Act of 1934......................... 12
16. Termination of Registration Rights.................................... 12
17. Right of First Refusal................................................ 12
18. Miscellaneous......................................................... 14
Schedule A Holders of Series A Preferred Stock
|
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This INFORMATION AND REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made as of August 15, 1991, by and among Natus Medical Incorporated (the
"Company") and the persons listed on the attached Schedule A hereto
(collectively, the "Investors").
NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereby agree as follows:
splits, stock dividends and similar distributions, and any securities of the Company granted registration rights pursuant to Section 12 of this Agreement.
As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company and in any event within 45 days thereafter, the Company shall deliver to the Investors a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, all in reasonable detail and signed, subject to changes resulting from year-end audit adjustments, by the principal financial or accounting officer of the Company.
(a) As soon as practicable after the end of each month, and in any event within 30 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as the end of such month, and consolidated statements of income and cash flow for such month and for the current fiscal year to date.
(b) As soon as practicable following submission to and approval by the Board of Directors of the Company, but in no event later than November 30 of each year, an operating budget and plan (the "Plan") respecting the next fiscal year, together with any update of the Plan as such update is prepared.
shall not be obligated to take any action to effect any such registration pursuant to this Section 6(a) within six months of the effective date of a Registration initiated by the Company or (ii) after the Company has effected two such Registrations pursuant to this Section 6(a) and such Registrations have been declared effective.
(A) in the case of the Company's initial Registered public offering, exclude some or all Registrable Securities from such registration and underwriting; and
(B) in the case of the Registered public offerings subsequent to the initial public offering, limit the number of shares of Registrable Securities to be included in such Registration and underwriting to not less than thirty percent (30%) of the securities included in such Registration (based on aggregate market values).
on the basis of the number of shares so Registered. Notwithstanding the above, the Company shall not be required to pay for the expenses of any Registration proceeding begun pursuant to Section 6 if the Registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be Registered (which Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand Registration pursuant to Section 6; provided further, however, that if at the time of such withdrawal, the Holders have learned of a Material Adverse Event with respect to the condition, business or prospects of the Company either: (i) not known to the Holders at the time of their request, or (ii) not made known to the Holders within 15 days after their request, then the Holders shall not be required to pay any Registration Expenses and shall retain their rights pursuant to Section 6. All Selling Expenses shall be borne by the holders of the securities Registered pro rata on the basis of the number of shares Registered.
will reimburse each such Holder, each such underwriter and each person who controls any such Holder or underwriter, for any legal and any other expenses reasonably incurred (and as incurred) in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 11(a) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of the Company (which consent shall not unreasonably be withhold); provided further, however, that if the Company and the Holder disagree as to the reasonableness of the settlement terms, they shall mutually agree upon an independent counsel to review the matter and resolve the dispute, with the cost of such counsel to be split between the company and the Holder; and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter ,or controlling person and stated to be for use in connection with the offering of securities of the Company.
indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim; provided, however, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, however, that if either party reasonably deter-mines that there may be a conflict between the position of the Company and the Holders in conducting the defense of such action, suit or proceeding by reason of recognized claims for indemnity under this Section 11, then counsel for such party shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 11, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise other than under this Section 11.
agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall be controlling.
(a) such agreement shall be applicable only to the first such registration statement of the Company which covers common stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements.
(i) make and keep public information available, as those terms are defined in 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;
(ii) 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 required under the 1934 Act, no later than 120 days 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;
(iii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act; and
(iv) furnish to any Holder, so long as such Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities 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 with the Commission, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration or pursuant to such plan.
calculation, complete conversion of all outstanding convertible securities). This right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase said Common-Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible into said Common Stock or Preferred Stock; provided, however, that "New Securities" does not include(i) securities issuable upon conversion of or with respect to the Series A or Series B Preferred Stock; (ii) securities offered to the public pursuant to a registration statement filed under the Securities Act pursuant to approval of the Board of Directors of the Company; (iii) securities issued pursuant to the acquisition of another corporation or entity by the Company by merger, purchase of substantially all of the assets or other reorganization whereby the Company owns not less than fifty-one percent (51%) of the voting power of such resulting corporation or entity; (iv) 708,537 shares of the company's Common Stock (or related options) issued to employees, officers or consultants of the Company pursuant to any employee stock offering, plan or arrangement approved by the Board of Directors; (v) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; or (vi) securities issued pursuant to and in consideration of the acquisition of a license or other rights, assets or technology from third parties or by third parties from the Company (provided that such issuances are primarily for other than equity financing purposes), or in connection with any lease financings relating to the Company's assets, on the condition that such issuance and acquisition is approved by the incumbent Board of Directors.
(b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Investor that holds a right of first refusal under Section 17 hereof written notice of its intention, describing the type of New Securities, the price and the general terms upon which the Company proposes to issue the same. Each Investor shall have twenty (20) days from the effective date of any such notice to agree to purchase his pro rata share of such New Securities for the price and upon the general terms specified in the notice by delivering written notice to the Company and stating therein the quantity of New Securities to be purchased. Each Investor shall have a right of over allotment such that if any Investor fails to exercise his right hereunder to purchase his pro rata portion of New Securities, the Company shall so notify the other Investors and the other Investors may purchase the nonpurchasing Investor's portion on a pro rata basis, by delivering a written notice to the Company within five (5) days from the effective date of such notice.
(c) In the event that Investors fail to exercise in full the right of
first refusal within said twenty (20) day period, the Company shall have ninety
(90) days thereafter to sell the New Securities with respect to which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice . In
the event the Company has not sold the New Securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any New Securities
without first offering such securities to the Investors in the manner provided
above.
(d) The right of first refusal granted under this Agreement shall expire upon the closing of the first firmly underwritten public offering of Common Stock of the Company pursuant to a Registration Statement filed with, and declared effective by, the commission under the Securities Act, on terms and conditions approved by the Board of Directors of the Company.
(e) This right of first refusal is not assignable without the written consent of the Company (which consent will not be unreasonably withheld), provided that such written consent shall not be required in connection with a transfer of shares of Convertible Securities or Common Stock issued on conversion thereof to an affiliate or a partner of the Investor or a transfer not involving a change in beneficial ownership.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
The Company: NATUS MEDICAL INCORPORATED
a California corporation
By: /s/ Will Moore
--------------------------------
Title: President and CEO
-----------------------------
The Investors: TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ David Nierenberg
--------------------------------
Title: General Partner
-----------------------------
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.
Its General Partner
By: /s/ David Nierenberg
--------------------------------
Title: General Partner
-----------------------------
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ David Nierenberg
--------------------------------
Title: General Partner
-----------------------------
|
DELPHI BIOVENTURES, L.P.
By: Delphi Management Partners
General Partner
By: /s/ James J. Bochnowski
________________________________
Title: General Partner
_____________________________
DELPHI BIOINVESTMENTS, L.P.
By: Delphi Management Partners
General Partner
By: /s/ James J. Bochnowski
________________________________
Title: General Partner
_____________________________
/s/ Henry Hamilton
___________________________________
Henry H. Hamilton, MD
/s/ Larry Haimovitch
___________________________________
Larry Haimovitch
/s/ Robin Wolaner
___________________________________
Robin Wolaner
/s/ William New, Jr., MD
___________________________________
William New, Jr., MD
/s/ John Porter
___________________________________
John Porter
/s/ Maurizio Liverani
___________________________________
Maurizio Liverani
/s/ Jeffrey Harrison
___________________________________
Jeffrey Harrison
|
William M. and Patricia A. Moore, Trustees
under the Moore Family Trust Agreement
April 8, 1988
By: /s/ William M. Moore
_______________________________________
Title:____________________________________
The Prinn Family Trust U.T.D.
11/11/79
By: /s/ Brian Prinn
_______________________________________
Title: Trustee
____________________________________
WS INVESTMENTS 91C
By: /s/ Robert P. Latta
_______________________________________
Title: V.P.
____________________________________
/s/ Tracie L. Austin
__________________________________________
Tracie L. Austin
/s/ Mary Sinclair
__________________________________________
Mary Sinclair
/s/ John Turner
__________________________________________
John Turner
COMMUNICORE
By: /s/ Illegible
______________________________________
Title: President
___________________________________
/s/ Ken Traverso
__________________________________________
Ken Traverso
/s/ Tamma Norwood
__________________________________________
Tamma Norwood
|
/s/ Neal Higgs
__________________________________________
Neal Higgs
/s/ Cathy Cates
__________________________________________
Cathy Cates
/s/ Scott Kadash
__________________________________________
Scott Kadash
/s/ Kathryn Gelbman
__________________________________________
Kathryn Gelbman
/s/ Stefanie Yanai
__________________________________________
Stefanie Yanai
/s/ Jennifer Brown
__________________________________________
Jennifer Brown
/s/ Rebecca Maa
__________________________________________
Rebecca Maa
/s/ Patricia Moore
__________________________________________
Patricia Moore
|
__________________________________________
|
Neal Higgs
/s/ Robert P. Latta __________________________________________ Robert P. Latta /s/ Clarence Blom __________________________________________ Clarence Blom |
AMENDMENT NO. 1 TO
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 to the Information and Registration Rights
Agreement made as of August 15, 1991 by and among Natus Medical Incorporated
(the "Company") and the investors listed on Schedule A thereto (the "Agreement")
is made as of this 28th day of December, 1992 by and among the Company, the
investors listed on Schedule A attached hereto (the "Investors") and the
undersigned holders of at least a majority of the outstanding shares of
Registrable Securities (the "Consenting Holders").
WHEREAS, the Company has granted the holders of its Series A Preferred and Series B Preferred Stock certain registration rights under the Agreement;
WHEREAS, the Company proposes to sell and issue to the Investors up to 5,000,000 shares of its Series B Preferred Stock pursuant to that certain Series B Preferred Stock Purchase Agreement dated of even date herewith (the "Series B Agreement");
WHEREAS, as a condition of entering into the Series B Agreement, the Investors have requested that the Company extend to them the registration rights that were extended to the holders of Registrable Securities, with respect to the shares of Series B Preferred Stock set forth on Schedule A being purchased by them under the Series B Agreement; and
WHEREAS, the Consenting Holders have agreed to the extension of such registration rights to the Investors.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree as follows:
1. All terms not defined herein shall have the meaning set forth in the Agreement.
2. Each Investor shall be deemed an "Investor" under the Agreement.
3. Section 17(a) (iv) of the Agreement is hereby amended to read in its entirety as follows:
"(iv) 1,808,537 shares of the Company's Common Stock (or related options) issued to employees, officers or consultants of the Company pursuant to any employee stock offering, plan or arrangement approved by the Board of Directors;"
4. Section 18(e) of the Agreement entitled "Amendment of Agreement" is hereby amended to add to end of the first sentence thereof the following:
"; PROVIDED, HOWEVER, that no such amendment or waiver shall be effective to limit the application of the registration provisions of Section 6 or 7 hereof, unless the written instrument effecting such amendment or waiver shall be signed by a majority of the Registrable Securities which, as of the effective date of such instrument, do not have a two year holding period under Rule 144(d)."
5. Except as otherwise specifically provided herein, the Agreement shall remain in full force and effect, and the Investors shall be entitled to all the rights and subject to all the restrictions thereunder, including, but not limited to, the Market Stand-Off provisions of Section 14 thereof.
6. The Consenting Holders understand that the Investors on Schedule A represent the participants in the first closing under the Series B Agreement, and that additional participants may invest in a second closing to be held no later than thirty (30) days thereafter, provided that the aggregate number of shares of Series B Preferred Stock to be sold shall not exceed 5,000,000. The Consenting Holders agree that such additional participants shall be treated as Investors hereunder upon their execution of this Amendment and the addition of their names to Schedule A hereto.
7. This Amendment shall become effective upon the execution of this Amendment by the Company, the Investors and the holders of at least a majority of the Registrable Securities.
8. This Amendment may be signed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
The Company: NATUS MEDICAL INCORPORATED,
a California corporation
By: /s/ [ILLEGIBLE]
--------------------------------
Title: PRESIDENT & CEO
-----------------------------
Consenting Holders:
TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ DAVID NIERENBERG
--------------------------------
|
TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ David Nierenberg
-----------------------------
Title: GENERAL PARTNER
--------------------------
|
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ David Nierenberg
-----------------------------
Title: GENERAL PARTNER
--------------------------
|
DELPHI BIOVENTURES, L.P.
By: Delphi Management Partners
General Partner
By: /s/ J. Bochnowski
-----------------------------
Title: GP
--------------------------
|
DELPHI BI0INVESTMENTS, L.P.
By: Delphi Management Partners
General Partner
By: /s/ J. Bochnowski
-----------------------------
Title: GP
--------------------------
|
/s/ Larry Haimovitch -------------------------------- Larry Haimovitch |
/s/ William New, Jr., MD -------------------------------- William New, Jr., MD /s/ John Porter -------------------------------- John Porter |
/s/ Jeffrey Harrison -------------------------------- Jeffrey Harrison |
William M. and Patricia A. Moore, Trustees under the Moore Family Trust Agreement April 8, 1988
By: /s/ William M. Moore
-----------------------------
Title: Trustee
---------------------------
The Prinn Family Trust U.T.D.
11/11/79
By:_____________________________
Title:__________________________
|
WS INVESTMENTS 9lC
By: /s/ Robert P Latta
-----------------------------
Title: V.P.
---------------------------
|
COMMUNICORE
By: /s/ [ILLEGIBLE]
-----------------------------
Title: PRESIDENT
--------------------------
/s/ Ken Traverso
--------------------------------
Ken Traverso
/s/ Tamma Norwood
--------------------------------
Tamma Norwood
/s/ Neal Higgs
--------------------------------
Neal Higgs
|
/s/ Scott Kadash -------------------------------- Scott Kadash /s/ Kathryn M Gelbman -------------------------------- Kathryn Gelbman /s/ Stephanie Yanai -------------------------------- Stephanie Yanai /s/ Jennifer Brown -------------------------------- Jennifer Brown |
/s/ Patricia Moore -------------------------------- Patricia Moore |
DELPHI BIOVENTURES II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:_____________________________
Title:__________________________
DELPHI BIOINVESTMENTS, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:_____________________________
Title:__________________________
DELPHI BIOINVESTMENTS II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:_____________________________
Title:__________________________
COMMUNICORE
By:_____________________________
Title:__________________________
/s/ Neal P. Higgs -------------------------------- Neal P. Higgs |
/s/ Scott Kadash -------------------------------- Scott Kadash /s/ Karen Schultheis -------------------------------- Karen Schultheis |
Funds identified by Berkeley International Capital Corporation:
BERKELEY MEDICAL INVESTMENTS LIMITED
BERKELEY/NED DEVELOPMENT CAPITAL
LIMITED
BERKELEY MEDICAL INVESTMENTS LIMITED
By:_________________________________
Title:______________________________
BERKELEY/NED DEVELOPMENT CAPITAL
LIMITED
By:_________________________________
Title:______________________________
SURVIVORS TRUST OF THE GELBMAN
FAMILY TRUST DATED JUNE 4, 1991
By: /s/ Kathryn M Gelbman
---------------------------------
Title: TRUSTEE
-------------------------------
/s/ Tracie Mathisen
------------------------------------
Tracie Mathisen
/s/ Jennifer Brown
------------------------------------
Jennifer Brown
|
AMENDMENT NO. 2 TO
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This Amendment No. 2 to the Information and Registration Rights Agreement made as of August 15, 1991 and amended as of December 28, 1992 by and among Natus Medical Incorporated (the "Company") and the investors listed on Schedule A thereto (the "Agreement") is made as of this 12th day of June, 1995 by and among the Company, the investors listed on Schedule A attached hereto, as such Schedule may be amended from time to time to reflect additional investors in Subsequent Closings as defined in that certain Series C Preferred Stock Purchase Agreement (the "Series C Agreement") dated of even date herewith (the "Investors"), and the undersigned holders of at least a majority of the outstanding shares of Registrable Securities (the "Consenting Holders").
WHEREAS, the Company has granted the holders of its Series A Preferred and Series B Preferred Stock certain registration rights under the Agreement;
WHEREAS, the Company proposes to sell and issue to the Investors up to 2,222,223 shares of its Series C Preferred Stock pursuant to the Series C Agreement;
WHEREAS, as a condition of entering into the Series C Agreement, the Investors have requested that the Company extend to them the registration rights that were extended to the holders of Registrable Securities, with respect to the shares of Series C Preferred Stock set forth on Schedule A being purchased by them under the Series C Agreement; and
WHEREAS, the Consenting Holders have agreed to the extension of such registration rights to the Investors.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree as follows:
1. All terms not defined herein shall have the meaning set forth in the Agreement.
2. Each Investor shall be deemed an "Investor" under the Agreement.
3. Except as otherwise specifically provided herein, the Agreement shall remain in full force and effect, and the Investors shall be entitled to all the rights and subject to all the restrictions thereunder, including, but not limited to, the Market Stand-Off provisions of Section 14 thereof.
4. This Amendment shall become effective upon the execution of this Amendment by the Company, the Investors and the holders of at least a majority of the Registrable Securities.
5. This Amendment may be signed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
The Company: NATUS MEDICAL INCORPORATED,
a California corporation
By: _____________________________
Title:___________________________
Consenting Holders: TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:______________________________
Title:___________________________
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:______________________________
Title: __________________________
-2-
|
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:______________________________
Title:___________________________
DELPHI VENTURES, L.P.
By: Delphi Management Partners
General Partner
By:______________________________
Title:___________________________
DELPHI VENTURES II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:______________________________
Title:___________________________
DELPHI INVESTMENTS, L.P.
By: Delphi Management Partners
General Partner
By:______________________________
Title:___________________________
-3-
|
DELPHI INVESTMENTS II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:____________________________________
Title:_________________________________
_______________________________________
Henry H. Hamilton, MD
_______________________________________
Larry Haimovitch
_______________________________________
Robin Wolaner
_______________________________________
William New, Jr., MD
_______________________________________
John Porter
_______________________________________
Maurizio Liverani
_______________________________________
Jeffrey Harrison
WILLIAM M. AND PATRICIA A. MOORE,
TRUSTEES UNDER THE MOORE FAMILY
TRUST AGREEMENT APRIL 8, 1988
By:____________________________________
Title:_________________________________
-4-
|
THE PRINN FAMILY TRUST U.T.D.
11/11/79
By:__________________________
Title:_______________________
WS INVESTMENTS 9lC
By:__________________________
Title:_______________________
_____________________________
Tracie L. Austin Mathisen
_____________________________
Mary Sinclair
COMMUNICORE
By:__________________________
Title:_______________________
_____________________________
Ken Traverso
_____________________________
Tamma Norwood Davis
_____________________________
Neal Higgs
______________________________
Cathy Cates
-5-
|
_______________________________________
Scott Kadash
_______________________________________
Stephanie Yanai Yamada
_______________________________________
Jennifer Brown
_______________________________________
Rebecca Maa
_______________________________________
Robert P. Latta
_______________________________________
Debra A. Jensen
_______________________________________
Clarence Blom
_______________________________________
Karen Schultheis
BG SERVICES LIMITED
By:____________________________________
Title:_________________________________
BERKELEY/NED DEVELOPMENT CAPITAL
LIMITED
By:____________________________________
-6-
|
Title:_________________________________
CREDIT SHELTER TRUST OF THE
GELBMAN FAMILY TRUST DTD 6/4/91
By:____________________________________
Title:_________________________________
SURVIVORS TRUST OF THE GELBMAN
FAMILY TRUST DATED JUNE 4, 1991
By:____________________________________
Title:_________________________________
RABOBANK NOMINEES GUERNSEY LIMITED
By:____________________________________
Title:_________________________________
Investors: BG SERVICES LIMITED
(First Closing)
By:____________________________________
Title:_________________________________
K.B. (C.I.) NOMINEES LIMITED AS
NOMINEES FOR BERKELEY/NED DEVELOPMENT
CAPITAL LIMITED
By:____________________________________
Title:_________________________________
-7-
|
TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:____________________________________
Title:_________________________________
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:____________________________________
Title:_________________________________
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:____________________________________
Title: ________________________________
DELPHI VENTURES, L.P.
By: Delphi Management Partners
General Partner
By:____________________________________
Title:_________________________________
-8-
|
DELPHI VENTURES II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:____________________________________
Title:_________________________________
DELPHI INVESTMENTS, L.P.
By: Delphi Management Partners
General Partner
By:____________________________________
Title:_________________________________
DELPHI INVESTMENTS II, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:____________________________________
Title:_________________________________
_______________________________________
William New, Jr., MD
_______________________________________
William Oates
Investors:
(Subsequent Closings)
_______________________________________
A. Gene Banman
-9-
|
_______________________________________
Laura Bordelman
_______________________________________
Cathy Cates
_______________________________________
Stacia Freeman
_______________________________________
Linda Fuggiti
_______________________________________
Neal Higgs
_______________________________________
Mary Beth Palacios
_______________________________________
John Porter
_______________________________________
Joseph Sarakaitis
_______________________________________
Rachel N. Than
_______________________________________
Ken Traverso
_______________________________________
Aaron Castro
|
AMENDMENT NO.3 TO
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This Amendment No. 3 to the Information and Registration Rights Agreement made as of August 15, 1991 and amended as of December 28, 1992 and June 12, 1995 by and among Natus Medical Incorporated (the "Company") and the investors listed on Schedule A thereto (the "Agreement") is made as of this 10th day of November, 1995 by and among the Company, the investors listed on Schedule A attached hereto, as such Schedule may be amended from time to time to reflect additional investors in Subsequent Closings as defined in that certain Series C Preferred Stock and Warrant Purchase Agreement (the "Series C Preferred Stock and Warrant Agreement") dated of even date herewith (the "Investors"), and the undersigned holders of at least a majority of the outstanding shares of Registrable Securities (the "Consenting Holders").
WHEREAS, the Company has granted the holders of its Series A Preferred, Series B Preferred and Series C Preferred Stock certain registration rights under the Agreement;
WHEREAS, the Company proposes to sell and issue to the Investors up to 2,443,062 additional shares of its Series C Preferred Stock and Warrants to purchase up to 3,053,827 shares of its Series C Preferred Stock pursuant to the Series C Preferred Stock and Warrant Agreement;
WHEREAS, as a condition of entering into the Series C Preferred Stock and Warrant Agreement, the Investors have requested that the Company extend to them the registration rights that were extended to the holders of Registrable Securities, with respect to the shares of Series C Preferred Stock and the Warrants to purchase Series C Preferred Stock set forth on Schedule A being purchased by them under the Series C Preferred Stock and Warrant Agreement; and
WHEREAS, the Consenting Holders have agreed to the extension of such registration rights to the Investors.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree as follows:
1. The term "Convertible Securities" as set forth in Section 1(b) of the Agreement shall be amended to read in its entirety:
2. All terms not defined herein shall have the meaning set forth in the Agreement.
3. Each Investor shall be deemed an "Investor" under the Agreement.
4. Except as otherwise specifically provided herein, the Agreement shall remain in full force and effect, and the Investors shall be entitled to all the rights and subject to all the restrictions thereunder, including, but not limited to, the Market Stand-Off provisions of Section 14 thereof.
5. This Amendment shall become effective upon the execution of this Amendment by the Company, the Investors and the Consenting Holders.
6. This Amendment may be signed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
The Company: NATUS MEDICAL INCORPORATED,
a California corporation
By:__________________________
Title:_______________________
Investors: _____________________________
William New, Jr.
DELPHI VENTURES, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:__________________________
General Partner
DELPHI VENTURES II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By:_____________________________
|
DELPHI INVESTMENTS, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:__
General Partner
DELPHI INVESTMENTS II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By:__
General Partner
TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:_
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:_
|
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:_
Subsequent Closing:
THE AURORA FUND
By:__
Title:_
______
Allard C. & Mary K. Villere
______
James D. & Carol A. Banman
______
Laura Berdelman
______
Cathy Cates
______
Stacia Freeman
______
Linda Fuggiti
______
Neal Higgs
|
______
Lin Murray
______
Paula Ramey-Perez
______
Joseph Sarakaitis
______
Bernhard Sterling
______
A. Gene Banman
______
Esther and Steve Kadash
______
Robin Wolaner
______
Bret Herscher
NOON ASSOCIATES, INC.
By:__
John Noon
|
DAVID & PATRICIA NIERENBERG 1993
IRREVOCABLE TRUST, LAWRENCE K.
ORR TRUSTEE, JUNE 11, 1993
By:__
Trustee
WS INVESTMENT COMPANY 96A
By:__
Title:__
______
Michael and Jane Felmlee
______
Joel Felmlee
______
Larry Haimovitch
GRACECHURCH CO.
By:____________________________
Title:_________________________
_______________________________
Ken Traverso
|
Consenting Holders: DELPHI VENTURES, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:__
General Partner
DELPHI VENTURES II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By:__
General Partner
DELPHI INVESTMENTS, L.P.
By: Delphi Management Partners, L.P.
General Partner
By:__
General Partner
DELPHI INVESTMENTS II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By:__
General Partner
TRINITY VENTURES II, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:__
|
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:_
|
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By:__
Title:_
______
Henry H. Hamilton, MD
______
Larry Haimovitch
______
Robin Wolaner
______
William New, Jr., MD
______
John Porter
______
Maurizio Liverani
______
Jeffrey Harrison
|
WILLIAM M. AND PATRICIA A. MOORE,
TRUSTEES UNDER THE MOORE FAMILY
TRUST AGREEMENT APRIL 8, 1988
By:__
Title:_
THE PRINN FAMILY TRUST U.T.D. 11/11/79
By:__
Title:_
WS INVESTMENTS 91C
By:__
Title:_
______
Tracie L. Austin Mathisen
______
Mary Sinclair
COMMUNICORE
By:__
Title:_
______
Ken Traverso
______
Tamma Norwood Davis
|
______
Neal Higgs
______
Cathy Cates
______
Scott Kadash
______
Stephanie Yanai Yamada
______
Jennifer Brown
______
Rebecca Maa
______
Robert P. Latta
__________________________
Debra A. Jensen
______
Clarence Blom
______
Karen Schultheis
|
Natus Medical - Information and Registration Rights Agreement
BG SERVICES LIMITED
By:__
Title:_
CREDIT SHELTER TRUST OF THE
GELBMAN FAMILY TRUST DTD 6/4/91
By:__
Title:_
SURVIVORS TRUST OF THE GELBMAN
FAMILY TRUST DATED JUNE 4, 1991
By:__
Title:_
RABOBANK NOMINEES GUERNSEY
LIMITED
By:__
Title:_
K.B. (C.I.) NOMINEES LIMITED AS
NOMINEES FOR BERKELEY/NED
DEVELOPMENT CAPITAL LIMITED
By:__
Title:_
Natus Medical - Information and Registration Rights Agreement
Natus Medical - Information and Registration Rights Agreement
GRACECHURCH CO.
By:________________________________
Title:_____________________________
Natus Medical - Information and Registration Rights Agreement
AMENDMENT NO. 4 TO
INFORMATION AND REGISTRATION RIGHTS AGREEMENT
This Amendment No. 4 to the Information and Registration Rights Agreement made as of August 15, 1991 and amended as of December 28, 1992 and June 12, 1995 and November 10, 1995 by and among Natus Medical Incorporated (the "Company") and the investors listed on Schedule A thereto (the "Agreement") is made as of this 23th day of April, 1997 by and among the Company, Medical Research Council, London, United Kingdom ("MRC"), Synergy Partners ("Synergy"), the investors listed on Schedule A attached hereto, who are parties to that certain Series D Preferred Stock Purchase Agreement (the "Series D Preferred Stock Agreement") dated of even date herewith (collectively with MRC and Synergy, the "Series D Purchasers"), and the undersigned holders of at least a majority of the outstanding shares of Registrable Securities (the "Consenting Holders").
WHEREAS, the Company has granted the holders of its Series A Preferred, Series B Preferred and Series C Preferred Stock certain registration rights under the Agreement;
WHEREAS, the Company proposes to sell and issue to the Series D Purchasers up to 4,000,000 shares of its Series D Preferred Stock pursuant to the Series D Preferred Stock Agreement, and as part of that total number of Series D Preferred Stock (i) to issue to MRC up to 40,000,000 shares as a payment of certain of the Company's royalty obligations to MRC and (ii) to issue to Synergy as a placement fee of up to 2.5 percent of the proceeds of the offering to Japanese investors represented by Synergy;
WHEREAS, as a condition of entering into the Series D Preferred Stock Agreement, the Series D Purchasers have requested that the Company extend to them the registration rights that were extended to the holders of Registrable Securities, with respect to the shares of Series D Preferred Stock set forth on Schedule A being purchased by them under the Series D Preferred Stock Agreement or otherwise acquired;
WHEREAS, pursuant to Sections 12 and 17 of the Agreement, the Agreement may be amended by the written consent of the Company and the Series A Preferred, Series B Preferred and Series C Preferred holding at least a majority of the Registrable Securities as defined in the Agreement; and
WHEREAS, The Company and the Consenting Holders having not less than the minimum number of shares required to amend the Agreement have consented in writing to this Amendment whereby the information and registration rights will be extended to the Series D Preferred Stock Purchasers.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree as follows:
1. The term "Convertible Securities" as set forth in Section 1(b) of the Agreement shall be amended to read in its entirety:
2. Section 17(a)(iv) of the Agreement is hereby amended to read in its entirety as follows:
"up to 3,483,705 shares of Common Stock issued to officers, directors, and employees of and consultants to, the Corporation to be designated and approved by the Board of Directors;"
3. All terms not defined herein shall have the meaning set forth in the Agreement.
4. Each Series D Purchaser shall be deemed an "Investor" under the Agreement.
5. Except as otherwise specifically provided herein, the Agreement shall remain in full force and effect, and the Series D Purchasers shall be entitled to all the rights and subject to all the restrictions thereunder, including, but not limited to, the Market Stand-Off provisions of Section 14 thereof.
6. The Consenting Holders understand that the minimum and the maximum number of shares of Series D Preferred Stock to be sold shall not be less than 1,600,000 shares or more than 4,000,000 shares.
7. This Amendment shall become effective upon the execution of this Amendment by the Company, the Series D Purchasers and the Consenting Holders.
8. This Amendment may be signed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
NATUS MEDICAL INCORPORATED,
a California corporation
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: PRESIDENT
---------------------------------------
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
AURORA VENTURES LLC
By:/s/ [ILLEGIBLE]
------------------------------------------
Title: GENERAL PARTNER (MANAGER)
---------------------------------------
/s/ MaryBeth Bach-Palacios
---------------------------------------------
MaryBeth Bach-Palacios
/s/ A. Gene Banman
---------------------------------------------
A. Gene Banman
/s/ [ILLEGIBLE]
---------------------------------------------
James D. & Carol A. Banman
/s/ Laura Berdelman
---------------------------------------------
Laura Berdelman
|
BG SERVICES LIMITED
By: /s/ [ILLEGIBLE]
------------------------------------------
Title: Directors
---------------------------------------
|
/s/ Jennifer Brown --------------------------------------------- Jennifer Brown |
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ Aaron Castro --------------------------------------------- Aaron Castro /s/ Cathy Cates --------------------------------------------- Cathy Cates |
COMMUNICORE
By: /s/ [ILLEGIBLE]
------------------------------------------
Title: [ILLEGIBLE] PRESIDENT
---------------------------------------
|
DELPHI VENTURES, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
General Partner
|
DELPHI VENTURES II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
General Partner
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
DELPHI INVESTMENTS, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By: /s/ [ILLEGIBLE]
------------------------------------------
General Partner
|
DELPHI INVESTMENTS II, L.P.
By: Delphi Management Partners II, L.P.
General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------------
General Partner
/s/ Michael W. Felmlee / Jane E. Felmlee
---------------------------------------------
Michael and Jane Felmlee
/s/ Joel Felmlee
---------------------------------------------
Joel Felmlee
/s/ Stacia Freeman
---------------------------------------------
Stacia Freeman
/s/ Linda A. Fuggiti Richard A. Fuggiti
---------------------------------------------
Linda A. & Richard A. Fuggiti
|
GRACECHURCH CO.
By:__________________________________________
Title:_______________________________________
CREDIT SHELTER TRUST OF THE
GELBMAN FAMILY TRUST DTD 6/4/91
By:__________________________________________
Title:_______________________________________
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
CREDIT SHELTER TRUST OF THE
GELBMAN FAMILY TRUST DTD 6/4/91
SURVIVORS TRUST OF THE GELBMAN
FAMILY TRUST DATED JUNE 4, 1991
/s/ [ILLEGIBLE] --------------------------------------------- Jeffrey Harrison |
/s/ [ILLEGIBLE] --------------------------------------------- Neal Higgs /s/ Debra A. Jensen --------------------------------------------- Debra A. Jensen |
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ Esther and Steve Kadash --------------------------------------------- Esther and Steve Kadash |
K.B. (C.I.) NOMINEES LIMITED AS
NOMINEES FOR BERKELEY/NED DEVELOPMENT CAPITAL
LIMITED
By: -----------------------------------------
/s/ Robert P. Latta --------------------------------------------- Robert P. Latta /s/ [ILLEGIBLE] --------------------------------------------- Maurizio Liverani /s/ Rebecca Maa --------------------------------------------- Rebecca Maa |
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ Tracie L. Austin Mathisen --------------------------------------------- Tracie L. Austin Mathisen |
WILLIAM M. AND PATRICIA A. MOORE,
TRUSTEES UNDER THE MOORE FAMILY
TRUST AGREEMENT APRIL 8, 1988
By: /s/ [ILLEGIBLE] --------------------------------------------- Title: TRUSTEE --------------------------------------------- /s/ Lin S. Murray --------------------------------------------- Lin Murray |
DAVID & PATRICIA NIERENBERG 1993 IRREVOCABLE
TRUST, LAWRENCE K. ORR TRUSTEE JUNE 11, 1993
By: -----------------------------------------
Trustee
NOON ASSOCIATES, INC.
By: /s/ John Noon
---------------------------------------------
John Noon
/s/ [ILLEGIBLE]
---------------------------------------------
Williams Oates
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
PANTHEON INTERNATIONAL PARTICIPATIONS PLC
By: /s/ R. D. Wright
-----------------------------------------
Title: Director Pantheon Ventures Ltd as
--------------------------------------
Manager of Pantheon International
Participations Plc.
|
THE PRINN FAMILY TRUST U.T.D. 11/11/79
By:------------------------------------------
Title:---------------------------------------
RABOBANK NOMINEES GUERNSEY LIMITED
By: -----------------------------------------
Title:---------------------------------------
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ [ILLEGIBLE] --------------------------------------------- Bernhard Sterling |
/s/ Ken Traverso --------------------------------------------- Ken Traverso |
TRINITY VENTURES III, L.P.,
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: General Partner
--------------------------------------
|
TRINITY VENTURES III, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: General Partner
--------------------------------------
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
TRINITY SIDE-BY-SIDE I, L.P.
a California Limited Partnership
By: Trinity TVL Partners, L.P.,
Its General Partner
/s/ Allard C. Villere Mary K. Villere --------------------------------------------- Allard C. Villere Mary K. Villere /s/ Robin Wolaner --------------------------------------------- Robin Wolaner |
WS INVESTMENT COMPANY 96A
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: [ILLEGIBLE]
--------------------------------------
|
WS INVESTMENT COMPANY 96A
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title:[ILLEGIBLE]
---------------------------------------
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
INVESTORS IN FIRST CLOSING:
MEDICAL RESEARCH COUNCIL
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: Head of Technology Transfer Group
--------------------------------------
|
SYNERGY PARTNERS
NIKKO CAPITAL CO., LTD.
By: /s/ Y. Chitani
-----------------------------------------
Yoshio Chitani
Title: Deputy General Manager, International
-------------------------------------
Division
-------------------------------------
|
NC NO. 2 INVESTMENTS ENTERPRISE PARTNERSHIP
(ASIA)
By: /s/ Y. Chitani
-----------------------------------------
Yoshio Chitani
Title: Deputy General Manager, International
-------------------------------------
Division
-------------------------------------
|
NC NO. 7 INVESTMENTS ENTERPRISE PARTNERSHIP
(ASIA PACIFIC)
By: /s/ Y. Chitani
-----------------------------------------
Yoshio Chitani
Title: Deputy General Manager, International
-------------------------------------
Division
-------------------------------------
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ Theresa M. Baker --------------------------------------------- Theresa M. Baker /s/ Mary J. Banfield --------------------------------------------- Mary J. Banfield |
BROYHILL INVESTMENTS
By: /s/ M. Hunt Broyhill
-----------------------------------------
M. Hunt Broyhill
Title: President
--------------------------------------
/s/ Joseph L. Connolly
---------------------------------------------
Joseph L. Connolly
/s/ [ILLEGIBLE]
---------------------------------------------
Stephen C. Davis
/s/ William Douglas
---------------------------------------------
William Douglas
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
/s/ William J. Ducas --------------------------------------------- William J. Ducas /s/ Anthony Holland & Melissa L. Holland --------------------------------------------- Anthony Holland & Melissa L. Holland /s/ Cheryl Jaszewski --------------------------------------------- Cheryl Jaszewski /s/ [ILLEGIBLE] --------------------------------------------- Andrew Kyrylenko /s/ James M. Oates --------------------------------------------- James M. Oates /s/ Karen Sukle --------------------------------------------- Karen Sukle /s/ Todd A. Swenson & Ann M. Swenson --------------------------------------------- Todd A. and Ann M. Swenson |
WS INVESTMENT COMPANY 97A
By: /s/ [ILLEGIBLE]
-----------------------------------------
Title: V. P.
--------------------------------------
|
[Amendment No. 4 to Information and Registration Rights Agreement Signature Page]
EXHIBIT 10.1
NATUS MEDICAL INCORPORATED
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of ___________, 2000 by and between Natus Medical Incorporated, a Delaware corporation (the "Company"), and ______________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;
WHEREAS, the Company is the successor to Natus Medical Incorporated, a California corporation; and
WHEREAS, in connection with the Company's initial public offering, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement, with such changes as are required to conform the existing agreement to Delaware law and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
a. "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the Shareholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's Shareholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
(iii) the Shareholders of the Company approve a merger or consolidation of the
Company with any other corporation other than a 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 80% 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 (iv) the Shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
b. "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other.
c. References to the "Company" shall include, in addition to Natus Medical Incorporated, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Natus Medical Incorporated (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
d. "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity.
e. "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement.
f. "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements).
h. References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
i. "Reviewing Party" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
j. "Section" refers to a section of this Agreement unless otherwise indicated.
k. "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors.
and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the employment of separate counsel by one or more Indemnitees has been previously authorized by the Company in writing, or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded that there may be a conflict of interest between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement.
such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.
NATUS MEDICAL INCORPORATED
By: ______________________________
Name: ____________________________
Title: ___________________________
Address: 1501 Industrial Road
San Carlos, CA 94070
AGREED TO AND ACCEPTED
INDEMNITEE:
EXHIBIT 10.2
NATUS MEDICAL INCORPORATED
1991 STOCK PLAN
Amended through July 18, 2000
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high and low asked prices for the Common Stock or on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
In addition, the terms "Rule 16b-3" and "Applicable Laws," the term "Insiders," and the term "Tax Date," shall have the meanings set forth, respectively, in Sections 4, 9, and 11 below.
If an Option should expire or become unexercisable for any reason without having been exercised in full, or in the case of a Stock Purchase Right, if shares of common Stock are repurchased by the Company, the unpurchased or repurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant or sale under the Plan. Notwithstanding the foregoing, however, if Shares are issued upon exercise of an Option and later repurchased by the Company, such Shares shall not become available for future grant or sale under the Plan.
extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan.
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan;
(ii) to select the officers, Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the share price and any restriction or limitation or waiver of forfeiture restrictions regarding any Option, Stock Purchase Right or other award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an Option may be settled in cash under subSection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; and
(ix) to determine the terms and restrictions applicable to Options and Stock Purchase Rights and any Restricted Stock acquired pursuant to Stock Purchase Rights.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if he or she is otherwise eligible, be granted additional Options or Stock Purchase Rights.
(b) Each Option shall be evidenced by a written Option agreement, which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and which shall be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
(d) Neither the Plan nor any Option or Stock Purchase Right agreement shall confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment or consulting relationship at any time, with or without cause.
(5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.
(a) The per Share exercise price for the Shares issuable pursuant to an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power or value of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power or value of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) authorization from the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (6) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (7) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (8) any combination of the foregoing methods of payment, or (9) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company (Section 315(b) of the California Corporation Law).
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator (and, in the case of an Incentive Stock Option, determined at the time of grant) and permitted by the Option Agreement consist of any consideration and method of payment allowable under subSection 8(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 shareholder shall exist with respect to the Optioned Stock, notwithstanding the 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 which thereafter shall 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.
extent of the right to exercise that had accrued at the date of the Optionee's death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).
All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of the Administrator;
(d) if the Optionee is an Insider, the election must comply with the applicable provisions of Rule 16b-3 and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.
(a) Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option and Stock Purchase Right, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per Share covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the aggregate number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option or Stock Purchase Right.
(b) In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.
(c) In the event of a merger of the Company with or into another corporation or the sale of all or substantially all of the assets of the Company pursuant to which the shareholders of the Company prior to such transaction hold less than 50% of the outstanding capital stock of the surviving corporation immediately after the closing of such transaction (a "Change in Control Transaction") within four years after the date the Securities and Exchange Commission declares effective a registration statement filed by the Company for the initial public offering of the Company's Common Stock pursuant to the Securities Act (the "IPO Effective Time"), outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). Following such assumption or substitution, if the Optionee's status as an employee of the Company or employee of the Successor Corporation, as applicable, is terminated within 12 months of the Change in Control Transaction other than upon a voluntary resignation by the Optionee or the termination of Optionee for cause, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 9(c) through (e) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period, the Option shall terminate.
In the event of a Change in Control Transaction after four years after the IPO Effective Time, outstanding Options may be assumed or equivalent options may be substituted by the Successor Corporation at the Administrator's discretion. The Administrator also shall have the discretion to terminate the Plan and permit the Optionee to exercise the Option to the extent already vested and the discretion to make a determination to accelerate vesting of any portion of or all of the outstanding Options. The Administrator may provide at the Administrator's discretion that following an assumption or substitution, if the Optionee's status as an employee of the Company or employee of the Successor Corporation, as applicable, is terminated within 12 months of the Change in Control Transaction other than upon a voluntary resignation by the Optionee or the termination of Optionee for cause, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 9(b) through (d) above. In such event the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period the Option shall terminate.
Notwithstanding the foregoing, until such time as the Company is no longer subject to Section 2115 of the California Corporations Code, in the event of a Change in Control Transaction, each outstanding Option shall be assumed or an equivalent option or right substituted by the Successor Corporation. In the event that the Successor Corporation refuses to assume or substitute for the Option, the Option shall terminate upon the closing of the merger or sale of assets.
In the event of the merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company in a transaction that is not a Change in Control Transaction, each outstanding option shall be assumed or an equivalent option shall be substituted by the Successor Corporation. In the event the Successor Corporation refuses to assume or substitute for the Option, each outstanding Option shall terminate upon the closing of such merger or sale of assets.
For the purposes of this Section 13(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.
As a condition to the exercise of an Option or the issuance of Shares on exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares as to which such requisite authority shall not have been obtained.
their access to equivalent information.
EXHIBIT 10.2.1
NATUS MEDICAL INCORPORATED
NOTICE OF STOCK OPTION GRANT
[Name]
[Address_1]
[Address_2]
You have been granted an option to purchase Common Stock of Natus Medical Incorporated (the "Company") under the terms of the Natus Medical Incorporated 1991 Stock Plan as follows:
Grant Number:
______________________________
Date of Grant:
Option Price Per Share:
Total Number of Shares Granted: [Total_Shares_Granted]
Total Price of Shares Granted: $[Total_Price]
Type of Option: Incentive Stock Option
-----
Nonstatutory Stock Option
_____
Term/Expiration Date:
Vesting Schedule: This Option shall be exercisable
cumulatively, to the extent of 1/48th of the
Total Number of Shares Granted for each month
of your Continuous Status as an Employee or
Consultant which has expired after
[Vesting_Start_Date] (the vesting
commencement date).
Termination Period: Option may be exercised for 30 days after
termination of employment or consulting
relationship (but in no event later than the
Expiration Date).
|
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 1991 Stock Plan and the Stock Option Agreement, all of which are attached and made a part of this document.
OPTIONEE: NATUS MEDICAL INCORPORATED _________________________________ ________________________________________ Signature By: Tim C. Johnson, President [Name] --------------------------------- Print Name |
NATUS MEDICAL INCORPORATED
STOCK OPTION AGREEMENT
If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422A of the Code.
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in the Notice of Grant.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company and (B) have a fair market value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised.
pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after transfer of such Shares to the Optionee upon exercise of the ISO, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee.
NATUS MEDICAL INCORPORATED
a California corporation
By: _______________________________
Tim C. Johnson, President
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1991 STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain information related thereto and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions of the Plan. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions relating to this Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.
Dated: _____________________________ ___________________________________ Optionee
EXERCISE NOTICE
Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070
Attention: Secretary
and after the date that Optionee delivers full payment of the Exercise Price until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEEES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
Submitted by: Accepted by:
OPTIONEE: NATUS MEDICAL INCORPORATED
______________________________________ By: ______________________________
(Signature)
Its: ______________________________
______________________________________
(Print Name)
Address: Address:
------- -------
______________________________________ 1501 Industrial Road
______________________________________ San Carlos, CA 94070
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INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
____________________________
COMPANY : NATUS MEDICAL INCORPORATED
SECURITY : COMMON STOCK
AMOUNT : ____________________________
DATE : ____________________________
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In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the securities. Optionee is acquiring these securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(b) Optionee acknowledges and understands that the securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the securities. Optionee understands that the certificate evidencing the securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a non- public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of exercise of the Option by the Optionee, such exercise will be exempt from registration under the Securities Act. In the event the Company later becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, one hundred eighty (180) days thereafter the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including among other things: (1) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, and the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time of exercise of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires among other things: (1) the resale occurring not less than two years after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non- affiliate who has held the securities less than three years, (2) the availability of certain public information about the Company, (3) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934), and (4) the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if applicable.
(e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached.
Signature of Optionee:
Date: ___________________, _________
C:\wpconv\wp2edgw\tmp2.doc
ATTACHMENT 1
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferrer or the transferror's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker- dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
EXHIBIT 10.3
NATUS MEDICAL INCORPORATED
2000 STOCK OPTION PLAN
(g) "Company" means Natus Medical Incorporated, a Delaware corporation.
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.
(i) If the Common Stock is listed on any established stock exchange or a national market system including, without limitation, the Nasdaq National Market at The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determined; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(t) "Optionee" means the holder of an outstanding Option granted under the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares (as adjusted for the July 2000 two-for-five reverse split) which may be subject to option and sold under the Plan is 1,500,000 Shares (post-split), together with an annual increase in the number of shares of Common Stock reserved for issuance hereunder on the first day of the Company's fiscal year, beginning with January 1, 2002, equal to the lesser of (i) 1,500,000 Shares (post-split), (ii) seven percent (7%) of the outstanding Shares of the Company as of the last day of the prior fiscal year or (iii) such amount as determined by the Board of Directors. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of an Option,shall not be returned to the Plan and shall not become available for future distribution under the Plan.
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such award granted hereunder;
(iv) to approve forms of agreements for use under the Plan;
(v) to determine the terms and conditions, of any Options granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option any be settled in cash under subsection 9(f) instead of Common Stock;
(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 has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(xii) to make all other determinations deemed necessary or advisable for administering the Plan.
(a) Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause.
(d) Upon the Company, or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act, or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants to options to Service Providers:
(i) No Employee shall be granted in any fiscal year, Options to purchase more than 1,000,000 Shares (post-split).
(ii) In connection with his or her initial employment, and
Employee may be granted Options to purchase up to an additional 500,000 Shares
(post-split) which shall not count against the amount set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted appropriately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If any Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon its adoption by the Board; provided, however, the Plan shall not become effective until the effective date of the Company's initial public offering pursuant to a registration statement filed with the Securities and Exchange
Commission. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
(a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the 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 granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(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). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (6) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, (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 by
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 exercised when the Company receives:
(i) written electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a Stockholder shall exist
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter 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.
Option Agreement). In the absence of a special time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
(i) In the event of a merger of the Company with or into another corporation or the sale of all or substantially all of the assets of the Company pursuant to which the shareholders of the Company prior to such transaction hold less than 50% of the outstanding capital stock of the surviving corporation immediately after the closing of such transaction a "Change in Control Transaction") within four years after the date the Securities and Exchange Commission declares effective a registration statement filed by the Company for the initial public offering of the Company's Common Stock pursuant to the Securities Act (the "IPO Effective Time"), outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). Following such assumption or substitution, if the Optionee's status as an employee of the Company or employee of the Successor Corporation, as applicable, is terminated within 12 months of the Change in Control Transaction other than upon a voluntary resignation by the Optionee or the termination of Optionee for cause, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 9(b) through (d) above. If the SUccessor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period, the Option shall terminate.
(ii) In the event of a Change in Control Transaction after four years after the IPO Effective Time, outstanding Options may be assumed or equivalent options may be substituted by the Successor Corporation at the Administrator's discretion. The Administrator also shall have the discretion to terminate the Plan and permit the Optionee to exercise the Option to the extent already vested and the discretion to make a determination to accelerate vesting of any portion of or all of the outstanding Options. The Administrator may provide at the Administrator's discretion that following an assumption or substitution, if the Optionee's status as an employee of the Company or employee of the Successor Corporation, as applicable, is terminated within 12 months of the Change in Control Transaction other than upon a voluntary resignation by the Optionee or the termination of Optionee
for cause, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Section 9(b) through (d) above. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period the Option shall terminate.
(iii) Notwithstanding the foregoing, until such time as the Company is no longer subject to Section 21115 of the California Corporation Code, in the event of a Change in Control Transaction, each outstanding Option shall be assumed or an equivalent option or right substituted by the Successor Corporation. In the event that the Successor Corporation refuses to assume or substitute for the Option, the Option shall terminate upon the closing of the merger or sale of assets.
(iv) In the event of the merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company in a transaction that is not a Change in Control Transaction, each outstanding option shall be assumed or an equivalent option shall be substituted by the Successor Corporation. In the event the Successor Corporation refuses to assume or substitute for the Option, each outstanding Option shall terminate upon the closing of such merger or sale of assets.
For the purposes of this Section 11(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.
EXHIBIT 10.3.1
NATUS MEDICAL INCORPORATED
2000 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.
[Optionee's Name and Address]
The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Grant Number _______________________
Date of Grant _______________________
Vesting Commencement Date _______________________
Exercise Price per Share $ _____________________
Total Number of Shares Granted _____________________
Total Exercise Price $ _____________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _______________________
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This Option shall be exercisable, in whole or in part, according to the following vesting schedule:
[25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to Optionee's continuing to be a Service Provider on such dates.]
This Option shall be exercisable for 30 days after Optionee ceases to be a Service Provider. Upon Optionee's death or disability, this Option may be exercised for such longer period as provided in the Plan. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO").
(a) cash or check;
(b) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares .
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.
NATUS MEDICAL INCORPORATED
OPTIONEE'S ACCEPTANCE AND ACKNOWLEDGMENT
Dated:____________________ __________________________
Residential Address
__________________________ __________________________
Optionee's Signature City, State, Zip Code
__________ I hereby acknowledge that I am not legally married as of the date
of this Agreement.
__________ I hereby acknowledge that I am legally married as of the date of
this Agreement and, if applicable, by executing this Agreement, my
spouse agrees to be bound by all the terms and conditions of this
Agreement.
__________________________
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Spouse's Signature
SPOUSAL SIGNATURE IS REQUIRED FOR RESIDENTS OF COMMUNITY PROPERTY STATES:
ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON AND
WISCONSIN.
THIS OPTION WILL BECOME EFFECTIVE UPON RECEIPT BY THE COMPANY OF ONE FULLY EXECUTED COPY OF THIS AGREEMENT
2000 STOCK OPTION PLAN
EXERCISE NOTICE
Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070
Attention: Chief Executive Officer
Submitted by: Accepted by:
OPTIONEE: NATUS MEDICAL INCORPORATED
__________________________ __________________________
Signature By
__________________________ __________________________
Print Name Its
Address: Address:
------- -------
__________________________ __________________________
__________________________ __________________________
__________________________
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Date Received
EXHIBIT 10.4
NATUS MEDICAL INCORPORATED
2000 DIRECTOR OPTION PLAN
All options granted hereunder shall be nonstatutory stock options.
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.
If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan.
(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options.
(ii) Each Outside Director shall be automatically granted an Option to purchase Shares (the "First Option") on the date on which the later of the following events occurs: (A) the effective date of this Plan, as determined in accordance with Section 6 hereof; or (B) the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. The First Option for an Outside Director who has not previously received a stock option grant from the Company shall be for 30,000 Shares (post-split), and an Outside Director who has previously received a stock option grant from the Company shall not receive a First Option.
(iii) Each Outside Director shall subsequently be automatically granted an Option to purchase Shares (a "Subsequent Option") on the date of the next meeting of the Board following the Annual Meeting of Shareholders in each year commencing with the 2001 Annual Meeting of Shareholders provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. The Subsequent Option shall be for 10,000 Shares (post-split).
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option provided, however, that in the case of a First Option granted on the effective date of the Company's initial public offering pursuant to a registration statement filed with the Securities and Exchange Commission, the exercise price per share shall be the initial public offering price per share.
(D) subject to Section 10 hereof, the First Option shall become exercisable as to 1/36th of the Shares subject to the First Option each month after the date of grant, so that the First Option shall be fully exercisable 3 years after its date of grant, provided that the Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option shall become exercisable cumulatively with respect to 1/12th of the Subsequent Option at the end of each month after the date of grant, so that the Subsequent Option shall be fully exercisable 1 year after its date of grant, provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.
The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time.
owned by the Optionee for more than six (6) months on the date of surrender, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (iv)
consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan, or (v) any combination
of the foregoing methods of payment.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.
otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
EXHIBIT 10.4.1
NATUS MEDICAL INCORPORATED
DIRECTOR OPTION AGREEMENT
Natus Medical Incorporated (the "Company"), has granted to
___________________ (the "Optionee"), an option to purchase a total of
[__________ (____)] shares of the Company's Common Stock (the "Optioned Stock"),
at the price determined as provided herein, and in all respects subject to the
terms, definitions and provisions of the Company's 2000 Director Option Plan
(the "Plan") adopted by the Company which is incorporated herein by reference.
The terms defined in the Plan shall have the same defined meanings herein.
(a) This Option shall become exercisable in installments cumulatively with respect to of the Optioned Stock each month after the date of grant, so that one hundred percent (100%) of the Optioned Stock shall be exercisable ____________ year[s] after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of the Plan.
(i) cash;
(ii) check; or
(iii) surrender of other shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with such other documentation as the Company 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.
date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
Natus Medical Incorporated.,
a Delaware corporation
By:___________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.
Dated: _________________
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070
Attention: Corporate Secretary
subject matter hereof. This Exercise Notice and the Agreement are governed by California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: Natus Medical Incorporated
By:_______________________ By:_____________________________
Its:____________________________
Address:
Dated:____________________ Dated: _________________________
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EXHIBIT 10.5
NATUS MEDICAL INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
(As amended effective August 15, 2000)
The following constitute the provisions of the 2000 Employee Stock Purchase Plan of Natus Medical Incorporated.
(i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or
(iv) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement").
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time.
(b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.
(a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. During the initial Purchase Period, no payroll deduction will be made unless a participant files a supplemental enrollment form within 15 days after written notice to participants of the effectiveness of a registration statement covering the Common Stock and filed under the Securities Act of 1933, as amended.
(b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account; provided, however, that in the initial Purchase Period, participants may also purchase shares of stock by making a lump sum cash payment at the end of the Purchase Period.
(c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period, including allowing such changes only at the beginning of each Purchase Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.
purchase shall be subject to the limitations set forth in Sections 3(b) and 11 hereof. The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
(a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan, at any time by giving written notice to the Company in the form of Exhibit B to this Plan, provided, however, that in the initial Offering Period, participants may be deemed to withdraw from the Plan by declining or failing to send timely payment for the shares. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof and as adjusted for the July 2000 two- for-five reverse split, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares (post-split) together with an annual increase to the number of shares reserved for issuance thereunder on the first day of the Company's fiscal year beginning in January 1, 2002, equal to the lesser of (i) 650,000 shares (post- split), (ii) four percent percent (4%) of the outstanding shares of the Company on the last day of the prior fiscal year or (iii) such amount as determined by the Board.
(b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse.
(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
(a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board
of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
NATUS MEDICAL INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) |
1. ____________________ hereby elects to participate in the Natus Medical Incorporated Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that the percentage withholding must be between 1% and 15% and that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
_____________________________.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ ________________________________________
Relationship
________________________________________
(Address)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
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I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _____________________________________
Signature of Employee
_____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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NATUS MEDICAL INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Natus Medical Incorporated Employee Stock Purchase Plan which began on ____________, ______ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
Signature:
Date:____________________________
EXHIBIT 10.6
NATUS(R)
Natus Medical Incorporated
DISTRIBUTION AGREEMENT
TERRITORY: JAPAN
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DISTRIBUTOR: NIPPON EUROTEC CO., LTD.
ADDRESS: Akasaka Daiichi Building, 9-17
Akasaka 4-chome, Minato-ku
Tokyo, 107
Japan
EFFECTIVE DATE: June 11, 1997
-------------
EXPIRATION: June 10, 2001
-------------
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Natus Medical Inc. 1501 Industrial Road, San Carlos, CA 94070 415-802-0400 FAX 415-802-0401
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
DISTRIBUTOR AGREEMENT
This Distributor Agreement ("Agreement"), effective as of the 11th day of June, 1997 (the "Effective Date"), is entered into by and between Natus Medical Inc., a California corporation having offices at 1501 Industrial Road, San Carlos, California 94070, United States of America ("Natus"), and Nippon Eurotec, a corporation organized under the laws of Japan, having offices at Akasaka Daiichi Building, 9-17, Akasaka 4-chome, Minato-ku, Tokyo, 107 Japan ("Nippon Eurotec").
BACKGROUND
A. Nippon Eurotec desires to distribute Natus's Products (as defined below) in Japan on the terms and conditions set forth below.
B. Natus desires to appoint Nippon Eurotec as Natus's exclusive distributor of the Products in Japan on the terms and conditions set forth below.
1. DEFINITIONS
2. APPOINTMENT
in the Territory. Natus agrees not to distribute Products directly in the Territory or to appoint any third party to distribute Products in the Territory. Inquiries for the Products received by Natus from the Territory shall be referred to Nippon Eurotec.
2. OBLIGATIONS OF NIPPON EUROTEC
Customers, including without limitation (i) maintaining trained and competent technical and engineering support personnel for the Products who are sufficiently knowledgeable with respect to the Products to answer Customer questions regarding the use and operation of Products, (ii) designating a technical liaison to coordinate Nippon Eurotec's technical support provided to Customers, (iii) responding promptly to requests for technical support from Customers, and (iv) providing technical support services to address and resolve Customers' support requests with respect to the Products. Nippon Eurotec shall ensure that Nippon Eurotec's technical and engineering support personnel attend any training provided by Natus with respect to the Products.
4. OBLIGATIONS OF NATUS
materials provided by Natus pertaining to Products shall be translated into Japanese by Nippon Eurotec's expense. Prior to using any such translated materials, however, Nippon Eurotec shall provide to Natus full Japanese text drafts of all such translated Documentation, and shall refrain from releasing to any third party any such translated Documentation without the prior written approval of Natus. Natus owns the copyright to all such translated Documentation. The schedule for preparing such translated Documentation shall be agreed to by the parties.
4.4.1 Nippon Eurotec shall dispatch [***] competent technical
service employees to Natus to be trained in Product technical
service. Training for a period of up to [***] shall be offered at
[***] by Natus. Travel, housing, and all other incidental costs to be
incurred by such Nippon Eurotec Employees shall be the responsibility
of Nippon Eurotec.
4.4.2 Natus shall dispatch up to [***] of its personnel to conduct Product training in Japan of Nippon Eurotec sales personnel, as well as end-users as appropriate. Such Product training for up to [***] in duration shall be offered [***] by Natus. International air transportation and Tokyo lodging costs shall be borne by [***]; domestic Japanese travel outside Tokyo, including transportation, lodging, and meals, shall be borne by Nippon Eurotec. Training necessitated by Product Software updates shall be conducted as necessary.
4.4.3 The parties agree that it is mutually beneficial to regularly exchange sales, technical, or executive personnel, at a frequency of at least annually, during the term of this Agreement. Accordingly, each party shall reasonably accommodate the other at such time as one party desires to send sales, technical, or executive personnel to the other party. Each party shall pay all its own expenses in connection with any such exchanges.
5. PRICE/PRICE CHANGE
Agreement ("Price"). The Prices of Products as of the Effective Date are as set forth in EXHIBIT D attached hereto.
6. TAXES AND OTHER CHARGES. Prices do not include and are net of any Japanese or United States governmental taxes or charges of any kind. All payments by Nippon Eurotec shall be made free and clear of, and without reduction for, any withholding taxes.
7. PAYMENT Unless otherwise specified, Products are priced [***]. Payment shall be by international, irrevocable, negotiable letters of credit, permitting partial shipment and partial payment, payable in no longer than thirty (30) days, in U.S. Dollars, and confirmed through such bank as Natus may from time to time require, presented at least thirty days prior to requested shipment, and on such other commercially reasonable terms as Natus requires from time to time. At the request of Nippon Eurotec, Natus may provide for or allow other reasonable payment terms on any particular sale.
8. ORDERS
9. SHIPMENT/RISK OF LOSS Products delivered pursuant to the terms of this Agreement shall be suitably packed for export in Natus's standard shipping cartons, marked for shipment to the
destination specified in Nippon Eurotec's purchase order, and delivered to the carrier [***].
10. ORDER CHANGES Purchase orders for Products may be canceled or rescheduled only with Natus's prior written approval.
11. REJECTION Nippon Eurotec shall inspect all Products promptly upon receipt thereof and may reject any defective Product, provided that Nippon Eurotec shall (i) within the earlier of [***] after receipt of such alleged defective Product or [***] after discovery of such alleged defect, notify Natus of its rejection and request a Return Material Authorization ("RMA") number, and (ii) within [***] of receipt of the RMA number from Natus, return such rejected Product to Natus, such shipment to be [***] into the custody of Natus' shipping agent in Japan, using the carrier and shipping mode specified by Natus. Products not rejected within the foregoing time periods shall be deemed accepted by Nippon Eurotec. In the event that Natus determines that the returned Product is defective and properly rejected by Nippon Eurotec, Natus shall at its option repair or replace such defective Product, or accept return for credit of such defective Product. Natus shall return to Nippon Eurotec, freight prepaid, all repaired or replaced Products properly rejected by Nippon Eurotec. In the event that any rejected Product is determined by Natus to not be defective or to have been modified or subjected to unusual electrical or physical stress, misuse, abuse or unauthorized repair, Nippon Eurotec shall reimburse Natus for all costs and expenses related to the shipping, insurance, inspection, repair, if any, and return of such Product to and from Nippon Eurotec. Except as set forth in this Section 11, Nippon Eurotec shall only return Products to Natus with Natus's prior written approval.
12. PRODUCT CHANGES Natus reserves the right from time to time in its sole discretion, without incurring any liability to Nippon Eurotec with respect to any previously placed purchase order, to discontinue or to limit its production of any Product; to allocate, terminate or limit deliveries of any Product in time of shortage; to alter the design or construction of any Product; to add new and additional products to the "Products;" and upon at least [***] notice to Nippon Eurotec, to change its sales and distribution policies, not inconsistent with the terms of this Agreement.
13. FORECASTS By the end of the [***], Nippon Eurotec shall provide Natus with a good faith [***] rolling forecast commencing with the [***] showing Nippon Eurotec's prospective requirements for the Products and anticipated purchase order submittal dates, including all sales and business prospects, in such format as specified by Natus ("Forecast"). Forecasts shall commence on the [***] following submission of the Forecast to Natus. Forecasts are for Natus's planning purposes only and shall not constitute a binding obligation on the part of Natus to supply Products in accordance with such Forecasts, nor shall Forecasts constitute firm purchase orders by Nippon Eurotec.
14. RETURNED PRODUCT Any Product returned to Natus by Nippon Eurotec as authorized under this Agreement shall be shipped [***] into the custody of the carrier and using the shipping method as specified by Natus, to Natus' San Carlos U.S.A. facility or such other
location as Natus may instruct Nippon Eurotec, and shall be packed in its original packing material. Natus may refuse to accept any Product not packed and shipped as herein provided.
15. LIMITED WARRANTY
16. TERM AND TERMINATION
(i) ceases to function as a going concern or to conduct operations in the normal course of business or enters into any composition proceedings, or
(ii) has a petition filed by or against it under any state or federal bankruptcy or insolvency law which petition has not been dismissed or set aside within sixty (60) days of its filing; or
(iii) fails to perform any of its obligations under this Agreement so as to be in default hereunder and fails to cure such default within thirty (30) days after written notice of such default.
after the effective date of such termination ("Wind-Down Period"). During the
Wind-Down Period, the provisions of Sections 6, 7 and 9 shall survive. In
addition to the provisions set forth in this Section 16.6, the following
provisions shall survive expiration or any termination of this Agreement:
Sections 1, 15, 16.4-16.7, 17, 20, 21, 22 and the last sentence of Section 19.2.
17. CONFIDENTIALITY AND PROPRIETARY RIGHTS
18. PATENT/COPYRIGHT/TRADEMARK AND PRODUCT LIABILITY INDEMNIFICATION
loss suffered or allegedly suffered by any person or entity and arising out of or otherwise in connection with any defect or alleged defect of the Products sold by Natus to Nippon Eurotec under this Agreement (the "Claim"). Natus will have sole control of any such Claim or settlement negotiations. Nippon Eurotec agrees that Natus will be relieved of the foregoing obligations unless Nippon Eurotec notifies Natus promptly in writing of such Claim, gives Natus authority to proceed as contemplated herein, and gives Natus proper and full information and assistance to settle and/or defend any such Claim.
19. USE OF TRADEMARKS/TRADE NAMES
20. LIMITATION OF LIABILITY Natus's liability arising out of or relating to this Agreement, including liability under Section 16(e), shall not exceed the aggregate amounts paid by Nippon Eurotec to Natus hereunder. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOST PROFITS, COST OF PROCUREMENT OF SUBSTITUTE GOODS, OR ANY OTHER SPECIAL, RELIANCE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE. THE FOREGOING LIMITATIONS SHALL APPLY REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY STATED HEREIN.
21. COMPLIANCE WITH LAWS
22. MISCELLANEOUS PROVISIONS
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the Effective Date.
NIPPON EUROTEC Co., Ltd. NATUS MEDICAL INC.
By: /s/ Toshifumi Wakayama By: /s/ Tom C. Johnson
-------------------------------- ----------------------------------
Name: Toshifumi Wakayama Name: Tom C. Johnson
------------------------------ --------------------------------
(Typed or Printed) (Typed or Printed)
Title: President Title: President
----------------------------- -------------------------------
Exhibit A: Product List
Exhibit B: [***] Products
|
Exhibit C: Nippon Eurotec Sales Report Form Exhibit D: Product Prices; Minimum Purchase Requirements Exhibit E: Natus' Trademarks
EXHIBIT A
NATUS PRODUCT LISTING AND DOCUMENTATION
Replacement Parts for ALGO(TM) Newborn Hearing Screeners Natus Screening Supplies for ALGO(TM) Newborn Hearing Screeners Natus Software for ALGO(TM) Newborn Hearing Screeners Natus Neonatal Supplies
EXHIBIT B
[***] PRODUCTS
[To be listed by [***]; to include a detailed list of all [***] now being sold by [***] in the [***].]
EXHIBIT C
Nippon Eurotec Sales Repart Form
1. Sales during Quarter ended ____/____/____:
a. Units sold
b. Disposables sold
c. Purchaser's name, address, telephone number, fax
number; responsible contact person.
2. Projection for [***] ending ____/____/___:
EXHIBIT D
PRICE LIST AND MINIMUM PURCHASE REQUIREMENTS
Prices quoted in U.S. dollars Nippon
-----------------------------
Eurotec
Part Number Price
----------- -----------
010011 ALGO(TM)2 Newborn Hearing Screener $ [***]
Includes: Screener with keyboard, Printer,
Rollstand, Workstation with Platform, Acoustic
Transducer Assembly (ATA) Cable, Patient
Cable Assembly (PCA) and pre-amplifier
cable, Acoustic Check Kit, Starter Kit of
supplies
41000 ALGO(TM)2E Newborn Hearing Screener $ [***]
Includes: Detachable screening module with
laptop computer, Natus screening station with
built-in storage, Printer for self-adhesive
patient results labels, Patient Cable Assembly
(PCA) and pre-amplifier cable, Acoustic
Transducer Assembly (ATA) Cable, Acoustic
Check Kit, Starter Kit of supplies
|
Replacement Parts for ALGO(TM) Newborn Hearing Screeners
040176 Acoustic Transducer Assembly (ATA) Cable $ [***]
040144 Acoustic Check Kit $ [***]
040127 Patient Cable Assembly (PCA) $ [***]
040119 Pre-amplifier Cable $ [***]
ALGO 2 Carrying Case [***]
ALGO 2e Carrying Case [***]
700090 Power Cord $ [***]
900081 ALGO 2e Label Printer $ [***]
|
Natus Screening Supplies for ALGO(TM) Newborn Hearing Screeners
040112 ALGO-COLORADO PAK - Case Of 288 Screenings $ [***]
Includes: 8 boxes/ 288 pairs Ear Coupiers(R)
disposable ear phones, 320 Jelly Button(R)Sensors
__________
|
[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.
EXHIBIT D
PRICE LIST AND MINIMUM PURCHASE REQUIREMENTS
Prices quoted in U.S. dollars. NIPPON
------------------------------
Eurotec
Part Number Price
----------- -----------
Printing Supplies for ALGO(TM)2e Newborn Hearing Screeners
900079 Printer Labels - Four rolls (560 labels) $ [***]
Individual Screening Supplies for ALGO(TM) Newborn Hearing Screeners
030097 Jelly Button(R) Sensors - Box of 50 triplets $ [***]
040069 DriPrep(TM) Prepping Pads - Pouch of 25 pads $ [***]
900072 NuPrep(R)Prepping Gel - One 1 oz. tube (28.35 g) $ [***]
|
Natus Neonatal Supplies
040048 MiniMuffs(TM) Neonatal Noise Attenuators - 36 pairs $ [***] 040048 MiniMuffs(TM) Neonatal Noise Attenuators - 288 pairs $ [***]
Natus Software for ALGO(TM) Newborn Hearing Screeners
040181 70/40(TM) Screening Application Software $ [***] 040240 Algo DataBook(TM) NHS Data Tracking Software $ [***] 900123 Time/Date Software $ [***] |
Period Minimum Purchases
------ -----------------
Effective Date through First Six Months: [***] Units [***]
Months Seven through Eighteen: [***] Units [***]
Months Nineteen through Thirty: [***] Units [***]
Months Thirty-One through Forty-two: [***] Units [***]
Months Forty-three through Forty-eight: [***] Units [***]
-----
[***] Units
=====
__________
|
[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.
EXHIBIT E
NATUS TRADEMARKS
NATUS(R)
ALGO 2(TM) Newborn Hearing Screener
ALGO 2e(TM) Newborn Hearing Screener
ALGO(TM) Newborn Hearing Screener
ALGO DataBook(TM) NHS Data Tracking System
AABR(TM) Automated Auditory Brainstem Response
Ear Couplers(TM) Disposables
Jelly Button(TM) Sensors
DriPrep(TM) Prepping Pads
MiniMuffs(TM)Neonatal Noise Attenuators
70/40/(TM) Screening Aplication
Exhibit F to the Distributor Agreement
LOAN AGREEMENT: UNIVERSAL TEST FIXTURE
The parties agree as follows:
1. Loan AGreement. Natus will loan a Universal Test Fixture ("UTF") to the Distributor identified above for use as a service and maintenance tool for a maximum period of time which is described in Paragraph 5 below. Distributor agrees that the UTF remains the property of Natus, and that Distributor must, at the request of Natus, return the UTF to Natus. Distributor agrees to follow all written procedures for operation of UTF, and to use UTF solely for the purposes for which it is intended, as described is the UTF Operating Procedures.
2. Definitions. The definitions in the Distributor Agreement apply throughout this Agreement. The UTF, including all information contained within the UTF, and the UTF Operating Procedures, which may include but is not limited to all written documentation, hardware, software or firmware contained within the UTF and its accompanying UTF Operating Procedures, constitute Confidential Information pursuant to Section 17 of the Distributor Agreement.
3. Trade Secrets. Distributor acknowledges and agrees that the contents of the UTF and the UTF Operating Procedures (Trade Secrets) are valuable property of Natus. Distributor will hold in confidence any Trade Secrets which are disclosed to Distributor pursuant to this Agreement, and will not disclose such Trade Secrets to any other person, firm, or corporation. Distributor agrees to take all reasonable steps to protect the secrecy of and avoid disclosure or unauthorized use of the Trade Secrets. Distributor will not, nor will Distributor allow or encourage any third party to modify, repair, reverse engineer, decompile, or disassemble the UTF without the express and prior written consent of Natus Medical Inc. The UTF is expressly recognized as proprietary and confidential under the provisions of the Distribution Agreement with respect to ss 17, "Confidentiality and Proprietary Rights."
4. Sole Authorized User. The UTF will be used only by trained and authorized technical services representatives of the Distributor. Distributor will provide the names of trained and authorized technical service representatives to the Company, and will not permit use of the UTF by other individuals or entities, nor will Distributor permit physical relocation of the UTF without the prior written consent of Natus Medical Inc.
5. Miscellaneous. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral and written agreements, negotiations, understandings and communications regarding subject matter. If any of the provisions of this Agreement are different from those in the Distributor Agreement, these terms apply insofar as
the UTF is concerned. Otherwise, the terms of the Distributor Agreement are incorporated herein mutatis mutandis. This Exhibit will be governed by and construed in accordance with the laws of the State of California, United States of America, as applied to agreements made and performed in the State of California, United States of America.
6. Term of Agreement. Breach by Distributor of any of these terms constitutes breach of the Distributor Agreement. The Agreement is effective only during the term of the Distributor Agreement between Natus Medical and Distributor.
Natus Representative Distributor Representative
By /s/ W. H. Lawrenson By /s/ Nippon EUROTEC Co., Ltd.
------------------------ ----------------------------
Name W. H. Lawrenson Name
------------------------ ---------------------------
Title CEO Title Director
------------------------ ---------------------------
Date 7/13/98 Date June 22 1998
------------------------ --------------------------
|
EXHIBIT 10.6.1
natus(R)
[LETTERHEAD OF NATUS]
ADDENDUM TO THE DISTRIBUTOR AGREEMENT BETWEEN
NATUS MEDICAL INC. AND NIPPON EUROTEC CO., LTD.,
EFFECTIVE JUNE 11, 1997
AGREEMENT PERTAINING TO NEW JAPANESE REGULATION
"GMP-I"
MANUFACTURER'S ADDRESS: 1501 Industrial Road, San Carlos,
California 94070-4111, United States of America
(Natus Medical Inc.)
DISTRIBUTOR'S ADDRESS: Akasaka Daiichi Building, 9-17,
Akasaka 4-chome,Minato-ku, Tokyo, 107-0052, Japan
(Nippon EUROTEC Co., Ltd.)
EFFECTIVE DATE: January 1, 2000
GMP-I AGREEMENT
This GMP-I Agreement ("Agreement"), effective as of January 1, 2000 (the
"Effective Date") is entered into by and between Natus Medical Inc., a
California corporation having offices at 1501 Industrial Road, San Carlos,
California 94070-4111, United States of America ("Natus"), and Nippon Eurotec
Co., Ltd. a corporation organized under the laws of Japan, having offices at
Akasaka Daiichi Building, 9-17, Akasaka 4-chome, Minato-ku, Tokyo 107-0052 Japan
("Nippon Eurotec")
BACKGROUND
Nippon Eurotec desires to smoothly communicate with Natus in order to obtain such information from Natus as is required by the new Japanese Regulations for Quality Assurance of Imported Medical Device, or Good Manufacturing Practice - Import regulations ("GMP-I").
GMP-I Addendum to Distribution Agreement
Natus desires to disclose necessary information required for the GMP-I to Nippon Eurotec periodically and when need arises, on the terms and conditions set forth below:
Article 1. CONTROL OF MANUFACTURE FROM GMP-I REGULATIONS
1.1 Nippon Eurotec shall periodically get confirmation from Natus that the medical devices to be imported to Japan are manufactured under appropriate manufacturing and quality control in accordance with DIN EN ISO 9001/08.94, DIN EN 46001/09.96 and EC Directive 93/42/EEC Annex II, Article 3 applicable for specific devices.
Nippon Eurotec shall send every year, at Nippon EUROTEC's expense, an inspector to Natus' manufacturing site for GMP-I inspection. An annual inspection report shall be established with the person responsible for GMP at Natus (Natus' Management Representative).
3.2 Natus shall send each year at fixed period to Nippon Eurotec the latest CERTIFICATE TO FOREIGN GOVERNMENT (if available), issued by the Food and Drug Administration ("FDA") or an equivalent document, such as a copy of EN 46001 and/or ISO 9001 certificate, as well as the latest technical specifications, latest user manual and latest test manual of the medical devices to be imported to Japan, within the framework of GMP-I provisions.
Article 2. CHANGE OF SPECIFICATIONS AND/OR TEST METHOD
3.2 Nippon Eurotec shall request from Natus prompt transmission of information regarding changes to be made to future manufacturing methods, testing methods or other related issues which may have possible effects on the quality of the medical devices, as defined in the GMP-I Article 4, Paragraph 1, Number 2.
3.3 Natus shall send in due course to Nippon Eurotec pre-advice pertaining to all significant changes of technical specifications, test standards and others of the medical devices, and information on related measures which will be taken in this regard.
Article 3. DEFICIENCY REPORT
3.1 Nippon Eurotec shall request of Natus prompt transmission of information on the following matters related to the medical devices:
A. Information on suspension of manufacture, export or marketing, recall, disposal, and actions taken to prevent the occurrence or spread of public health hazards caused by the medical devices.
B. Other information on the quality of the medical devices, as defined in the GMP-I Article 4, Paragraph 1, Number 3.
3.2 Natus shall inform Nippon Eurotec of the above information immediately after
Page 2 of 4 3/16/2000
GMP-I Addendum to Distribution Agreement
this information is known to Natus, via fax, e-mail etc, and thereafter in writing, in full detail.
Article 4. PERSONS RESPONSIBLE FOR INFORMATION
4.1 Natus and Nippon Eurotec shall set up the method of transmitting information and designate the person responsible for the transmission of information as mentioned in above articles 2 and 3.
4.2 Persons responsible for the transmission of information as above are:
Article 5. QUALITY CONTROL DURING TRANSPORT AND UPON RECEIPT
5.1 Nippon Eurotec shall request to Natus information on the methods of management and quality control during transport and receipt of the medical devices, as defined in the GMP-I Article 4, Paragraph 1, Numbers 4 and 5.
5.2 Natus shall assure that the medical devices are packed in following manner:
Double-corrugated cardboard external box, unglued foam inserts, Corrugated cardboard internal box, unglued foam inserts, Accessories and cables wrapped and boxed separately from device
Natus shall attach within the external packaging, three (3) complete sets of delivery inspection sheets (incoming inspection instructions). In cases of rejection of the medical devices by Nippon Eurotec on in-coming test, due to any defect, Nippon Eurotec shall return to Natus the defective medical devices in conformity with related provisions in the DISTRIBUTOR AGREEMENT.
Article 6. COMPLAINT FROM CUSTOMERS AND MEASURE TO BE TAKEN
In case of complaint from customers in Japan, Nippon Eurotec shall follow Natus' Complaint Handling Procedures, analyze the cases, and shall request that Natus investigate these cases, to take appropriate measures promptly and to respond to Nippon Eurotec with a written result of the investigation and necessary measures taken.
Article 7. MEASURES TO BE TAKEN IN CASE OF RECALL
Page 3 of 4 3/16/2000
GMP-1 Addendum to Distribution Agreement
Natus shall respond to Nippon Eurotec with the highest priority when Nippon Eurotec requests Natus to investigate causes of health hazard cases incurred in Japan which might have been due to deficiencies of medical devices. And thereafter Natus shall send to Nippon Eurotec a written report clarifying its investigation and conclusions, as per Natus' procedure for Adverse Event Reporting. Likewise, Nippon EUROTEC shall cooperate with Natus, when and if Nippon EUROTEC is requested by Natus to participate in investigations concerning Natus medical devices in Japan.
Nippon Eurotec shall return all medical devices which have been recalled by Natus, according to Natus Procedure, due to deficiency during manufacture control and transportation.
Article 8. TERM
This ADDENDUM to the DISTRIBUTOR AGREEMENT shall commence upon the Effective Date and continue in full force, and shall terminate in accordance with the provisions of DISTRIBUTOR AGREEMENT.
Article 9. INDEMINTY
Nippon EUROTEC warrants that the procedures herein comply with GMP-I regulations, and indemnifies and holds Natus harmless from any liability arising from any action by Nippon EUROTEC with respect to such GMP-I laws, regulations, or procedures, it being expressly understood that such GMP-I laws, regulations, or procedures are Japanese domestic laws, the responsibility for compliance of which rests with Nippon EUROTEC, as Natus' exclusive distributor.
IN WITNESS WHEREOF, the parties hereto have duly executed this ADDENDUM effective as of the effective Date.
NIPPON EUROTEC Co., Ltd. NATUS MEDICAL INC.
By: /s/ Masaaki Kuroiwa By: /s/ Thomas M. Waugh
----------------------------- ---------------------------
Name: Masaaki Kuroiwa Name: Thomas M. Waugh
--------------------------- --------------------------
(Typed or Printed) (Typed or Printed)
Title: General Manager Title: V. P. Operations
-------------------------- ------------------------
Marketing Division
Page 4 of 4 3/16/2000
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EXHIBIT 10.7
EXCLUSIVE PATENT
LICENSE AGREEMENT
S91-093:LRM
AGREEMENT
Effective as of June 30, 1998 ("Effective Date") THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of California ("STANFORD"), and NATUS MEDICAL INCORPORATED, a California corporation, having its principal place of business at 1501 Industrial Road, San Carlos, CA 94070-4111 ("NATUS"), agree as follows:
1.1 STANFORD has an assignment to U.S. Patent 5,383,469 entitled "Neonatal Hemolysis Detection Using End-Tidal Breath Sampler And Analyzer Apparatus" in the names of Drs. David Stevenson and Hendrik Vreman (herein "Invention(s)" and/or "469 Patent"), as described in Stanford Docket S91-093 and/or any Licensed Patent(s) as hereinafter defined, which may issue to such Invention(s).
1.2 STANFORD wishes to have Invention(s) perfected and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit.
1.3 NATUS wishes to acquire a license under the Inventions and Licensed Patent(s) (as hereinafter defined) to manufacture, use and sell Licensed Product(s) in the Licensed Field of Use (as hereinafter defined).
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
1.4 The Invention(s) were made in the course of research supported by the National Institutes of Health.
1.5 NATUS is the owner of all right title and interest in and to U.S. Patent 5,293,875 entitled "In Vivo Measures of End-Tidal Carbon Monoxide Concentration Apparatus and Methods" in the name of Robert T. Stone (herein `"875 patent").
1.6 STANFORD and NATUS were parties to a previous agreement concerning the Invention(s) and Licensed Patent(s) (herein "Original Agreement") which was terminated by NATUS on November 17, 1993.
2.1 "Licensed Patent(s)" means any Letters Patent issued upon STANFORD's U.S. Patent Application serial number 829,843, filed January 31, 1992, including the information contained in such application, with respect to the Invention(s), any foreign patents, patent applications or like rights corresponding thereto, and/or divisions, continuations, or reissue thereof. As of the effective date hereof, the `469 Patent is the only issued or granted patent that is a Licensed Patent(s).
2.2 "Licensed Products(s)" means any product or part thereof in the Licensed Field of Use, the manufacture, use or sale of which is covered by a valid claim of an issued, unexpired Licensed Patent(s) directed to the Invention(s). A claim of an issued, unexpired Licensed Patent(s) shall be presumed to be valid unless and until it has been held to be invalid by a final judgement of a court of competent jurisdiction form which no appeal can be or is taken.
2.3 "Net Sales" means NATUS' invoiced sales for Licensed Product(s), less credit for returns, allowances, or trades, in the form in which it is sold or used, whether or not assembled (and excluding therefrom any disposables), less the following items but only insofar as they actually pertain to the disposition of such Licensed Product(s) by NATUS or sublicensee(s) and are included in such invoiced sales, and are separately billed:
(a) Taxes of any kind including, but not limited to import, export, excise, and sales taxes, use, value added and custom duties;
(b) Outbound transportation prepaid or allowed;
(c) Costs of installation and service at the place of use;
(d) Cost of training users of Licensed Product(s) actually incurred by NATUS or a sublicensee(s) and not reimbursed.
2.4 "Licensed Field of Use" means measuring end-tidal carbon monoxide in exhaled breath for the early diagnosis, and subsequent monitoring, in human neonatals of a susceptibility for developing hyperbilirubinemia (also known as "neonatal jaundice"). The Licensed Field of Use specifically excludes monitoring of gases for the purpose of determining physiological conditions other than human neonatal jaundice.
2.5 "Licensed Territory" means worldwide.
2.6 "Exclusive" means STANFORD shall not grant any other license under the Licensed Patent(s) in the Licensed Field of Use, except as expressly provided in Article 3 and 4 hereof.
3.1 STANFORD hereby grants and NATUS hereby accepts an exclusive license, including the right to grant sublicenses under the conditions set forth below, in the Licensed Field of Use, to make, use, and sell Licensed Product(s) in the Licensed Territory (herein "License").
3.2 Said License shall be Exclusive for a term commencing as of the Effective Date of the Agreement and ending seven (7) years thereafter, unless sooner terminated under Article 12 hereof.
3.3 Thereafter, said License shall be nonexclusive in perpetuity, unless sooner terminated under Article 12 hereof.
3.4 Notwithstanding the License granted herein, STANFORD shall retain the right to use and practice the Invention(s) and Licensed Patent(s) for its own research, clinical, or teaching purposes.
3.5 Any sublicense granted by NATUS under this Agreement shall be subject and subordinate to terms and conditions of this Agreement, except:
(a) Sublicense terms and conditions shall state that any sublicensee(s) shall not have any right to further sublicense; and
(b) The earned royalty rate of any such sublicense may be higher than those stated in Paragraph 5.1 of this Agreement. Any such sublicense also shall expressly include the provisions of Articles 6, 7, and 8 for the benefit of STANFORD. Such sublicense shall also provide for the transfer of all obligations, including the payment of royalties specified in such sublicenses,
to STANFORD or its designee, in the event that this Agreement is terminated under Article 12 hereof.
3.6 NATUS shall not receive anything tangible of value in lieu of cash payments based upon payment obligations of any sublicense under this Agreement, without the prior written consent of STANFORD, which will not be withheld unreasonably.
3.7 NATUS may retain all non-royalty License related revenues attributable to the sublicensing of the Licensed Patent(s) in excess of that which is payable to STANFORD pursuant to Article 5 and one-half of all earned royalty revenues attributable to the sublicensing of the Licensed Patent(s) in excess of that which is payable to STANFORD pursuant to Article 5.
3.8 Subject to STANFORD's consideration of its role as the public's trustee for this invention, the period of exclusivity may be extended by mutual agreement of the parties.
This Agreement is subject to all of the terms and conditions of Title 35 United States Code Sections 200 through 204, and LICENSEE agrees to take al reasonable action necessary on its part as licensee to enable STANFORD to satisfy its obligation thereunder, relating to Invention(s).
5.1 In consideration of the Original Agreement NATUS paid to STANFORD a
non-refundable, non-creditable license fee of [***] and issued to STANFORD
[***] of NATUS stock.
5.2 Now, in consideration for the rights granted herein; NATUS, excluding its first [***] in Net Sales of Licensed Product(s), shall pay to STANFORD royalties of [***] on Net Sales of Licensed Products which are not disposables in countries where a Licensed Patent(s) has issued; and, [***] on Net Sales of Licensed Products which are not disposables in countries where no Licensed Patent(s) has issued.
5.3 In addition, beginning on July 1, 1999 and each July 1 thereafter, NATUS shall pay STANFORD an annual license maintenance royalty of [***]. Said maintenance royalties are non-refundable but they are fully creditable against earned royalties in the year in which they are due. Additionally, NATUS may take a credit against said maintenance royalties for additional insurance premiums that NATUS pays on Licensed Products pursuant to Paragraph 8.4 hereunder.
5.4 If this Agreement is not terminated in accordance with other provisions hereof, NATUS' obligation to pay royalties hereunder shall continue for so long as NATUS, by its activities would, but for the license granted herein, infringe a valid claim of an unexpired Licensed Patent(s) of STANFORD covering said activity.
5.5 The royalty on sales in currencies other than U.S. Dollars shall be calculated using the appropriate foreign exchange rate for such currency quoted by the Bank of America (San Francisco) foreign exchange desk, on the close of business on the last banking day of each calendar quarter. Royalty payments to STANFORD shall be in U.S. Dollars and shall be net of all non-U.S. taxes.
6.1 Semi-Annual Earned Royalty Payment and Report. NATUS shall make written reports and earned royalty payments to STANFORD within ninety (90) days after the end of June and December throughout the term of this Agreement. This report shall state the number, description and aggregate Net Sales of Licensed Product(s) during such completed six-month period, and resulting calculation pursuant to Paragraph 5.2 of earned royalty payment due STANFORD for such completed six-month period. Concurrent with the making of each such report, NATUS shall include payment due STANFORD of royalties for the six-month period covered by such report.
6.2 The royalty payments set forth in this Agreement shall, if overdue, bear interest until payment at a per annum rate of the prime rate in effect at the Bank of America (San Francisco) on the due date. The payment of such interest shall not foreclose STANFORD from exercising any other rights it may have as a consequence of the delay in payment.
6.3 Accounting. NATUS agrees to keep records for a period of three (3) years showing the manufacture, sales, use and other disposition of Licensed Product(s) sold or otherwise disposed of under terms of this Agreement in sufficient detail to enable the royalties payable hereunder by NATUS to be determined, and further agrees to permit its books and records to be audited by an independent Certified Public Accountant, mutually acceptable to STANFORD and NATUS, from time to time to the extent necessary to verify the reports required by Paragraph 5.2. Such audit is to be made during NATUS' normal business hours and with reasonable advance notice to NATUS at the expense of STANFORD, except in the event
that the results of such audit reveal a discrepancy in NATUS' favor of five percent (5%) or more, then the audit expenses shall be paid by NATUS.
6.4 Progress Report. On or before September 1 of each year until NATUS markets a Licensed Product(s), NATUS shall make a written annual report to STANFORD covering the preceding year ending June 30, regarding the progress of NATUS toward commercial use of Licensed Product(s). Such report shall include information sufficient to enable STANFORD to satisfy reporting requirements of the U.S. Government pursuant to Public Law 96-517.
7.1 Nothing in this Agreement is or shall be construed as:
(a) A warranty or representation by STANFORD as to the validity or scope of any Licensed Patent(s);
(b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties;
(c) An obligation to bring or prosecute actions or suits against third parties for infringement;
(d) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of STANFORD or other persons other than Licensed Patent(s), regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patent(s).
7.2 Except as expressly set forth in this Agreement, STANFORD MAKES NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.
Infringement, as determined by an issued legal judgement from which no appeal can be or is taken which results in the termination of sales of Licensed Product(s), or which results in obligations to pay royalties or fees to a third party in order to continue sales of Licensed Product(s), shall terminate NATUS' obligations to pay royalties under this Agreement provided that if any claims of the Licensed Patent(s) remain valid, STANFORD and NATUS agree to negotiate an appropriately reduced royalty structure.
8.1 NATUS agrees to indemnify, hold harmless, and defend STANFORD, Stanford Health Services or UCSF-Stanford Health Care and their respective trustees, officers, employees, students, and agents against any and all claims of death, illness, personal injury, and property damage arising out of the manufacture, use, sale, or other disposition of Invention(s), Licensed Patent(s), or Licensed Product(s) by NATUS, or their customers.
8.2 STANFORD shall not liable for any indirect, special, consequential, or other damages whatsoever, whether grounded in tort (including negligence), strict liability, contract or otherwise. STANFORD shall not have any responsibilities or liabilities whatsoever with respect to Licensed Product(s).
8.3 NATUS shall at all times comply, through insurance or self-insurance, with all statutory workers' compensation and employers' liability requirements covering any and all employees with respect to activities performed under this Agreement.
8.4 In addition to the foregoing, NATUS shall maintain, during the term of this Agreement, Comprehensive General Liability Insurance, including Products Liability Insurance, with reputable and financially secure insurance carrier(s) to cover the activities of NATUS. Such insurance shall provide minimum limits of liability of [***] and shall include STANFORD, UCSF-Stanford Health Care, Stanford Health Services, their trustees, directors, officers, employees, students, and agents as additional insured. Such insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement and should be placed with carriers with ratings of at least A- as rated by A.M. Best. Within 15 days of the Effective Date of this Agreement, NATUS shall furnish a Certificate of Insurance evidencing primary coverage and additional insured requirements and requiring thirty (30) days prior written notice of cancellation or material change to STANFORD. NATUS shall advise STANFORD, in writing, that it maintains excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All such insurance of NATUS shall be primary coverage; insurance of STANFORD, UCSF-Stanford Health Care, and Stanford Health Services shall be excess and noncontributory.
NATUS agrees not to identify STANFORD in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or to use the name of any STANFORD faculty member, employee, or student or any trademark, service mark, trade name, or symbol of STANFORD, Stanford Health Services or UCSF-Stanford Health Care or that is associated with either of them, without STANFORD's prior written consent. Specifically granted by this Agreement is the right to use the following language in promotional advertising and in promotional material:
"This product is under license from Stanford University."
Notwithstanding the foregoing, NATUS is free to use for any purpose any matter, material and/or published article in the public domain or which is available from sources other than STANFORD without STANFORD's prior written consent, including, by way of example and not of limitation, articles published in the Journal of Medicine.
10.1 NATUS shall promptly inform STANFORD of any suspected infringement of any Licensed Patent(s) by a third party, and STANFORD shall promptly notify NATUS of any such infringement. During the Exclusive period of this Agreement, STANFORD and NATUS each shall have the right to institute an action for infringement of the Licensed Patent(s) against such third party in accordance with the following:
(a) If STANFORD and NATUS agree to institute suit jointly, the suit shall be brought in both their names, the legal fees and out-of-pocket costs thereof shall be borne equally, and any recovery or settlement shall be shared
equally. NATUS and STANFORD shall agree to the manner in which they shall exercise control over such action. Either NATUS or STANFORD may, if it so desires, also be represented by separate counsel of its own selection, the fees for which counsel shall be paid by the party desiring separate counsel;
(b) In the absence of agreement to institute a suit jointly, STANFORD may institute suit, and, at its option, join NATUS as a plaintiff. STANFORD shall bear the entire cost of such litigation and shall be entitled to retain the entire amount of recovery or settlement;
(c) In the absence of agreement to institute jointly and if STANFORD notifies NATUS that is has decided not to join in or institute a suit as provided in (a) or (b) above, NATUS may institute and, at its option, join STANFORD as a plaintiff. NATUS shall bear the entire cost of such litigation and shall be entitled to retain the entire amount of any recovery or settlement;
(d) If STANFORD decides to institute suit, then it shall notify NATUS in writing. NATUS' failure to notify STANFORD in writing within fifteen (15) days after the date of the notice, that it will join in enforcing the patent pursuant to the provisions hereof, shall be deemed conclusively to be NATUS' assignment to STANFORD of all rights, causes of action, and damages resulting from any such alleged infringement and STANFORD shall be entitled to retain the entire amount of any recovery or settlement. Furthermore, at its option, STANFORD may join NATUS as plaintiff;
(e) If NATUS decides to institute suit, then it shall notify STANFORD in writing. STANFORD's failure to notify NATUS in writing within fifteen (15) days after the date of the notice, that it will join in enforcing the patent pursuant to the provisions hereof, shall be deemed conclusively to be STANFORD's assignment to NATUS of all rights, causes of action, and damages resulting from any such alleged infringement and NATUS shall be entitled to retain the entire amount of any recovery or settlement. Furthermore, at its option, NATUS may join STANFORD as plaintiff.
10.2 Should either NATUS or STANFORD commence suit under the provisions of Paragraph 10.1 and thereafter elect to abandon the same, it shall give timely notice to the other party who may, if it so desires, continue prosecution of such suit provided, however, that the sharing of expenses and any recovery in such suit shall be as agreed upon between STANFORD and NATUS.
11.1 As an inducement to STANFORD to enter into this AGREEMENT, NATUS agrees to use reasonable efforts and diligence to proceed with the development, manufacture, and sale or lease of Licensed Product(s) and to diligently develop markets for the Licensed Products(s). STANFORD's sole remedy for breach of this clause shall be the termination of this Agreement in accordance with Article 12 hereof.
11.2 If sales of Licensed Product(s) have not been made for a period of two
(2) years during the term of this Agreement, then STANFORD may terminate this
Agreement.
12.1 NATUS may terminate this Agreement at any time by giving STANFORD notice in writing at least thirty (30) days in advance of a termination date selected by NATUS.
12.2 STANFORD may terminate this Agreement if NATUS:
(a) Is in default in payment of royalty or providing of reports;
(b) Is in breach of any material provision hereof; or
(c) Provides any materially false report; and
NATUS fails to remedy any such default, breach, or false report within (30) days after written notice thereof by STANFORD.
12.3 Surviving any termination are:
(a) NATUS' obligation to pay royalties, accrued or accruable;
(b) Any cause of action or claim of NATUS or STANFORD, accrued or to accrue, because of any breach or default by the other party; and
(c) The provisions of Articles 6, 7, and 8.
This Agreement may not be assigned without STANFORD's prior written consent, which will not be unreasonably withheld.
14.1 Any controversy arising under or related to this Agreement, or any disputed claim by either party against the other under this Agreement, excluding any dispute relating to patent validity or infringement arising under this Agreement, shall be settled by arbitration in accordance
with the Licensing Agreement Arbitration Rules of the American Arbitration Association. Upon request of either party, arbitration will be by:
(a) A third party arbitrator mutually agreed upon in writing by NATUS and STANFORD within thirty (30) days of such arbitration request; or
(b) A member of the American Arbitration Association, mutually agreed upon by STANFORD and NATUS. Judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof.
14.2 The parties shall be entitled to discovery in like manner as if the arbitration were a civil suit in United States District Court for the Northern District of California.
14.3 Any arbitration shall be held at Stanford, California, unless the parties hereto mutually agree in writing to another place.
All notices under this Agreement shall be deemed to have been fully given when done in writing and deposited in the United States mail, registered or certified, and addressed as follows:
To STANFORD: Office of Technology Licensing
Stanford University
900 Welch Road, Suite 350
Palo Alto, CA 94304
Attention: Director, Technology Licensing
To NATUS: Natus Medical, Inc.
1501 Industrial Blvd.
San Carlos, CA 94070-4111
Attention: Tim C. Johnson, President
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Either party may change its address upon written notice to the other party.
None of the terms, covenants, and conditions of this Agreement can be waived except by the written consent of the party waiving compliance.
This Agreement shall be construed, interpreted, and applied in accordance with the substantive laws of the State of California.
IN WITNESS THEREOF, the parties hereto have executed this
Agreement in duplicate originals by their duly authorized officers or representatives.
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY
By /s/ Katherine Ku
--------------------------------------
Title Director, Technology Licensing
-----------------------------------
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NATUS MEDICAL, INC.
By /s/ Tim C. Johnson
--------------------------------------
Title President
------------------------------------
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EXHIBIT 10.8
LEASE AGREEMENT
between
SAN CARLOS CO-TENANCY
as "Landlord"
and
NATUS MEDICAL, INC.
as "Tenant"
TABLE OF CONTENTS
SECTION PAGE ------- ---- 1. PREMISES...................................................... 5 2. TERM; POSSESSION.............................................. 5 3. RENT ......................................................... 6 4. SECURITY DEPOSIT ............................................. 10 5. USE AND COMPLIANCE WITH LAWS ................................. 10 6. TENANT IMPROVEMENTS & ALTERATIONS ............................ 13 7. MAINTENANCE AND REPAIRS ...................................... 15 8. TENANT'S TAXES ............................................... 17 9. UTILITIES AND SERVICES ....................................... 17 10. EXCULPATION AND INDEMNIFICATION .............................. 18 11. INSURANCE .................................................... 19 12. DAMAGE OR DESTRUCTION ........................................ 21 13. CONDEMNATION ................................................. 22 14. ASSIGNMENT AND SUBLETTING .................................... 24 15. DEFAULT AND REMEDIES ......................................... 27 16. LATE CHARGE AND INTEREST ..................................... 29 17. WAIVER ....................................................... 29 18. ENTRY, INSPECTION AND CLOSURE ................................ 29 19. SURRENDER AND HOLDING OVER ................................... 30 20. ENCUMBRANCES ................................................. 31 21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS ............... 32 22. NOTICES ...................................................... 33 23. ATTORNEYS' FEES .............................................. 33 24. QUIET POSSESSION ............................................. 33 25. SECURITY MEASURES ............................................ 33 26. FORCE MAJEURE ................................................ 33 27. RULES AND REGULATIONS ........................................ 34 28. LANDLORD'S LIABILITY ......................................... 34 29. CONSENTS AND APPROVALS ....................................... 34 30. BROKERS ...................................................... 34 31. RELOCATION OF PREMISES ....................................... 35 32. WAIVER OF RIGHT TO JURY TRIAL ................................ 35 33. ENTIRE AGREEMENT ............................................. 35 34. MISCELLANEOUS ................................................ 35 |
35. AUTHORITY .................................................... 36
INDEX OF DEFINED TERMS
ADA................................ 16 Second Expansion Premises Additional Rent.................... 8 Commencement Date.............. 5 Alterations........................ 14 Second Expansion Premises Award.............................. 23 Rent Commencement Date......... 6 Broker............................. 35 Security Deposit................ 10 Building Rules..................... 34 Service Failure................. 18 Building Systems................... 11 Sublease Profits................ 25 Buildings.......................... 5 Taxes........................... 8 Claims............................. 19 Tenant Improvements............. 14 Condemnation....................... 23 Tenant's Share.................. 8 Condemnor.......................... 23 Tenant's Taxes.................. 17 Controls........................... 17 Term............................ 5 Date of Condemnation............... 23 Termination Premises Encumbrance........................ 32 Termination Date............... 6 Environmental Losses............... 11 Trade Fixtures.................. 15 Environmental Requirements......... 11 Transfer........................ 24 Event of Default................... 27 Transferee...................... 25 Expiration Date.................... 5 Vistors......................... 11 First Expansion Premises Commencement Date................. 5 First Expansion Premises Rent Commencement Date............ 5 Handled by Tenant.................. 11 Handling by Tenant................. 11 Hazardous Materials................ 11 HVAC............................... 11 Interest Rate...................... 30 Landlord's Work.................... 15 Laws............................... 7 Mortgagee.......................... 32 Operating Costs.................... 7 Parking Facility................... 5 Permitted Hazardous Materials...... 12 Premises........................... 5 Project............................ 5 Property........................... 5 Property Manager................... 20 Proposed Transferee................ 25 Rent............................... 10 Rental Tax......................... 17 Representatives.................... 11 Scheduled First Expansion Premises Commencement Date........ 5 Scheduled Second Expansion Premises Commencement Date........ 6 |
BASIC LEASE INFORMATION
Lease Date: For identification purposes only, the date of this Lease
is August 24, 1998
Landlord: SAN CARLOS CO-TENANCY, a tenancy in common
Tenant: NATUS MEDICAL, INC., a California corporation
Project: San Carlos Commerce Centre
Rentable Area of
Project: Approximately 103,064 square feet
Buildings: Three (3) buildings (each a "Building") in which the
Premises are located in San Carlos Commerce Centre, as
shown on Exhibit A attached hereto
Rentable Area of
Buildings: Building at 1501 and 1509 Industrial Road -
Approximately 16,700 square feet
Building at 1541, 1547 and 1549 Industrial Road
- Approximately 14,400 square feet
Building at 1551, 1555 and 1559 Industrial Road
- Approximately 17,475 square feet
Premises: Suite Addresses: 1501, 1547 and 1541 Industrial
Road, San Carlos, CA, plus 1551 Industrial Road, San
Carlos, CA until the Termination Premises Termination
Date (as hereinafter defined)
Rentable Area: Approximately 24,130 square feet
(for the Suites located at 1501, 1547 and 1541
Industrial Road), and approximately 3,825 square feet
for the Suite at 1551 Industrial Road
Existing Premises: Suite Address: 1501 Industrial Road, San Carlos, CA
Rentable Area: Approximately 11,900 square feet
First Expansion Suite Address: 1541 Industrial Road, San Carlos, CA
Premises: Rentable Area: Approximately 7,154 square feet
Second Expansion Suite Address: 1547 Industrial Road, San Carlos, CA
Premises: Rentable Area: Approximately 5,076 square feet
Termination Suite Address: 1551 Industrial Road, San Carlos, CA
Premises: Rentable Area: Approximately 3,825 square feet
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Term: Commencing November 15, 1998 and continuing until sixty
(60) full calendar months (plus any partial month at the
beginning of the Term) following the Second Expansion
Premises Rent Commencement Date (as hereinafter defined)
Existing Premises
Commencement Date: November 15, 1998
Scheduled First
Expansion Premises
Commencement Date: November 15, 1998
First Expansion
Premises Rent Forty-five (45) days after the First Expansion Premises
Commencement Date: Commencement Date
Scheduled Second
Expansion Premises
Commencement Date: November 15, 1998
Second Expansion
Premises Rent Forty-five (45) days after the Second Expansion Premises
Commencement Date: Commencement Date
Termination Premises
Termination Date: January 31, 1999
Expiration Date: The last day of the 60th full calendar month following
the Second Expansion Premises Rent Commencement Date
Base Rent for First Months following the First Expansion Premises
Expansion Premises Rent Commencement Date:
commencing upon the Months 01-12: $1.40 per rentable square foot per month
First Expansion Months 13-24: $1.46 per rentable square foot per month
Premises Rent Months 25-36: $1.51 per rentable square foot per month
Commencement Date: Months 37-48: $1.57 per rentable square foot per month
Months 49-End of Term: $1.64 per rentable square foot
per month
Base Rent for Second Months following the First Expansion Premises
-----
Expansion Premises Rent Commencement Date:
commencing on the Months 01-12: $1.40 per rentable square foot per month
-------------
Second Expansion Months 13-24: $1.46 per rentable square foot per month
Premises Rent Months 25-36: $1.51 per rentable square foot per month
Commencement Date: Months 37-48: $1.57 per rentable square foot per month
Months 49-End of Term: $1.64 per rentable square foot
per month
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Base Rent for Existing 11/15/98 - 01/31/99: $14,750.12 per month
Premises and
Termination 02/01/99 - 12/31/00: $11,162.25 per month
Premises:
01/01/01 - 12/31/01: $1.60 per rentable square foot per
month
0l/01/02 - 12/31/02: $1.65 per rentable square foot per
month
01/01/03 - End of Term: $1.70 per rentable square foot
per month
Maintenance, This is a "triple net lease" where Tenant is responsible
Operating Costs and for maintenance, operating costs and taxes, all in
Taxes: accordance with the applicable provisions of the Lease.
Tenant's Share: Existing Premises Commencement Date to First Expansion
Premises Rent Commencement Date: 15.26%
First Expansion Premises Rent Commencement Date to
Second Expansion Premises Rent Commencement Date: 22.20%
Second Expansion Premises Rent Commencement Date
through remainder of Term: 23.41%
Security Deposit: $23,084.50, consisting of (a) a new deposit of
$l7,122.00, and (b) $5,962.50 from the Existing Lease,
as defined in Section 38 below)
Landlord's Address SAN CARLOS CO-TENANCY
for Payment of Rent: c/o William Wilson & Associates
2929 Campus Drive, Suite 145
San Mateo, CA 94403
Landlord's Address SAN CARLOS CO-TENANCY
for Notices: c/o William Wilson & Associates
2929 Campus Drive, Suite 145
San Mateo, CA 94403
Attention: Property Management
with a copy to:
SAN CARLOS CO-TENANCY
William Wilson & Associates
2929 Campus Drive, Suite 450
San Mateo, CA 94403
Attention: General Counsel
Tenant's Address 1501 Industrial Road
for Notices: San Carlos, CA 94070
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Broker(s): CB Richard Ellis, Inc. for Landlord,
BT Commercial for Tenant
Guarantor(s): (none)
Property Manager: William Wilson & Associates
Additional Provisions: 35. Parking
36. Right of First Offer
37. Extension Option
38. Existing Lease
Exhibits:
--------
Exhibit A: The Premises (and Buildings)
Exhibit A-1: The Existing Premises
Exhibit A-2: The First Expansion Premises
Exhibit A-3: The Second Expansion Premises
Exhibit A-4: The Termination Premises
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions
Exhibit E: Asbestos Notification Letter
Exhibit F: List of Tenant's Chemicals
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The Basic Lease Information set forth above is part of the Lease. In the event of any conflict between any provision in the Basic Lease Information and the Lease, the Lease shall control.
THIS LEASE is made as of the Lease Date set forth in the Basic Lease Information, by and between the Landlord identified in the Basic Lease Information ("Landlord"), and the Tenant identified in the Basic Lease Information ("Tenant"). Landlord and Tenant hereby agree as follows:
2. TERM; POSSESSION. The term of this Lease (the "Term") for the Existing Premises and the Termination Premises shall commence on November 15, 1998 and, unless sooner terminated, shall expire on the Expiration Date set forth in the Basic Lease Information (the "Expiration Date").
The Term of this Lease for the First Expansion Premises shall commence ("First Expansion Premises Commencement Date") on the date Landlord delivers possession of the First Expansion Premises to Tenant. The parties anticipate that the First Expansion Premises Commencement Date will occur on or about the Scheduled First Expansion Premises Commencement Date set forth in the Basic Lease Information (the "Scheduled First Expansion Premises Commencement Date"); provided, however, that Landlord shall not be liable for any claims, damages or liabilities if the First Expansion Premises are not ready for occupancy by the Scheduled First Expansion Premises Commencement Date. When the First Expansion Premises Commencement Date has been established, Landlord and Tenant shall at the request of either party confirm the First Expansion Premises Commencement Date in writing. Tenant's obligation to pay Base Rent and Additional Rent for the First Expansion Premises shall commence ("First Expansion Premises Rent Commencement Date") on the date that is forty-five (45) days after the First Expansion Premises Commencement Date. Tenant's obligation to pay Base Rent and Additional Rent for the First Expansion Premises shall not commence until the First Expansion Premises Rent Commencement Date.
The Term of this Lease for the Second Expansion Premises shall commence ("Second Expansion Premises Commencement Date") on the date Landlord delivers possession of the Second Expansion Premises to Tenant. The parties anticipate that the Second Expansion Premises Commencement Date will occur on or about the Scheduled Second Expansion Premises Commencement Date set forth in the Basic Lease Information (the "Scheduled Second Expansion Premises Commencement Date"); provided, however, that Landlord shall not be liable for any
claims, damages or liabilities if the Second Expansion Premises are not ready for occupancy by the Scheduled Second Expansion Premises Commencement Date. When the Second Expansion Premises Commencement Date has been established, Landlord and Tenant shall at the request of either party confirm the Second Expansion Premises Commencement Date and Expiration Date in writing. Tenant's obligation to pay Base Rent and Additional Rent for the Second Expansion Premises shall commence ("Second Expansion Premises Rent Commencement Date") on the date which is forty-five (45) days after the Second Expansion Premises Commencement Date. Tenant's obligation to pay Base Rent and Additional Rent for the Second Expansion Premises shall not commence until the Second Expansion Premises Rent Commencement Date.
The Term of the Lease with respect to the Termination Premises shall terminate ("Termination Premises Termination Date") on January 31,1999, and with respect to the Termination Premises Tenant shall remain liable for those obligations accruing through the later of (a) the Termination Premises Termination Date, or (b) the date Tenant actually vacates the Termination Premises.
Any entry by Tenant into any portion of the Premises prior to the applicable Commencement Date for such portion of the Premises shall be subject to all of the terms and conditions of this Lease, except that Tenant shall not be obligated to pay Base Rent or Additional Rent for (a) the First Expansion Premises prior to the First Expansion Premises Rent Commencement Date, or (b) the Second Expansion Premises prior to the Second Expansion Premises Rent Commencement Date.
3. RENT.
If the Basic Lease Information provides for any change in Base Rent by reference to years or months (without specifying particular dates), the change will take effect for the First Expansion Premises and the Second Expansion Premises on the applicable annual or monthly anniversary of the First Expansion Premises Rent Commencement Date.
(1) "Operating Costs" means all costs of managing, operating, maintaining and repairing the Project, including all costs, expenditures, fees and charges for: (A) operation, maintenance and repair of the Project (including maintenance, repair and replacement of
glass, the roof covering or membrane, and landscaping); (B) utilities and services (including telecommunications facilities and equipment, recycling programs and trash removal), and associated supplies and materials; (C) compensation (including employment taxes and fringe benefits) for persons who perform duties in connection with the operation, management, maintenance and repair of the Project, such compensation to be appropriately allocated for persons who also perform duties unrelated to the Project; (D) property (including coverage for earthquake and flood if carried by Landlord), liability, rental income and other insurance relating to the Project, and expenditures for deductible amounts paid under such insurance; (E) licenses, permits and inspections; (F) complying with the requirements of any law, statute, ordinance or governmental rule or regulation or any orders pursuant thereto (collectively "Laws"); (G) amortization of capital replacements, repairs or improvements to the Project, including capital replacements, repairs or improvements required to comply with Laws, with interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance such capital improvements (or, if Landlord finances such improvements out of Landlord's funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord), over such useful life as Landlord shall reasonably determine in accordance with generally accepted accounting principles; (H) an office for the management of the Project, including expenses of furnishing and equipping such office and the rental value of any space occupied for such purposes; (I) property management fees not to exceed the rate of property management fees charged by owners of similar type and quality properties in the vicinity of the Project; (J) accounting, legal and other professional services incurred in connection with the operation of the Project and the calculation of Operating Costs and Taxes; (K) a reasonable allowance for depreciation on machinery and equipment used to maintain the Project and on other personal property owned by Landlord in the Project (including window coverings and carpeting in common areas, if any); (L) contesting the validity or applicability of any Laws that may affect the Project; (M) the Project's share of any shared or common area maintenance fees and expenses (including costs and expenses of operating, managing, owning and maintaining the Parking Facility and the common areas of the Project, and any fitness center in the Project,); and (N) any other cost, expenditure, fee or charge, whether or not hereinbefore described, which in accordance with generally accepted property management practices would be considered an expense of managing, operating, maintaining and repairing the Project. Operating Costs for any calendar year during which average occupancy of the Project is less than one hundred percent (100%) shall be calculated based upon the Operating Costs that would have been incurred if the Project had an average occupancy of one hundred percent (100%) during the entire calendar year.
Operating Costs shall not include (i) costs of special services rendered to individual tenants (including Tenant) for which a special charge is made; (ii) interest and principal payments on loans or indebtedness secured by the Buildings or penalties imposed for failure to perform when required under any such loans or indebtedness secured by the Buildings; (iii) costs of improvements for Tenant or other tenants of the Project; (v) costs of services or other benefits of a type which are not available to Tenant but which are available to other tenants or occupants, and costs for which Landlord is reimbursed by other tenants of the Project other than through payment of tenants' shares of Operating Costs and Taxes; (vi) utility charges paid by Tenant (and other tenants in the Project) directly to the applicable public utility company; (vii) leasing commissions, attorneys' fees and other expenses incurred in connection with leasing space in the Project or enforcing such leases; (viii) depreciation or amortization, other than as specifically enumerated in the definition of Operating Costs above; (ix) costs, fines or penalties incurred due to Landlord's violation of any Law; and (x) with respect to the Existing Premises, the costs incurred prior to December 31, 2000 of maintaining the structural soundness of the structural beams of the roof, foundations and exterior
walls of the Building in which the Existing Premises are located; provided, however, for the purposes of this subsection (x) the definition of exterior walls of the Building shall exclude windows, glass, plate glass, doors, special store fronts and office entries, all of which exclusions from the definition of exterior walls of the Building may be included in Operating Costs.
(4) "Taxes" means: all real property taxes and general, special or district assessments or other governmental impositions, of whatever kind, nature or origin, imposed on or by reason of the ownership or use of the Project; governmental charges, fees or assessments for transit or traffic mitigation (including area-wide traffic improvement assessments and transportation system management fees), housing, police, fire or other governmental service or purported benefits to the Project; personal property taxes assessed on the personal property of Landlord used in the operation of the Project; service payments in lieu of taxes and taxes and assessments of every kind and nature whatsoever levied or assessed in addition to, in lieu of or in substitution for existing or additional real or personal property taxes on the Project or the personal property described above; any increases in the foregoing caused by changes in assessed valuation, tax rate or other factors or circumstances; and the reasonable cost of contesting by appropriate proceedings the amount or validity of any taxes, assessments or charges described above. Taxes shall not include any state and federal personal or corporate income taxes measured by the income of Landlord from all sources (other than taxes on rent at the Property), as well as any franchise, inheritance, or estate, succession, gift tax, or capital levy. Landlord agrees that for the purpose of this Lease any special assessments or special taxes for public improvements to the property will be amortized, with interest at the rate payable to the assessing or taxing authority, over the maximum time Landlord is permitted to pay such special assessment or special tax without penalty. To the extent paid by Tenant or other tenants as "Tenant's Taxes" (as defined in Section 8 - Tenant's Taxes), "Tenant's Taxes" shall be excluded from Taxes.
(5) "Tenant's Share" means the Rentable Area of the Premises divided by the total Rentable Area of the Project, as set forth in the Basic Lease Information. If the Rentable Area of the Project is changed or the Rentable Area of the Premises is changed by Tenant's leasing of additional space hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.
(1) Tenant shall pay Landlord as "Additional Rent" for each
calendar year or portion thereof during the Term Tenant's Share of the sum of
(x) the amount of Operating Costs, and (y) the amount of Taxes.
(2) Prior to the Commencement Date and each calendar year thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating Costs, Taxes and Tenant's Additional Rent for the following calendar year (or first partial year following the Commencement Date). Commencing on the Commencement Date, and in subsequent calendar years, on the first day of January of each calendar year and continuing on the first day of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the Additional Rent, as reasonably estimated by Landlord for such full calendar year. If Landlord thereafter reasonably estimates that Operating Costs or Taxes for such year will vary from Landlord's prior estimate, Landlord may, by notice to Tenant, revise the estimate for such year (and Additional Rent shall thereafter be payable based on the revised estimate).
(3) As soon as reasonably practicable after the end of each calendar year, Landlord shall furnish Tenant a statement with respect to such year, showing Operating Costs, Taxes and Additional Rent for the year, and the total payments made by Tenant with respect thereto. Unless Tenant raises any objections to Landlord's statement within ninety (90) days after receipt of the same, such statement shall conclusively be deemed correct and Tenant shall have no right thereafter to dispute such statement or any item therein or the computation of Additional Rent based thereon. If Tenant does object to such statement, then Landlord shall provide Tenant with reasonable verification of the figures shown on the statement and the parties shall negotiate in good faith to resolve any disputes. Any objection of Tenant to Landlord's statement and resolution of any dispute shall not postpone the time for payment of any amounts due Tenant or Landlord based on Landlord's statement, nor shall any failure of Landlord to deliver Landlord's statement in a timely manner relieve Tenant of Tenant's obligation to pay any amounts due Landlord based on Landlord's statement. In no event shall Operating Costs exceed one hundred percent (100%) of actual Operating Costs (including management fees) incurred by Landlord.
(4) If Tenant's Additional Rent as finally determined for any
calendar year exceeds the total payments made by Tenant on account thereof,
Tenant shall pay Landlord the deficiency within twenty (20) days of Tenant's
receipt of Landlord's statement. If the total payments made by Tenant on account
thereof exceed Tenant's Additional Rent as finally determined for such year,
Tenant's excess payment shall be credited toward the rent next due from Tenant
under this Lease. For any partial calendar year at the beginning or end of the
Term, Additional Rent shall be prorated on the basis of a 365-day year by
computing Tenant's Share of the Operating Costs and Taxes for the entire year
and then prorating such amount for the number of days during such year included
in the Term. Notwithstanding the termination of this Lease, Landlord shall pay
to Tenant or Tenant shall pay to Landlord, as the case may be, within twenty
(20) days after Tenant's receipt of Landlord's final statement for the calendar
year in which this Lease terminates, the difference between Tenant's Additional
Rent for that year, as finally determined by Landlord, and the total amount
previously paid by Tenant on account thereof.
If for any reason Taxes for any year during the Term are reduced, refunded or otherwise changed, Tenant's Additional Rent shall be adjusted accordingly. If Taxes are temporarily reduced as a result of space in the Project being leased to a tenant that is entitled to an exemption from property taxes or other taxes, then for purposes of determining Additional Rent for each year in which Taxes are reduced by any such exemption, Taxes for such year shall be calculated on the basis of the amount the Taxes for the year would have been in the absence of the exemption. The obligations of Landlord to refund any overpayment of Additional Rent and of Tenant to pay any Additional Rent not previously paid shall survive the expiration of the Term.
4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the amount specified in the Basic Lease Information as the Security
Deposit, if any (the "Security Deposit"), as security for the performance of
Tenants obligations under this Lease. Landlord may (but shall have no obligation
to) use the Security Deposit or any portion thereof to cure any Event of Default
under this Lease or to compensate Landlord for any damage Landlord incurs as a
result of Tenant's failure to perform any of Tenant's obligations hereunder. In
such event Tenant shall pay to Landlord within five (5) days after receipt of
demand an amount sufficient to replenish the Security Deposit. If Tenant is not
in default at the expiration or termination of this Lease, then within thirty
(30) days after Tenant vacates the Premises Landlord shall return to Tenant the
Security Deposit or the balance thereof then held by Landlord and not applied as
provided above. Landlord may commingle the Security Deposit with Landlord's
general and other funds. Landlord shall not be required to pay interest on the
Security Deposit to Tenant.
5. USE AND COMPLIANCE WITH LAWS.
thereof; (ii) connect to the utility systems of the Building any apparatus, machinery or other equipment other than typical office equipment and light industrial manufacturing equipment consistent with Tenant's permitted use contained hereinabove; or (iii) connect to any electrical circuit in the Premises any equipment or other load with aggregate electrical power requirements in excess of 80% of the rated capacity of the circuit.
(2) "Environmental Requirements" shall mean all present and future Laws, orders, permits, licenses, approvals, authorizations and other requirements of any kind applicable to Hazardous Materials.
(3) "Handled by Tenant" and "Handling by Tenant" shall mean and refer to any installation, handling, generation, storage, use, disposal, discharge, release, abatement, removal, transportation, or any other activity of any type by Tenant or its agents, employees, contractors, licensees, assignees, sublessees, transferees or representatives (collectively, "Representatives") or its guests, customers, invitees, or visitors (collectively, "Visitors"), at or about the Premises in connection with or involving Hazardous Materials.
(4) "Environmental Losses" shall mean all costs and expenses of any kind, damages, including foreseeable and unforeseeable consequential damages, fines and penalties incurred in connection with any violation of and compliance with Environmental Requirements and all losses of any kind attributable to the diminution of value, loss of use or adverse effects on marketability or use of any portion of the Premises or Property.
Landlord on each January 15 and July 15 throughout the Term, an updated list of chemicals, and approximate quantities thereof, used by Tenant in the Premises during the previous six (6) months. At the expiration or termination of the Lease, Tenant shall promptly remove from the Premises and Property all Hazardous Materials Handled by Tenant at the Premises or the Property. Tenant shall keep Landlord fully and promptly informed of all Handling by Tenant of Hazardous Materials other than Permitted Hazardous Materials. Tenant shall be responsible and liable for the compliance with all of the provisions of this Section by all of Tenant's Representatives and Visitors, and all of Tenant's obligations under this Section (including its indemnification obligations under paragraph (e) below) shall survive the expiration or termination of this Lease.
actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys', experts' and consultants' fees and costs, incurred at any time and arising from or in connection with the Handling by Tenant of Hazardous Materials at or about the Property or Tenant's failure to comply in full with all Environmental Requirements with respect to the Premises.
6. TENANT IMPROVEMENTS & ALTERATIONS.
6.1 Landlord and Tenant shall perform their respective obligations with respect to design and construction of any improvements to be constructed and installed in the Premises (the "Tenant Improvements"), as provided in the Construction Rider. Except for any Tenant Improvements to be constructed by Tenant as provided in the Construction Rider, Tenant shall not
make any alterations, improvements or changes to the Premises ("Alterations"),
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Landlord shall not unreasonably withhold or
delay consent to installation of any security system or telephone or data
communication wiring which either requires any work outside the Premises or
involves coordination or participation by the building engineers.
Notwithstanding the foregoing, Tenant shall have the right, upon prior notice to
Landlord to be given at least two (2) Business Days prior to any installation,
but without any approval rights by Landlord, to install wiring for a security
system or telephone or data communication which wiring is solely within the
Premises and does not require coordination or participation by the building
engineers. Notwithstanding any other provision contained herein, Tenant shall
not be required to obtain Landlord's prior consent for minor, non-structural
Alterations that (a) do not affect any of the Building Systems, (b) are not
visible from the exterior of the Premises, and (c) cost less than Twenty-Five
Thousand Dollars ($25,000), so long as Tenant gives Landlord notice of the
proposed Alterations at least ten (10) days prior to commencing the Alterations
and complies with all of the following provisions (except that Tenant shall not
be required to obtain Landlord's approval of any plans or specifications
therefor). Any such Alterations shall be completed by Tenant at Tenant's sole
cost and expense: (i) with due diligence, in a good and workmanlike manner,
using new materials; (ii) in compliance with plans and specifications approved
by Landlord; (iii) in compliance with the reasonable construction rules and
regulations promulgated by Landlord from time to time; (iv) in accordance with
all applicable Laws (including all work, whether structural or non-structural,
inside or outside the Premises, required to comply fully with all applicable
Laws and necessitated by Tenant's work); and (v) subject to all conditions which
Landlord may in Landlord's reasonable discretion impose. Such conditions may
include requirements for Tenant to: (i) provide payment or performance bonds or
additional insurance (from Tenant or Tenant's contractors, subcontractors or
design professionals); (ii) use contractors or subcontractors approved by
Landlord, which approval shall not be unreasonably withheld or delayed, and use
contractors designated by Landlord for Alterations affecting the structure of
the Building, the Building Systems and the life safety systems of the Building
(provided, that Landlord shall obtain bids from three [3] contractors for any
such work costing more than Five Thousand Dollars [$5,000.00]); and (iii) remove
all or part of the Alterations prior to or upon expiration or termination of the
Term, as designated by Landlord in writing at the time Landlord consents to any
such Alterations. If any work outside the Premises, or any work on or adjustment
to any of the Building Systems, is required in connection with or as a result of
Tenant's work, such work shall be performed at Tenant's expense by contractors
designated by Landlord (provided, that Landlord shall obtain bids from three [3]
contractors for any such work costing more than Five Thousand Dollars
[$5,000.00]). Landlord's right to review and approve (or withhold approval of)
Tenant's plans, drawings, specifications, contractor(s) and other aspects of
construction work proposed by Tenant is intended solely to protect Landlord, the
Property and Landlord's interests. No approval or consent by Landlord shall be
deemed or construed to be a representation or warranty by Landlord as to the
adequacy, sufficiency, fitness or suitability thereof or compliance thereof with
applicable Laws or other requirements. Except as otherwise provided in
Landlord's consent, all Alterations shall upon installation become part of the
realty and be the property of Landlord.
6.2 Before making any Alterations requiring Landlord's approval, Tenant shall submit to Landlord for Landlord's prior approval reasonably detailed final plans and specifications prepared by a licensed architect or engineer, a copy of the construction contract, including the name of the contractor and all subcontractors proposed by Tenant to make the Alterations and a copy of the contractor's license. Tenant shall reimburse Landlord upon demand for any reasonable
expenses incurred by Landlord in connection with any Alterations made by Tenant. including reasonable fees charged by Landlord's contractors or consultants to review plans and specifications prepared by Tenant and to update the existing as-built plans and specifications of the Building to reflect the Alterations. Tenant shall obtain all applicable permits, authorizations and governmental approvals and deliver copies of the same to Landlord before commencement of any Alterations.
6.3 Tenant shall keep the Premises and the Project free and clear of
all liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Project,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within twenty (20) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released, and any
sums expended by Landlord (plus Landlord's reasonable administrative costs) in
connection therewith shall be payable by Tenant on demand with interest thereon
from the date of expenditure by Landlord at the Interest Rate (as defined in
Section 16.2 - Interest). Tenant shall give Landlord at least ten (10) days
notice prior to the commencement of any Alterations and cooperate with Landlord
in posting and maintaining notices of non-responsibility in connection
therewith.
6.4 Subject to the provisions of Section 5 - Use and Compliance with Laws and the foregoing provisions of this Section, Tenant may install and maintain furnishings, equipment, movable partitions, business equipment and other trade fixtures ("Trade Fixtures") in the Premises. Tenant shall promptly repair any damage to the Premises or the Building caused by any installation or removal of such Trade Fixtures.
7. MAINTENANCE AND REPAIRS.
7.1 By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. Notwithstanding the foregoing, upon
the respective Commencement Dates for the First Expansion Premises and the
Second Expansion Premises, Landlord shall deliver the following ("Landlord's
Work") in the First Expansion Premises and the Second Expansion Premises in good
working order and clean condition: (i) roof, roof membrane and Building
structure, (ii) windows and skylights, (iii) interior and exterior lighting.
(iv) existing electrical, and (v) existing plumbing. If, during the first thirty
(30) days following the First Expansion Premises Commencement Date, any
Landlord's Work in the First Expansion Premises is not in the condition required
by the preceding sentence, Tenant shall notify Landlord of the need for repair
within thirty (30) days following the First Expansion Premises Commencement
Date, and the repair shall be promptly completed by Landlord at no cost to
Tenant. If, during the first thirty (30) days following the Second Expansion
Premises Commencement Date, any Landlord's Work in the Second Expansion Premises
is not in the condition required by the second preceding sentence, Tenant shall
notify Landlord of the need for repair within thirty (30) days following the
Second Expansion Premises Commencement Date, and the repair shall be promptly
completed by Landlord at no cost to Tenant. Except for any repairs and
maintenance which are the responsibility of Landlord pursuant to the two (2)
immediately preceding sentences, each party shall be responsible for their
respective maintenance and repair obligations contained in the provisions of
this Lease commencing on the thirty-first (31st) day following the (a) First
Expansion Premises Commencement Date, with respect to the First Expansion
Premises, and (b) Second Expansion Premises Commencement Date, with respect to
the Second Expansion Premises. The First Expansion Premises and the Second
Expansion Premises shall be delivered to Tenant in compliance with the Americans
with Disabilities Act of
7.2 Landlord shall (a) maintain or cause to be maintained in good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Building, the public and common areas outside
of the Building, and that portion of the electrical, water and sanitary sewer
systems serving the Premises and located outside the exterior walls of the
Premises, except such portion of such systems exclusively serving the Premises,
(b) caulk exterior window joints and concrete slabs and (c) paint on the
exterior of the Building, all of which shall be included as a part of Operating
Costs, subject to the terms and conditions contained in Section 3.2 of this
Lease; provided, however, if any maintenance or repair of electrical, water and
sanitary sewer systems outside the Premises is caused by Tenant's misuse of such
system, the costs of such maintenance and repair shall not constitute a capital
expenditure for the purposes of Section 3.2 of this Lease. Landlord shall be
under no obligation to inspect the Premises. Tenant shall promptly report in
writing to Landlord any defective condition known to Tenant which Landlord is
required to repair. As a material part of the consideration for this Lease,
Tenant hereby waives any benefits of any applicable existing or future Law,
including the provisions of California Civil Code Sections 1932(1), 1941 and
1942, that allows a tenant to make repairs at its landlord's expense.
7.3 Landlord hereby reserves the right, at any time and from time to time, without liability to Tenant, and without constituting an eviction, constructive or otherwise, or entitling Tenant to any abatement of rent or to terminate this Lease or otherwise releasing Tenant from any of Tenant's obligations under this Lease:
(a) To make alterations, additions, repairs, improvements to or in or to decrease the size of area of, all or any part of the Buildings in which the Premises are located, the fixtures and equipment therein, and the Building Systems (except that Landlord shall not have any right under this provision to reduce the size of the Premises, or to permanently, materially and adversely
affect Tenant's access to and use of the Premises, except only as may be required to comply with Laws or as a result of any fire or other casualty or Condemnation);
(b) To change the Buildings' name or street address;
(c) To install and maintain any and all signs on the exterior and interior of the Buildings;
(d) To reduce, increase, enclose or otherwise change at any time and from time to time the size, number, location, lay-out and nature of the common areas (including the Parking Facility) and other tenancies and premises in the Property and to create additional rentable areas through use or enclosure of common areas; and
(e) If any governmental authority promulgates or revises any Law or imposes mandatory or voluntary controls or guidelines on Landlord or the Property relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions or reduction or management of traffic or parking on the Property (collectively "Controls"), to comply with such Controls, whether mandatory or voluntary, or make any alterations to the Property related thereto.
(f) In exercising its rights under this Section 7.3, Landlord agrees to use reasonable efforts to minimize any interruption to or disruption of Tenant's use of the Premises.
8. TENANT'S TAXES. "Tenant's Taxes" shall mean (a) all taxes, assessments, license fees and other governmental charges or impositions levied or assessed against or with respect to Tenant's personal property or Trade Fixtures in the Premises, whether any such imposition is levied directly against Tenant or levied against Landlord or the Property, (b) all rental, excise, sales or transaction privilege taxes arising out of this Lease (excluding, however, state and federal personal or corporate income taxes measured by the income of Landlord from all sources) imposed by any taxing authority upon Landlord or upon Landlord's receipt of any rent payable by Tenant pursuant to the terms of this Lease ("Rental Tax"), and (c) any increase in Taxes attributable to inclusion of a value placed on Tenant's personal property, Trade Fixtures or Alterations. Tenant shall pay any Rental Tax to Landlord in addition to and at the same time as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes before delinquency (and, at Landlord's request, shall furnish Landlord satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion thereof, Tenant shall reimburse Landlord upon demand for the amount of such payment, together with interest at the Interest Rate from the date of Landlord's payment to the date of Tenant's reimbursement.
9. UTILITIES AND SERVICES.
9.1 [Intentionally Deleted].
(a) If the temperature otherwise maintained in any portion of the Premises by the HVAC systems of the Building is affected as a result of any lights, machines or equipment used by Tenant in the Premises, or for any other reason, then Tenant shall be responsible, at Tenant's sole cost and expense, and at Tenant's option to install any machinery or equipment reasonably
necessary to restore the temperature, including modifications to the standard air-conditioning equipment.
(b) Electricity, and any gas will be separately metered for the Premises. Landlord will pay for water and sanitary sewer, which will be billed back to Tenant as part of Operating Costs. Tenant shall pay prior to delinquency all charges for gas, electricity, telephone and other telecommunication services, janitorial service, trash pick-up, and all other services consumed by Tenant on or supplied to the Premises, and all taxes, levies, fees and surcharges thereon.
10. EXCULPATION AND INDEMNIFICATION.
fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or about the Premises or the Property; or acts of other tenants in the Property). Tenant hereby waives all claims against Landlord for any such loss, injury or damage and the cost and expense of defending against claims relating thereto, including any loss, injury or damage caused by Landlord's negligence (active or passive). Notwithstanding any other provision of this Lease to the contrary, in no event shall Landlord or Tenant be liable to the other party for any punitive or consequential damages or damages for loss of business by Tenant or Landlord except for any liability which Tenant might have for holding over in the Premises beyond the expiration of the Term in accordance with the provisions of Section 19.2 of this Lease.
11. INSURANCE.
90% of the full replacement cost of the covered property. Tenant may carry such insurance under a blanket policy, provided that such policy provides coverage equivalent to a separate policy. During the Term, the proceeds from any such policies of insurance shall be used for the repair or replacement of the Alterations, Trade Fixtures and personal property so insured. Landlord shall be provided coverage under such insurance to the extent of its insurable interest and, if requested by Landlord, both Landlord and Tenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance. Landlord will have no obligation to carry insurance on any Alterations or on Tenant's Trade Fixtures or personal property.
12. DAMAGE OR DESTRUCTION.
(a) If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty then, unless either party is entitled to and elects to terminate this Lease pursuant to Sections 12.2- Landlord's Right to Terminate and 12.3 - Tenant's Right to Terminate, Landlord shall, at its expense, use reasonable efforts to repair and restore the Premises and/or the Property, as the case may be, to substantially their former condition to the extent permitted by then applicable Laws; provided, however, that in no event shall Landlord have any obligation for repair or restoration beyond the extent of insurance proceeds received by Landlord for such repair or restoration, or for any of Tenant's personal property, Trade Fixtures or Alterations.
(b) If Landlord is required or elects to repair damage to the Premises and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent and Additional Rent shall be abated with regard to any portion of the Premises that Tenant is prevented from using by reason of such damage or its repair from the date of the casualty until substantial completion of Landlord's repair of the affected portion of the Premises as required under this Lease. In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant's business or property arising from fire or other casualty or by reason of any repairs to any part of the Property necessitated by such casualty.
(a) If, in the reasonable judgment of Landlord, the Premises and the Property cannot be substantially repaired and restored under applicable Laws within two hundred seventy (270) days from the date of the casualty;
(b) If, in the reasonable judgment of Landlord, adequate proceeds are not, for any reason (other than Landlord's failure to maintain the insurance coverage required to be maintained by Landlord on the Buildings under Section 11.2 of this Lease), made available to Landlord from Landlord's insurance policies (and/or from Landlord's funds made available for such purpose, at Landlord's sole option) to make the required repairs;
(c) If the Building is damaged or destroyed to the extent that, in the reasonable judgment of Landlord, the cost to repair and restore the Building would exceed twenty-five percent (25%) of the full replacement cost of the Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or other casualty occurs during the last year of the Term.
If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of this Section 12.2 occur or arise, Landlord shall give Tenant notice within one hundred and twenty (120) days after the date of the casualty, specifying whether Landlord elects to terminate this Lease as provided above and, if not, Landlord's estimate of the time required to complete Landlord's repair obligations under this Lease.
13. CONDEMNATION.
(a) "Award" shall mean all compensation, sums, or anything of value awarded, paid or received on a total or partial Condemnation.
(b) "Condemnation" shall mean (i) a permanent taking (or a temporary taking for a period extending beyond the end of the Term) pursuant to the exercise of the power of condemnation or eminent domain by any public or quasi- public authority, private corporation or individual having such power ("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary sale or transfer by Landlord to any such authority, either under threat of condemnation or while legal proceedings for condemnation are pending.
(c) "Date of Condemnation" shall mean the earlier of the date that title to the property taken is vested in the Condemnor or the date the Condemnor has the right to possession of the property being condemned.
(a) If more than one-third (1/3) of the Premises is taken by Condemnation, this Lease shall terminate as of the Date of Condemnation. If one- third (1/3) or less of the Premises is taken by Condemnation, this Lease shall remain in effect; provided, however, that if the portion of the Premises remaining after the Condemnation will be unsuitable for Tenant's continued use, then upon notice to Landlord within thirty (30) days after Landlord notifies Tenant of the Condemnation, Tenant may terminate this Lease effective as of the Date of Condemnation.
(b) If twenty-five percent (25%) or more of the Project or of the parcel(s) of land on which the Building is situated or of the Parking Facility or of the floor area in the Building is taken by Condemnation, or if as a result of any Condemnation the Building is no longer reasonably suitable for use as an office building, whether or not any portion of the Premises is taken, Landlord may elect to terminate this Lease, effective as of the Date of Condemnation, by notice to Tenant within thirty (30) days after the Date of Condemnation.
(c) If all or a portion of the Premises is temporarily taken by a Condemnor for a period not extending beyond the end of the Term, this Lease shall remain in full force and effect.
Condemnor where this Lease is not terminated (to the extent such Award relates to the unexpired Term), or an Award or portion thereof separately designated for relocation expenses or moving costs or the interruption of or damage to Tenant's business or as compensation for Tenant's personal property, Trade Fixtures or Alterations, and for loss of goodwill, so long as any recovery for loss of goodwill does not affect Landlord's recovery for any such taking.
14. ASSIGNMENT AND SUBLETTING.
(a) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "Proposed Transferee"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within fifteen (15) Business Days
after Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - Landlord's Right to Space.
(b) Tenant acknowledges and agrees that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i) the Proposed Transferee does not intend itself to occupy the entire portion of the Premises assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed Transferee's business operating ability or history, reputation or creditworthiness or the nature or character of the business to be conducted by the Proposed Transferee at the Premises, (iii) the Proposed Transferee is a governmental agency or unit or an existing tenant in the Project, unless, in the case of an existing tenant, Landlord does not have space in the Project available to lease to the existing tenant containing the same or more square feet than the existing tenant identifies in writing that the existing tenant requires, (iv) the proposed Transfer would violate any "exclusive" rights of any tenants in the Project, (v) Landlord or Landlord's agent has shown space in the Project to the Proposed Transferee or given a written proposal in response to any inquiries
from the Proposed Transferee or the Proposed Transferee's agent concerning availability of space in the Project, at any time within the preceding six months, or (vi) Landlord otherwise determines that the proposed Transfer would have the effect of decreasing the value of the Project or increasing the expenses associated with operating, maintaining and repairing the Project. In no event may Tenant publicly advertise all or any portion of the Premises for assignment or sublease at a rental less than that then sought by Landlord for a direct lease (non-sublease) of comparable space in the Project.
cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases.
controlled by or under common control with Tenant or Tenant's parent, as the
case may be. "Control" as used herein shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such controlled entity; and the ownership, or possession of the
right to vote, in the ordinary direction of its affairs, of at least fifty
percent (5O%) of the voting interest in any entity. Notwithstanding Tenant's
right to Transfer to an Affiliate pursuant to the provisions of this Section
14.9, Tenant may not, through use of its rights under this Article 14 in two or
more transactions (whether separate transactions or steps or phases of a single
transaction), at one time or over time, whether by first assigning this Lease to
a subsidiary and then merging the subsidiary into another entity or selling the
stock of the subsidiary or by other means, assign or sublease the Premises, or
transfer control of Tenant, to any person or entity which is not a subsidiary,
affiliate or controlling corporation of the original Tenant, as then
constituted, existing prior to the commencement of such transactions, without
first obtaining Landlord's prior written consent pursuant to the provisions of
Section 14.2. For purposes of this Lease, a sale of Tenant's capital stock
through any public exchange shall not be deemed an assignment, subletting or
other transfer of this Lease or the Premises requiring Landlord's consent.
15. DEFAULT AND REMEDIES.
(a) Tenant fails to make any payment of rent when due, or any amount required to replenish the security deposit as provided in Section 4 above, if payment in full is not received by Landlord within three (3) Business Days after written notice that it is due.
(b) Tenant abandons the Premises and fails to pay rent when due.
(c) Tenant fails timely to deliver any subordination document, estoppel certificate or financial statement requested by Landlord within the applicable time period specified in Sections 20 - Encumbrances - and 21 - Estoppel Certificates and Financial Statements - below.
(d) Tenant violates the restrictions on Transfer set forth in Section
14 - Assignment and Subletting.
(e) Tenant ceases doing business as a going concern; makes an assignment for the benefit of creditors; is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any under any state or federal bankruptcy or other statute, law or regulation affecting creditors' rights; all or substantially all of Tenant's assets are subject to judicial seizure or attachment and are not released within 60 days, or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets.
(f) Tenant fails, within ninety (90) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors' rights, to have such proceedings dismissed, or Tenant fails, within ninety (90) days after an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets, to have such appointment vacated.
(g) Tenant fails to perform or comply with any provision of this
Lease other than those described in (a) through (f) above, and does not fully
cure such failure within thirty (30) days after notice to Tenant or, if such
failure cannot be cured within such thirty (30)-day period, Tenant fails within
such thirty (30)-day period to commence, and thereafter diligently proceed with,
all actions necessary to cure such failure as soon as reasonably possible but in
all events within one hundred twenty (120) days of such notice; provided,
however, that if Landlord in Landlord's reasonable judgment determines that such
failure cannot or will not be cured by Tenant within such one hundred twenty
(120) days, then such failure shall constitute an Event of Default immediately
upon such notice to Tenant.
(a) Landlord may terminate Tenant's right to possession of the Premises at any time by written notice to Tenant. Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including re-entry into the Premises, efforts to relet the Premises, reletting of the Premises for Tenant's account, storage of Tenant's personal property and Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under this Section, shall constitute an acceptance of Tenant's surrender of the Premises or constitute a termination of this Lease or of Tenant's right to possession of the Premises. Upon such termination in writing of Tenant's right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant as provided in California Civil Code Section 1951.2 and any other applicable existing or future Law providing for recovery of damages for such breach, including the worth at the time of award of the amount by which the rent which would be payable by Tenant hereunder for the remainder of the Term after the date of the award of damages, including Additional Rent as reasonably estimated by Landlord, exceeds the amount of such rental loss as Tenant proves could have been reasonably avoided, discounted at the discount rate published by the Federal Reserve Bank of San Francisco for member banks at the time of the award plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(c) Landlord may cure the Event of Default at Tenant's expense. If Landlord pays any sum or incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for the amount of such payment or expense with interest at the Interest Rate from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant.
(d) Landlord may remove all Tenant's property from the Premises, and such property may be stored by Landlord in a public warehouse or elsewhere at the sole cost and for the account of Tenant. If Landlord does not elect to store any or all of Tenant's property left in the Premises, Landlord may consider such property to be abandoned by Tenant, and Landlord may
thereupon dispose of such property in any manner deemed appropriate by Landlord. Any proceeds realized by Landlord on the disposal of any such property shall be applied first to offset all expenses of storage and sale, then credited against Tenant's outstanding obligations to Landlord under this Lease, and any balance remaining after satisfaction of all obligations of Tenant under this Lease shall be delivered to Tenant.
16. LATE CHARGE AND INTEREST.
17. WAIVER. No provisions of this Lease shall be deemed waived by either party unless such waiver is in a writing signed by the waiving party. The waiver by either party of any breach of any provision of this Lease shall not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Lease. No delay or omission in the exercise of any right or remedy of either party upon any default by the other party shall impair such right or remedy or be construed as a waiver. Landlord's acceptance of any payments of rent due under this Lease shall not be deemed a waiver of any default by Tenant under this Lease (including Tenant's recurrent failure to timely pay rent) other than Tenant's nonpayment of the accepted sums, and no endorsement or statement on any check or on any letter accompanying any check or payment shall be deemed an accord and satisfaction. The consent to or approval by either party of any act by the other party requiring the first party's consent or approval shall not be deemed to waive or render unnecessary the consenting or approving party's consent to or approval of any subsequent act by the other party.
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to Tenant (and without notice in emergencies), Landlord and its authorized representatives may enter the Premises at all reasonable times to: (a) determine whether the Premises are in good condition,
(b) determine whether Tenant is complying with its obligations under this Lease,
(c) perform any maintenance or repair of the Premises or the Building that
Landlord has the right or obligation to perform, (d) install or repair
improvements for other tenants where access to the Premises is required for such
installation or repair, (e) serve, post or keep posted any notices required or
allowed under the provisions of this Lease, (f) show the Premises to prospective
brokers, agents, buyers, transferees, or Mortgagees, or (g) do any other act or
thing necessary for the safety or preservation of the Premises or the Building.
In addition, upon prior oral or written notice to Tenant, Landlord shall have
the right during the last nine (9) months of the Term, to show the Premises to
prospective tenants; provided, however, in each instance where Landlord cannot
provide Tenant with the name of the prospective tenant, then such prospective
tenant shall not be permitted to see Tenant's research and development room
within the Premises until twenty-four (24) hours after Landlord initially shows
the Premises to the prospective tenant. Notwithstanding anything contained to
the contrary in this Section 18, Tenant shall have the right to escort any
prospective brokers, agents, buyers, transferees, Mortgagees or prospective
tenants through the Premises, and to require such persons to comply with
Tenant's reasonable security precautions. When reasonably necessary Landlord may
temporarily close entrances, doors, corridors, or other facilities in the
Building without liability to Tenant by reason of such closure. Landlord shall
conduct its activities under this Section in a manner that will minimize
inconvenience to Tenant without incurring additional expense to Landlord. In no
event shall Tenant be entitled to an abatement of rent on account of any entry
by Landlord, and Landlord shall not be liable in any manner for any
inconvenience, loss of business or other damage to Tenant or other persons
arising out of Landlord's entry on the Premises in accordance with this Section.
No action by Landlord pursuant to this paragraph shall constitute an eviction of
Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to
terminate this Lease or otherwise release Tenant from any of Tenant's
obligations under this Lease.
19. SURRENDER AND HOLDING OVER.
Landlord for any damage or loss to Tenant resulting from Landlord's removal, storage, retention, or disposition of any such property. Upon expiration or termination of this Lease or of Tenant's possession, whichever is earliest, Tenant shall surrender all keys to the Premises or any other part of the Building and shall deliver to Landlord all keys for or make known to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the Premises. Tenant's obligations under this Section shall survive the expiration or termination of this Lease.
20. ENCUMBRANCES.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
22. NOTICES. Any notice, demand, request, consent or approval that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served personally, delivered by messenger or courier service, or sent by U.S. certified mail, return receipt requested, postage prepaid, addressed to the other party at the party's address for notices set forth in the Basic Lease Information. Any notice required pursuant to any Laws may be incorporated into, given concurrently with or given separately from any notice required under this Lease. Notices shall be deemed to have been given and be effective on the earlier of (a) receipt (or refusal of delivery or receipt); or (b) one (1) day after acceptance by the independent service for delivery, if sent by independent messenger or courier service, or three (3) days after mailing if sent by mail in accordance with this Section. Either party may change its address for notices hereunder, effective fifteen (15) days after notice to the other party complying with this Section. If Tenant sublets the Premises, notices from Landlord shall be effective on the subtenant when given to Tenant pursuant to this Section.
23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in any way related to this Lease, the non-prevailing party shall pay to the prevailing party all reasonable attorneys' fees and costs and expenses of any type incurred by the prevailing party in connection with any action or proceeding (including any appeal and the enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to final judgment. The "prevailing party" shall be determined based upon an assessment of which party's major arguments or positions taken in the action or proceeding could fairly be said to have prevailed (whether by compromise, settlement, abandonment by the other party of its claim or defense, final decision, after any appeals, or otherwise) over the other party's major arguments or positions on major disputed issues.
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of Tenant's obligations under this Lease and subject to the terms of this Lease, including Section 20 - Encumbrances, Tenant shall have the quiet possession of the Premises throughout the Term as against any persons or entities lawfully claiming by, through or under Landlord.
25. SECURITY MEASURES. Tenant shall be responsible for all security measures for the Premises, such as the registration or search of all persons entering or leaving the Building, requiring identification for access to the Building, evacuation of the Building for cause, suspected cause, or for drill purposes, the issuance of magnetic pass cards, if applicable, or keys for Building to prevent any threat of property loss or damage, bodily injury or business interruption. Landlord shall have no security responsibility for the Premises or the Project. Landlord, its agents and employees shall have no liability to Tenant or its Representatives or Visitors for the implementation or exercise of, or the failure to implement or exercise, any security measures for the Premises or the Project, or for any resulting disturbance of Tenant's use or enjoyment of the Premises.
26. FORCE MAJEURE. If either Landlord or Tenant is delayed, interrupted or prevented from performing any of its obligations under this Lease (other than, with respect to Tenant the payment of Base Rent, Additional Rent or any other charge payable by Tenant to Landlord under this Lease), including Landlord's obligations under the Construction Rider and such delay, interruption or prevention is due to fire, act of God, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of Landlord or Tenant, then the time for performance of the affected obligations of Landlord or Tenant, as the case may be,
shall be extended for a period equivalent to the period of such delay, interruption or prevention. The inability to pay money shall in no event constitute force majeure.
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall mean only the owner or owners of the Building at the time in question. In the event of any conveyance of title to the Building, then from and after the date of such conveyance, upon such transferee's written recognition of this Lease, the transferor Landlord shall be relieved of all liability with respect to Landlord's obligations to be performed under this Lease after the date of such conveyance. Notwithstanding any other term or provision of this Lease, the liability of Landlord for its obligations under this Lease is limited solely to Landlord's interest in the Building as the same may from time to time be encumbered, and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord's partners or members or its or their respective partners, shareholders, members, directors, officers or managers on account of any of Landlord's obligations or actions under this Lease.
29. CONSENTS AND APPROVALS.
30. BROKERS. Landlord shall pay the fee or commission of the broker or brokers identified in the Basic Lease Information (the "Broker") in accordance with Landlord's separate written agreement with the Broker, if any. Tenant warrants and represents to Landlord that in the
negotiating or making of this Lease neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Lease other than the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and attorney's fees incurred by Landlord asserted by any other broker or finder for a fee or commission based upon any dealings with or statements made by Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant harmless from and against any claim or claims, including costs, expenses and attorney's fees incurred by Tenant, by third parties claiming by, through, or under Landlord for commissions due or alleged to be due in connection with this Lease.
31. RELOCATION OF PREMISES [Intentionally deleted].
32. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their respective rights to trial by jury of any contract or tort claim, counterclaim, cross- complaint, or cause of action in any action, proceeding, or hearing brought by either party against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant's use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code, or ordinance.
33. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda attached hereto, and the documents referred to herein, if any, constitute the entire agreement between Landlord and Tenant with respect to the leasing of space by Tenant in the Building, and supersede all prior or contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein. Neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building, the Project or this Lease except as expressly set forth herein, and no rights, easements or licenses shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. The submission of this Lease for examination does not constitute an option for the Premises and this Lease shall become effective as a binding agreement only upon execution and delivery thereof by Landlord to Tenant.
34. MISCELLANEOUS. This Lease may not be amended or modified except by a writing signed by Landlord and Tenant. Subject to Section 14 - Assignment and Subletting and Section 28 - Landlord's Liability, this Lease shall be binding on and shall inure to the benefit of the parties and their respective successors, assigns and legal representatives. The determination that any provisions hereof may be void, invalid, illegal or unenforceable shall not impair any other provisions hereof and all such other provisions of this Lease shall remain in full force and effect. The unenforceability, invalidity or illegality of any provision of this Lease under particular circumstances shall not render unenforceable, invalid or illegal other provisions of this Lease, or the same provisions under other circumstances. This Lease shall be construed and interpreted in accordance with the laws (excluding conflict of laws principles) of the State in which the Building is located. The provisions of this Lease shall be construed in accordance with the fair meaning of the language used and shall not be strictly construed against either party, even if such party drafted the provision in question. When required by the context of this Lease, the singular includes the plural. Wherever the term "including" is used in this Lease, it shall be interpreted as meaning "including, but not limited to" the matter or matters thereafter enumerated. The captions contained in this Lease are for purposes of convenience only and are not to be used to interpret or construe this Lease. If more than one person or entity is identified as Tenant hereunder, the obligations of
each and all of them under this Lease shall be joint and several. Time is of the essence with respect to this Lease. Neither Landlord nor Tenant shall record this Lease.
35. AUTHORITY. If Tenant is a corporation, partnership, limited liability company or other form of business entity, each of the persons executing this Lease on behalf of Tenant warrants and represents that Tenant is a duly organized and validly existing entity, that Tenant has full right and authority to enter into this Lease and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Lease. Tenant shall provide Landlord upon request with evidence reasonably satisfactory to Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the date first above written.
TENANT: LANDLORD:
NATUS MEDICAL, INC. SAN CARLOS CO-TENANCY,
a California corporation a tenancy in common
By: III CENTRUM ASSOCIATES LIMITED
By: /s/ W. H. Lawrenson PARTNERSHIP,
----------------------------- a California limited partnership
Name: W.H. Lawrenson Managing Co-Owner
----------------------
Title: CFO
----------------------
By: Centrum III Development Corporation
a California corporation
its general partner
By: /s/ Tim C. Johnson
-----------------------------
Name: Tim C. Johnson
----------------------
Title: President By: /s/ William Wilson
---------------------- ------------------------------
Name: William Wilson
--------------------------
Title: President
--------------------------
By:______________________________
Name:____________________________
Title:___________________________
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
San Carlos II & III, San Carlos, California Stacking Plan
[STACKING PLANS APPEARS HERE]
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit A, Page 1
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
San Carlos II & III, San Carlos, California Stacking Plan
[STACKING PLANS APPEARS HERE]
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit A-1, Page 1
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
San Carlos II & III, San Carlos, California Stacking Plan
[STACKING PLANS APPEARS HERE]
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit A-2, Page 1
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
San Carlos II & III, San Carlos, California Stacking Plan
[STACKING PLANS APPEARS HERE]
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit A-3, Page 1
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
San Carlos II & III, San Carlos, California Stacking Plan
[STACKING PLANS APPEARS HERE]
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit A-4, Page 1
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
Following delivery of the Second Expansion Premises to Tenant, Tenant will cause an architect who Tenant will retain as the space planner ("Space Planner") to prepare a space plan ("Space Plan"), at Tenant's expense, for construction of Tenant Improvements ("Additional Improvements") in the First Expansion Premises and the Second Expansion Premises. The Space Planner is subject to Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed.
As soon as may be reasonably practicable after delivery of the Second Expansion Premises, the Space Planner will prepare and deliver to Landlord detailed plans and specifications sufficient to permit the construction of the Additional Improvements by the Contractor ("Construction Documents"). After Landlord has approved the Construction
Exhibit B, Page 1
Documents, which approval shall not be unreasonably withheld, the Contractor will provide Landlord and Tenant with a cost estimate for the work shown in the Construction Documents. Landlord shall respond to the Construction Documents and cost estimate within three (3) Business Days after receipt thereof, specifying any changes or modifications Landlord desires in the Construction Documents. The Space Planner will then revise the Construction Documents and resubmit them to Landlord and Tenant for their approval and the Contractor will provide Landlord and Tenant with a revised cost estimate. Landlord shall approve or disapprove the same within three (3) Business Days after receipt. The revised Construction Documents and cost estimate, as approved by Tenant and Landlord, are hereinafter referred to as the "Final Construction Documents" and "Final Cost Estimate," respectively.
If Landlord fails to give its written response to the foregoing items (Space Plans, Working Drawings, etc.) within the time specified hereinabove, then each day of delay beyond the time specified hereinabove for Landlord's response shall be one (1) day of "Landlord Delay." The Rent Commencement Date for the applicable Suite within the Premises shall be extended day for day for each day of Landlord Delay with respect to such Suite.
Additional interior decorating services and advice on the furnishing and decoration of the Premises, such as the selection of fixtures, furnishings or design of mill work, shall be provided by Tenant at its expense, but shall be subject to the reasonable approval of Landlord.
If Tenant or Tenant's Contractor or subcontractors, agents or employees, discovers any ACM (as hereinafter defined) in the First Expansion Premises or the Second Expansion Premises during demolition of the existing tenant improvements in the First Expansion Premises or the Second Expansion Premises, or during construction of Tenant Improvements (to which Landlord is contributing the Allowance, as hereinafter defined) within the First Expansion Premises or the Second Expansion Premises, then Tenant shall cause its contractor to immediately cease any work which may disturb the ACM and shall notify Landlord ("Tenant's ACM Notice") no later than forty-eight (48) hours after such discovery. Landlord shall, at its expense, remove or, at its option, encapsulate or contain the ACM in compliance with applicable Laws. In the event ACM is discovered in the Premises and reported to Landlord as provided in the preceding sentence above prior to, or during, construction of any Tenant Improvements within the Premises, the Rent Commencement Date of the applicable portion of the Premises shall be extended by the number of days from (but not including) the date of Tenant's ACM Notice through the date Landlord has completed the required removal of the ACM from the Premises to the extent required by and in accordance with all applicable governmental regulations and Tenant shall have no other claim against Landlord for delay in construction. If Tenant or Tenant's Contractor or subcontractors, agents or employees, discovers any ACM in the First Expansion Premises or the Second Expansion Premises during Alterations in First Expansion Premises or the Second
Exhibit B, Page 2
Expansion Premises subsequent to the applicable Rent Commencement Date, then Tenant shall cause its contractor to immediately cease any work which may disturb the ACM and shall notify Landlord ("Tenant's Additional ACM Notice") no later than forty-eight (48) hours after such discovery. Tenant's obligations to pay Rent shall not be affected by the discovery of ACM during Alterations. Landlord shall, at its expense, remove or, at its option, encapsulate or contain the ACM in compliance with applicable Laws. Landlord agrees to indemnify Tenant, its employees and contractors, against liability arising out of any removal of ACM by Landlord except for liability arising out of the negligence of Tenant, its contractors, subcontractors, agents or employees or Tenant's failure to report ACM discovered by Tenant or Tenant's Contractor or subcontractors, agents or employees, or Tenant's failure to perform its obligations under this Lease. For purposes of this Exhibit B, ACM means such material that contains the minimum amount of asbestos to cause its abatement as regulated by the procedures contained in the United States Environmental Protection Agency's National Emission Standard for Asbestos (40 CFR Sec. 61.140-61.156). Tenant covenants that it will not install, or permit to be installed, ACM in the Premises.
Following Substantial Completion of the Tenant Improvements (or as soon thereafter as may be reasonably practicable and in any event within 30 days after Substantial Completion), Landlord and Tenant shall inspect the Premises and jointly prepare a "punch list" of agreed items of construction remaining to be completed. The Contractor shall complete the items set forth in the punch list as soon as reasonably possible. Tenant shall cooperate with and accommodate Landlord and Landlord's contractor in completing the items on the punch list.
Exhibit B, Page 3
whether Tenant approves the Change, which approval shall not be unreasonably withheld. If Landlord approves the Change (which approval shall not be unreasonably withheld), Tenant shall proceed with the Change and Tenant shall be liable for any Additional Cost resulting from the Change. If Landlord and Tenant fail to approve the Change within such three (3) Business Day period, construction of the Tenant Improvements shall proceed as provided in accordance with the original Construction Documents.
Notwithstanding the foregoing, if the Second Expansion Premises
Commencement Date has not occurred or been deemed to have occurred within six
(6) months after the Scheduled Second Expansion Premises Commencement Date,
either party, by written notice to the other party given within ten (10) days
after the expiration of such six (6) month period, may terminate this Lease with
respect to the Second Expansion Premises without any liability to the other
party; provided, however, that if the delay in the Second Expansion Premises
Commencement Date is caused by delays of the type described in Section 26 -Force
Majeure of the Lease, and if Tenant elects to terminate as provided above, then
Tenant shall reimburse Landlord, within thirty (30) days after receipt of
notification from Landlord of the amounts due, for any amounts expended or
incurred by Landlord for the design, construction and installation of the Tenant
Improvements and for brokerage commissions and legal fees in connection with the
preparation and negotiation of the Lease.
Tenant agrees that Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property placed upon or installed in the Premises prior to the Commencement Date, the same being at Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to persons or property arising as a result of such entry into the Premises by Tenant or its Representatives.
Exhibit B, Page 4
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit B, Page 5
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD.
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
The following Building Rules are additional provisions of the foregoing Lease to which they are attached. The capitalized terms used herein have the same meanings as these terms are given in the Lease.
Exhibit C, Page 1
part of the Building without the prior written consent of Landlord. Landlord reserves the right to adopt and furnish Tenant with general guidelines relating to signs in or on the Building. All approved signage will be inscribed, painted or affixed at Tenant's expense by a person approved by Landlord, which approval will not be unreasonably withheld.
Exhibit C, Page 2
occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. Tenant will not bring or keep any animals in or about the Premises or the Property.
Exhibit C, Page 3
directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of noncompliance with such parking regulations.
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit C, Page 4
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
Exhibit D, Page 1
reduced, then Tenant's rights to use parking spaces hereunder may, at the election of Landlord, thereafter be reduced in proportion to the reduction of the total number of parking spaces in the Parking Facility. In such event, Landlord reserves the right to reduce the number of parking spaces to which Tenant is entitled or to relocate some or all of the parking spaces to which Tenant is entitled to other areas in the Parking Facility in a non- discriminatory manner relative to other tenants in the Project.
36. RIGHT OF FIRST OFFER.
(a) Provided that Natus Medical, Inc. has not assigned this Lease or sublet any or all of the Premises other than to an Affiliate (it being intended that all rights pursuant to this provision are and shall be personal to the original Tenant under this Lease and its Affiliates and shall not be transferable or exercisable for the benefit of any Transferee other than an Affiliate), and provided Tenant is not in default under this Lease beyond any applicable cure period at the time of the exercise of any such right or at any time thereafter until delivery of possession of the space to Tenant, and subject to any and all rights of other tenants in the Project with respect to such space (including renewal and extension rights and rights of first offer, first negotiation, first refusal or other expansion rights) existing as of the date of this Lease, Tenant shall have a one time right of first offer to lease the following space in the Building: 1509 Industrial Road, containing approximately 4,800 rentable square feet; and 1549 Industrial Road, containing approximately 2,170 rentable square feet.
(b) Such right of first offer (i) may only be exercised with respect to vacant space or space which has been previously leased and as to which an existing tenant of the Building has elected not to extend its lease or re-lease such space and (ii) may only be exercised with respect to all of the space being offered by Landlord. If any space qualifying for such right of first offer becomes available, Landlord shall offer to lease such space to Tenant at the same rent and on the same terms that Landlord intends to offer to other prospective tenants. Tenant shall have ten (10) Business Days following receipt of Landlord's offer with respect to any such space within which to notify Landlord in writing of its intention to lease such space, and such notice, if given by Tenant, shall constitute an acceptance of Landlord's terms for the lease of such space. If Tenant exercises such right of first offer, the space to be leased by Tenant shall be leased on the same terms and conditions as are contained in this Lease except for the economic and other terms specifically set forth in Landlord's notice, and the parties shall execute an amendment to this Lease to include such space in the Premises and otherwise to provide for the leasing of such space on such terms. If Tenant fails so to exercise Tenant's right of first offer within such ten (10) Business Day period, Landlord may thereafter lease such space to other prospective tenants; provided, however, that if Landlord proposes to lease such space at an effective rent that is less than ninety percent (90%) of the effective rent proposed to Tenant, or upon other terms which are substantially more favorable to the prospective tenant, Landlord shall first re-offer such space to Tenant at such lower rent and/or more favorable terms in accordance with the provisions of this paragraph.
(c) If Tenant does not lease the right of first offer space from Landlord when it is first offered to Tenant by Landlord, or when it is re- offered to Tenant because the economic terms first offered to Tenant have materially changed, as described in the last sentence of paragraph (b)
Exhibit D, Page 2
above, then this right of first offer shall terminate and Tenant shall have no further rights to lease any of the right of first offer space.
37. EXTENSION OPTION.
Provided that Natus Medical, Inc. has not assigned this Lease or
sublet any or all of the Premises other than to an Affiliate (it being
intended that all rights pursuant to this provision are and shall be
personal to the original Tenant under this Lease and its Affiliates and
shall not be transferable or exercisable for the benefit of any Transferee
other than an Affiliate), and provided Tenant is not in default under this
Lease beyond any applicable cure period at the time of exercise or at any
time thereafter until the beginning of any such extension of the Term,
Tenant shall have the option (the "EXTENSION OPTION") to extend the Term
for one (1) additional consecutive period of five (5) years ("EXTENSION
PERIOD"), by giving written notice to Landlord of the exercise of any such
Extension Option at least twelve (12) months, but not more than fifteen
(15) months, prior to the expiration of the initial Term. The exercise of
any Extension Option by Tenant shall be irrevocable and shall cover the
entire Premises leased by Tenant pursuant to this Lease. Upon such
exercise, the term of the Lease shall automatically be extended for the
applicable Extension Period without the execution of any further instrument
by the parties; provided that Landlord and Tenant shall, if requested by
either party, execute and acknowledge an instrument confirming the exercise
of the Extension Option. Any Extension Option shall terminate if not
exercised precisely in the manner provided herein. Any extension of the
Term shall be upon all the terms and conditions set forth in this Lease and
all Exhibits thereto, except that: (i) Tenant shall have no further option
to extend the Term of the Lease, other than as specifically set forth
herein; (ii) Landlord shall not be obligated to contribute funds toward the
cost of any remodeling, renovation, alteration or improvement work in the
Premises; and (iii) Base Rent for any such Extension Period shall be the
then Fair Market Base Rental (as defined below) for the Premises for the
space and term involved, which shall be determined as set forth below.
(a) "Fair Market Base Rental" shall mean the "fair market" Base Rent at the time or times in question for the applicable space, based on the prevailing rentals then being charged to tenants in other similar type buildings in similar type projects in the general vicinity of the Project of comparable size, location, quality and age as the Project for leases with terms equal to the Extension Period, taking into account the creditworthiness and financial strength of the tenant, the financial guaranties provided by the tenant (if any), the value of market concessions (including the value of construction, renovation, moving and other allowances or rent credits), the desirability, location in the building, size and quality of the space, tenant finish allowance and/or tenant improvements, included services, operating expenses and tax and expense stops or other escalation clauses, and brokerage commissions, for comparable space in the buildings which are being used for comparison. Fair Market Base Rental shall also reflect the then prevailing rental structure for comparable office buildings in the general vicinity of the Property, so that if, for example, at the time Fair Market Base Rental is being determined the prevailing rental structure for comparable space and for comparable lease terms includes periodic rental adjustments or escalations, Fair Market Base Rental shall reflect such rental structure.
Exhibit D, Page 3
(b) Landlord and Tenant shall endeavor to agree upon the Fair Market Base Rental. If they are unable to so agree within thirty (30) day's after receipt by Landlord of Tenant's notice of exercise of the Extension Option, Landlord and Tenant shall mutually select a licensed real estate broker who is active in the leasing of office space in the general vicinity of the Property. Landlord shall submit Landlord's determination of Fair Market Base Rental and Tenant shall submit Tenant's determination of Fair Market Base Rental to such broker, at such time or times and in such manner as Landlord and Tenant shall agree (or as directed by the broker if Landlord and Tenant do not promptly agree). The broker shall select either Landlord's or Tenant's determination as the Fair Market Base Rental, and such determination shall be binding on Landlord and Tenant. If Tenant's determination is selected as the Fair Market Base Rental, then Landlord shall bear all of the broker's cost and fees. If Landlord's determination is selected as the Fair Market Base Rental, then Tenant shall bear all of the broker's cost and fees.
(c) In the event the Fair Market Base Rental for any Extension Period has not been determined at such time as Tenant is obligated to pay Base Rent for such Extension Period, Tenant shall pay as Base Rent pending such determination, the Base Rent in effect for such space immediately prior to the Extension Period; provided, that upon the determination of the applicable Fair Market Base Rental, any shortage of Base Rent paid, together with interest at the rate specified in the Lease, shall be paid to Landlord by Tenant.
(d) In no event shall the Base Rent during any Extension Period be less than the Base Rent in effect immediately prior to such Extension Period.
(e) The term of this Lease, whether consisting of the Initial Term alone or the Initial Term as extended by any Extension Period (if any Extension Option is exercised), is referred to in this Lease as the "Term."
38. EXISTING LEASE.
Tenant is leasing the Existing Premises and the Termination Premises pursuant to a lease dated March 8,1993 with New York Life Insurance Company (the "Original Landlord"), which Existing Lease was amended by Lease Amendment No. 1 dated as of March 29, 1996, and Lease Amendment No. 2 dated as of August 8, 1997 (as so amended, the "Existing Lease"). Landlord is successor-in-interest to Original Landlord under the Existing Lease. The Existing Lease shall terminate November 15, 1998, and Tenant shall remain liable for those obligations accruing under the Existing Lease through November 15, 1998.
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit D, Page 4
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
In accordance with California law (Health & Safety Code Section 25915), we are writing to provide you with information concerning the presence of asbestos-containing construction materials ("ACM") in your building. This notice describes the location of these materials and requests your assistance in following proper handling procedures and in reporting any deterioration in the condition of these materials that you may notice.
In July 1989, ATC Environmental, Inc., a professional asbestos consultant, was retained to determine whether ACM was present in any of the six buildings at San Carlos Commerce Center located at 1551-1599 and 1501-1549 Industrial Road, San Carlos, California. The survey concluded that asbestos was present in the floor tile mastic in Suite 1511 (storage room) of the building at 1501 Industrial Road and Suite 1581 (break room) of the building at 1581 Industrial Road. The mastic materials were classified as low priority ACM and are considered to be non-friable, unless disturbed through renovation, maintenance or other activities, because the asbestos is bound and contained in a secondary material. A January 1990 survey by Starcraft Roof Service and two episodes of asbestos sampling and testing by Hart Crowser, Inc. in February 1990, showed asbestos-containing materials to be present in the roofs of the buildings at 1551, 1561 and 1581 Industrial Road and in the parapet flashings of the roofs of all six buildings. However, it was concluded that the materials were well bound and not friable in their existing condition, unless ground, drilled or otherwise abraded.
Because any alterations in any of the buildings containing ACM could disturb the ACM and possibly release asbestos fibers into the air, the inhalation of which could present a health hazard, we must require that you contact the Building Management Office at (650) 349-5531, for detailed asbestos handling procedures and to obtain our approval prior to beginning such projects. This includes major alterations, but might also include such activities as drilling holes, installing electrical, telecommunication or computer lines, sanding floors, or removing ceiling tiles. In many cases, such activities will not affect asbestos materials, but you must check with us in advance, just in case. In addition, please contact the Building Management Office if you notice any deterioration in the condition of the ACM.
Exhibit E, Page 1
It is common knowledge that exposure to asbestos may cause development of certain diseases, including cancer and lung disease. However, because we are not physicians, scientists or industrial hygienists, we have no special knowledge of the health impact of exposure to the asbestos located in the identified buildings. If you have any concerns about the health effects of asbestos exposure, we urge you to contact the State or Federal Occupational Safety and Health Administration, the California State Department of Health Services or the local City or County Department of Health Services for more information.
The results of all of our existing asbestos surveys, test results and monitoring data, including descriptions of the laboratory testing methods employed, are available for your review and photocopying in the Building Management Office, located at 2929 Campus Drive, Suite 145 in San Mateo, California, during regular working hours upon request. If you would like to see these materials, please make an appointment with Genelle Osendorf at (650) 349- 5331, at least two working days in advance. Because we are not experts in the area of asbestos testing and abatement, we make no warranties as to the contents of the consultants' reports or the methods employed by the consultants or the thoroughness or accuracy of the survey or test results or any other matters.
Please be aware that you will be responsible for complying with all legal requirements for notifying your own employees, contractors, subtenants and agents, if any, of the information contained in this notice.
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit E, Page 2
|
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 24, 1998
BETWEEN
SAN CARLOS CO-TENANCY, AS LANDLORD,
AND
NATUS MEDICAL, INC., AS TENANT ("LEASE")
CO (0-20 ppm), C02 (0-10%), H2 (0-300 ppm), balance Air CO (0-20 ppm), C02 (0-10%), 02 (0-20%), balance Nitrogen
INITIALS:
Landlord /s/ WW
-----------------
Tenant /s/ WHL
-----------------
Exhibit F, Page 1
|
EXHIBIT 10.9
PROMISSORY NOTE
----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$250,000.00 03-24-1999 03-26-2004 94-310166 6B 02 941
----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
----------------------------------------------------------------------------------------------------------------------------------
Borrower: TIM C. JOHNSON Lender: SCOTT VALLEY BANK
1501 INDUSTRIAL ROAD CONTRA COSTA BANKING CENTER
SAN CARLOS, CA 94070--4111 1500 N. CALIFORNIA BLVD.
WALNUT CREEK, CA 94596
==================================================================================================================================
Principal Amount: $250,000.00 Interest Rate: 4.620% Date of Note: March 24, 1999
|
PROMISE TO PAY. I promise to pay to SCOTT VALLEY BANK ("Lender"), or order, in lawful money of the United States of America the principal amount of Two Hundred Fifty Thousand & 00/100 Dollars ($250,000.00), together with interest at the rate of 4.620% per annum on the unpaid principal balance from March 24, 1999, until paid in full.
PAYMENT. I will pay this loan In one principal payment of S250,000.00 plus interest on March 26, 2004. This payment due March 26, 2004, will be for all principal and accrued interest not yet paid. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of the annual interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. I will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges.
PREPAYMENT. I agree that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, I may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve me of my obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, I will be charged 5.000% of the regularly scheduled payment or $5.00, whichever Is greater.
DEFAULT. I will be in default if any of the following happens: (a) I fail to
make any payment when due. (b) I break any promise I have made to Lender, or I
fail to comply with or to perform when due any other term, obligation, covenant,
or condition contained in this Note or any agreement related to this Note, or in
any other agreement or loan I have with Lender. (C) Any representation or
statement made or furnished to Lender by me or on my behalf is false or
misleading in any material respect either now or at the time made or furnished.
(d) I die or become insolvent, a receiver is appointed for any part of my
property, I make an assignment for the benefit of creditors, or any proceeding
is commenced either by me or against me under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of my property on or in which Lender has a
lien or security interest. This includes a garnishment of any of my accounts
with Lender. (f) Any of the events described in this default section occurs with
respect to any guarantor of this Note.
If any default, other than a default in payment, is curable and if I have not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if I, alter receiving written notice from Lender demanding cure of such default: (a) cure the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then I will pay that amount. Lender may hire or pay someone else to help collect this Note if I do not pay. I also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. I also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, I agree upon Lender's request to submit to the jurisdiction of the courts of CONTRA COSTA County, the State of California. Subject to the provisions on arbitration, this Note shall be governed by and construed in accordance with the laws of the State of California.
RIGHT OF SETOFF. I grant to Lender a contractual security interest in, and hereby assign, convey, deliver, pledge, and transfer to Lender all my right, title and interest in and to, my accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts I may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. I authorize Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts.
COLLATERAL. This Note is secured by ASSIGNMENT OF CERTIFICATE OF DEPOSIT
#94-831152.
ARBITRATION. Lender and I agree that all disputes, claims and controversies between us, whether individual, joint, or class in nature, arising from this Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association, upon request of either party. No act to take or dispose of any collateral securing this Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Lender and I agree that in the event of an action for judicial foreclosure pursuant to California Code of Civil Procedure Section 726, or any similar provision in any other state, the commencement of such an action will not constitute a waiver of the right to arbitrate and the court shall refer to arbitration as much of such action, including counterclaims, as lawfully may be referred to arbitration. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.
03-24-99 PROMISSORY NOTE Page 2 Loan No. 94-310166 (Continued) ================================================================================ |
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. I and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, I READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. I AGREE TO THE TERMS OF THE NOTE AND ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
/s/ Tim C. Johnson ------------------------------- TIM C. JOHNSON |
EXHIBIT 10.9.1
ASSIGNMENT OF DEPOSIT ACCOUNT
------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$250,000.00 03-24-1999 03-26-2004 94-310166 6B 02 941
------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
------------------------------------------------------------------------------------------------------------------------------------
Borrower: TIM C. JOHNSON Lender: SCOTT VALLEY BANK
1501 INDUSTRIAL ROAD CONTRA COSTA BANKING CENTER
SAN CARLOS, CA 94070-4111 1500 N. CALIFORNIA BLVD.
WALNUT CREEK, CA 94596
Grantor: NATUS MEDICAL, INC.
1501 INDUSTRIAL ROAD
SAN CARLOS, CA 94070-4111
====================================================================================================================================
|
THIS ASSIGNMENT OF DEPOSIT ACCOUNT Is entered into among TIM C. JOHNSON (referred to below as "Borrower"); NATUS MEDICAL, INC. (referred to below as "Grantor"); and SCOTT VALLEY BANK (referred to below as "Lender").
ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a security interest in the Collateral, including without limitation the deposit accounts described below, to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.
Account. The word "Account" means the deposit account described below in the definition for "Collateral."
Agreement. The word "Agreement" means this Assignment of Deposit Account, as this Assignment of Deposit Account may be amended or modified from time to time, together with all exhibits and schedules attached to this Assignment of Deposit Account from time to time.
Borrower. The word "Borrower" means each and every person or entity signing the Note, including without limitation TIM C. JOHNSON.
Collateral. The word "Collateral" means the following described deposit account:
CERTIFICATE OF DEPOSIT #94-831152 issued by Lender in an amount not less than $250,000.00
together with (a) all interest, whether now accrued or hereafter accruing:
(b) all additional deposits hereafter made to the Account; (c) any and all
proceeds from the Account; and (d) all renewals, replacements and
substitutions for any of the foregoing.
In addition, the word "Collateral" includes all property of Grantor (however owned if owned by more than one person), in the possession of Lender (or in the possession of a third party subject to the control of Lender), whether existing now or later and whether tangible or intangible in character, including without limitation each and all of the following:
(a) All property to which Lender acquires title or documents of title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates, bonds, savings passbooks, time certificates of deposit, insurance policies, and all other instruments and evidences of an obligation.
(d) All records relating to any of the property described in this Collateral section, whether In the form of writing, microfilm, microfiche, or electronic media. SEE (e) BELOW
(e) UNDER NO CIRCUMSTANCE SHALL GRANTOR BE REQUIRED TO PROVIDE ADDITIONAL COLLATERAL BEYOND THE ABOVE ACCOUNT PLUS ACCRUED INTEREST
Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means NATUS MEDICAL, INC. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety).
Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and interest, together with all other indebtedness and costs and expenses for which Grantor or Borrower is responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means SCOTT VALLEY BANK, its successors and assigns.
Note. The word "Note" means the note or credit agreement dated March 24, 1999, in the principal amount of $250,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (c) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) tender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any right to require Lender to (a) make any presentment, protest,
03-24-1999 ASSIGNMENT OF DEPOSIT ACCOUNT Page 2 Loan No 94-310166 (Continued) ================================================================================ |
demand, or notice of any kind, including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor or surety, any action or nonaction taken by Borrower, Lender, or any other guarantor or surety of Borrower, or the creation of new or additional Indebtedness; (b) proceed against any person, including Borrower, before proceeding against Grantor; (c) proceed against any collateral for the Indebtedness, including Borrower's collateral, before proceeding against Grantor; (d) apply any payments or proceeds received against the Indebtedness in any order; (e) give notice of the terms, time, and place of any sale of any collateral pursuant to the Uniform Commercial Code or any other law governing such sale; (f) disclose any information about the Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or about any action or nonaction of Lender; or (g) pursue any remedy or course of action in Lender's power whatsoever.
Grantor also waives any and all rights or defenses arising by reason of (h) any disability or other defense of Borrower, any other guarantor or surety or any other person; (i) the cessation from any cause whatsoever, other than payment in full, of the Indebtedness; (j) the application of proceeds of the Indebtedness by Borrower for purposes other than the purposes understood and intended by Grantor and Lender; (k) any act of omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the Indebtedness, or the loss or release of any collateral by operation of law or otherwise; (I) any statute of limitations in any action under this Agreement or on the Indebtedness; or (m) any modification or change in terms of the Indebtedness, whatsoever, including without limitation, the renewal, extension, acceleration, or other change in the time payment of the Indebtedness is due and any change in the interest rate.
Grantor waives all rights and defenses arising out of an election of remedies by
Lender, even though that election of remedies, such as nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed Grantor's
rights of subrogation and reimbursement against Borrower by the operation of
Section 580d of the California Code of Civil Procedure, or otherwise.
This waiver includes, without limitation, any loss of rights Grantor may suffer by reason of any rights or protections of Borrower in connection with any anti-deficiency laws, or other laws limiting or discharging the Indebtedness or Borrower's obligations (including, without limitation, Section 726, 580a, 580b, and 580d of the California Code of Civil Procedure). Grantor waives all rights and protections of any kind which Grantor may have for any reason, which would affect or limit the amount of any recovery by Lender from Grantor following a nonjudicial sale or judicial foreclosure of any real or personal property security for the Indebtedness including, but not limited to, the right to any fair market value hearing pursuant to California Code of Civil Procedure Section 580a.
Grantor understands and agrees that the foregoing waivers are waivers of substantive rights and defenses to which Grantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by California laws of suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that Grantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by Lender. Until all Indebtedness is paid in full, Grantor waives any right to enforce any remedy Lender may have against Borrower or any other guarantor, surety, or other person, and further, Grantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws.
GRANTOR'S REPRESENTATIONS AND PROMISES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of all loans, liens, encumbrances, and claims except as disclosed to and accepted by Lender in writing.
Right to Grant Security Interest. Grantor has the full right, power, and authority to enter into this Agreement and to assign the Collateral to Lender.
No Further Transfer. Grantor will not sell, assign, encumber, or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement.
No Defaults. There are no defaults relating to the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly do everything required of Grantor under the terms, conditions, promises, and agreements contained in or relating to the Collateral. ***PAF
Proceeds. Any and all replacement or renewal certificates, instruments, or other benefits or proceeds related to the Collateral that are received by Grantor shall be held by Grantor in trust for Lender and immediately shall be delivered by Grantor to Lender to be held as part of the Collateral.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this Agreement is in effect, Lender may retain the rights to possession of the Collateral, together with any and all evidence of the Collateral, such as certificates or passbooks. This Agreement will remain in effect until (a) there no longer is any Indebtedness owing to Lender: (b) all other obligations secured by this Agreement have been fulfilled; and (c) Grantor, in writing, has requested from Lender a release of this Agreement.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All Such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of any certificate or passbook for the
Collateral but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility (a) for the collection or protection of any income on the
Collateral, (b) for the preservation of rights against issuers of the Collateral
or against third persons; (C) for ascertaining any maturities, conversions,
exchanges, offers, tenders, or similar matters relating to the Collateral; nor
(d) for informing the Grantor about any of the above, whether or not Lender has
or is deemed to have knowledge of such matters.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on the Indebtedness.
Other Defaults. Failure of Grantor or Borrower to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or failure of Borrower to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished.
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Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason.
Death or Insolvency. The death of Grantor or Borrower, the insolvency of Grantor or Borrower, the appointment of a receiver for any part of Grantor or Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor or Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or Borrower or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor or Borrower's deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor or Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor or Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor or Borrower has not been given a prior notice of a
breach of the same provision of this Agreement, it may be cured (and no
Event of Default will have occurred) if Grantor or Borrower, after Lender
sends written notice demanding cure of such default, (a) cures the default
within fifteen (15) days; or (b), if the cure requires more than fifteen
(15) days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or at any time thereafter, Lender may exercise any one or more of the following rights and remedies, in addition to any rights or remedies that may be available at law, in equity, or otherwise:
Accelerate Indebtedness. Lender may declare all Indebtedness of Borrower to Lender immediately due and payable, without notice of any kind to Grantor or Borrower.
Application of Account Proceeds. Lender may obtain all funds in the Account from the issuer of the Account and apply them to the Indebtedness in the same manner as if the Account had been issued by Lender. If the Account is subject to an early withdrawal penalty, that penalty shall be deducted from the Account before its application to the Indebtedness, whether the Account is with Lender or some other institution. Any excess funds remaining after application of the Account proceeds to the Indebtedness will be paid to Grantor or Borrower as the interests of Grantor or Borrower may appear. Borrower agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Account to the Indebtedness. Lender also shall have all the rights of a secured party under the California Uniform Commercial Code, even if the Account is not otherwise subject to such Code concerning security interests, and the parties to this Agreement agree that the provisions of the Code giving rights to a secured party shall nonetheless be a part of this Agreement.
Collect the Collateral. Lender may collect any of the Collateral and, at Lender's option and to the extent permitted by applicable law, may retain possession of the Collateral while suing on the Indebtedness.
Sell the Collateral. Lender may sell the Collateral, at Lender's discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is perishable or threatens to decline speedily in value, Lender shall give or mail to Grantor or Borrower, or any of them, notice at least ten (10) days in advance of the time and place of public sate, or of the dale after which private sale may be made. Grantor and Borrower agree that any requirement of reasonable notice is satisfied if Lender mails notice by ordinary mail addressed to Grantor or Borrower, or any of them, at the last address Grantor or Borrower has given Lender in writing. If public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale.
Register Securities. Lender may register any securities included in the Collateral in Lender's name and exercise any rights normally incident to the ownership of securities.
Sell Securities. Lender may sell any securities included in the Collateral in a manner consistent with applicable federal and state securities laws, notwithstanding any other provision of this or any other agreement. If, because of restrictions under such laws, Lender is or believes it is unable to sell the securities in an open market transaction, Grantor and Borrower agree that (a) Lender shall have no obligation to delay sale until the securities can be registered, (b) Lender may make a private sale to a single person or restricted group of persons, even though such sale may result in a price that is less favorable than might be obtained in an open market transaction, and (c) such a sale shall be considered commercially reasonable. If any securities held as Collateral are "restricted securities" as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or state securities departments under state "Blue Sky" laws, or if Grantor or Borrower, or any of them (if more than one), is an affiliate of the issuer of the securities, Grantor and Borrower agree that Grantor or Borrower will neither sell nor dispose of any securities of such issuer without obtaining Lender's prior written consent.
Transfer Title. Lender may effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as its attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable.
Application of Proceeds. Lender may apply any cash which is part of the Collateral, or which is received from the collection or sale of the Collateral, to (a) reimbursement of any expenses, including any costs of any securities registration, commissions incurred in connection with a sale, attorney fees as provided below and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral, and (b) to the payment of the Indebtedness of Borrower to Lender, with any excess funds to be paid to Grantor as the interests of Grantor may appear.
Other Rights and Remedies. Lender shall have and may exercise any or all of the rights and remedies of a secured creditor under the provisions of the California Uniform Commercial Code, at law, in equity, or otherwise.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the
03-24-1999 ASSIGNMENT OF DEPOSIT ACCOUNT Page 4 Loan No 94-310166 (Continued) ================================================================================ |
party or parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Grantor and Borrower agree upon Lender's request to submit to the jurisdiction of the courts of CONTRA COSTA County, State of California. Subject to the provisions on arbitration, this Agreement shall be governed by and construed in accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Grantor and Borrower agree to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may pay someone else to help enforce this Agreement, and Grantor and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor and Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor or Borrower, notice to any Grantor or Borrower will constitute notice to all Grantor and Borrowers. For notice purposes, Grantor and Borrower will keep Lender informed at all times of Grantor and Borrower's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (C) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 24, 1999.
BORROWER:
/s/ Tim C. Johnson ---------------------------------------------------- TIM C. JOHNSON |
GRANTOR:
NATUS MEDICAL, INC.
By: /s/ Bill Lawrenson ------------------------------------------------- BILL LAWRENSON, CHIEF FINANCIAL OFFICER |
(E) UNDER NO CIRCUMSTANCE SHALL GRANTOR BE REQUIRED TO PROVIDE ADDITIONAL COLLATERAL BEYOND THE ABOVE ACCOUNT PLUS ACCRUED INTEREST
EXHIBIT 10.9.2
SECURITY AGREEMENT
This Security Agreement (the "Agreement") is made as of March 26, 1999 between Natus Medical Incorporated, a California corporation ("Pledgee"), and Tim Johnson ("Pledgor").
Pledgor has obtained a $250,000 line of credit from Scott Valley Bank (the "Bank") evidenced by a promissory note dated March 26, 1999 from the Pledgor to the Bank (the "Note"). The Note requires that Pledgee pledge and deliver to bank collateral sufficient to fully secure the Note under an agreement dated March 26, 1999 (the "Guarantee") in the form of a certificate of deposit of $250,000. Pursuant to Pledgor's election to exercise options to purchase shares of Common Stock of Pledgee, Pledgor has purchased 277,778 shares of Pledgee's Common Stock (the "Shares"). The Note and the Guarantee, as well as each of the Pledgor and Pledgee's obligations thereunder are as set forth in Exhibits 1A and 1B to this Agreement. The Pledgee desires to retain the services of the Pledgor and Pledgor desires to continue to provide such services.
NOW, THEREFORE, it is agreed as follows:
The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Agreement, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Agreement. The Pledgor and Pledgee agree that the sole obligation of Pledgor in the event the bank seizes the collateral pledged by Pledgee shall be the Shares, that the Pledgee shall have no recourse against the Pledgor other than the Shares and that after such a seizure of the collateral, the Shares shall be retained in full satisfaction of Pledgor's obligation to Pledgee.
(a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more and the Bank has seized collateral pledged by Pledgee under its Guarantee of the Note; or
(b) Pledgor fails to perform any of the covenants set forth in the Note or contained in this Agreement for a period of 10 days after written notice thereof from Pledgee, or
(c) Pledgor, fails to retire the Note in accordance with section 6 above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
"PLEDGOR" /s/ Tim C. Johnson
-----------------------------------------
Signature
|
"PLEDGEE" NATUS MEDICAL INCORPORATED
a California corporation
/s/ [Illlegible]
-----------------------------------------
By:
CFO
-----------------------------------------
Title:
|
March 26, 1999
Assistant Secretary
1501 Industrial Road
San Carlos, California 94070
Dear Sir:
As Escrow Agent for both Natus Medical Incorporated, a California corporation (the "Company"), and the undersigned pledgor of stock of the Company (the "Pledgor"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Security Agreement (the "Agreement") between the Company and the undersigned, to which a copy of these Joint Escrow Instructions is attached as Exhibit 2, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") defaults on all or a portion of the promissory note attached to the Agreement as Exhibit 1A (the "Note") and the Bank, as the holder of the Note, has seized certain collateral pledged by the Company under an agreement with the holder of the Note ("the "Guarantee"), attached as Exhibit 1B, the Company shall give to Pledgor and you a written notice specifying the number of shares of stock to retained by the Company in satisfaction of Pledgor's obligation to the Company. Pledgor and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of the notice.
2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver the same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, in accordance with the Agreement, against the simultaneous delivery to you of the canceled Note and release of security obligation as to the transferred shares.
3. Pledgor irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to the shares as defined in the Agreement. Pledgor does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated. Subject to the provisions of this paragraph 3, Pledgor shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.
4. Upon written request of Pledgor, but no more than once each year, unless the Note is in default, you will deliver to Pledgor a certificate or certificates representing so many shares of stock the fair market value of which is greater than the principal and interest due upon the Note as of the date thereof. Within eighteen months after cessation of Pledgor's Continuous Status as an Employee by the Company, you will deliver to Pledgor a certificate or certificates representing the aggregate number of Shares subject to the Agreement and not required as collateral for the Note due to the satisfaction of the Note in full by the Pledgor with cash.
Notwithstanding the foregoing, none of the certificates representing the Shares deposited under these escrow instructions shall be released to the Pledgor if the principal and interest due under Pledgor's Note given in payment for such shares exceeds the fair market value of the Shares subject to the Agreement. So long as the Note is outstanding, the shares shall be held by you as collateral for the obligation under the Note. Upon the request of the Pledgor and the written consent of the Pledgee, you may sell some or all of the Shares and provide no less than one half of the proceeds to the Bank as payment for the Note and the balance to the Pledgor; provided, however, that if after such sale and net of the proceeds applied to the Note, the fair market value of the remaining Shares would be less than the then outstanding principal and interest due on the Note, no portion of the proceeds shall be released to the Pledgor. Subject to the provisions of this paragraph 4, upon payment of the Note in full the remaining certificates representing the shares may be released and delivered to the Pledgor. In the event Pledgor defaults in payment of the Note when due, you shall, upon written request of the Company, deliver the certificate evidencing the shares and the stock assignments to the Company to enable the Company to exercise its rights as a secured party under the Commercial Code of the State of California.
5. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
6. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Pledgor while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
7. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any duly approved arbitrator or court of competent jurisdiction. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
8. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
9. You shall not be liable for the outlawing of any rights under any applicable statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
10. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be the counsel to the Company or its Assistant Secretary or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.
12. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a duly appointed arbitrator or court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
14. At the option of either the Company or Pledgor, any and all disputes or controversies arising from or respecting this agreement shall be decided by binding arbitration under the rules of the American Arbitration Association. The arbitrator shall consist of one arbitrator. Arbitration shall take place in Santa Mateo County, California or any other location mutually agreeable to the parties. At the request of either party, arbitration proceedings will be conducted in the utmost secrecy. The arbitrator shall be able to decree any and all relief of an equitable nature and to award damages, with or without an accounting and costs. The decree of judgment of an award rendered by the arbitrator may be entered in any court of competent jurisdiction.
15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given when delivered, if given by personal delivery: three (3) business days after the business day of deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid; one (1) business day after the business day of facsimile transmission, if a confirmation copy is sent via first class mail, postage prepaid; or one (1) business day after the business day of deposit with Federal Express or similar overnight carrier, freight prepaid; in any such case addressed to each of the other parties thereunto entitled at the addresses indicated in the Company's records, or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto.
16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
COMPANY:
NATUS MEDICAL INCORPORATED
a California corporation
By: /s/ William Lawrenson ------------------------- Title: CFO |
PLEDGOR:
/s/ Tim C. Johnson ---------------------------- Tim C. Johnson |
ESCROW AGENT:
Natus Medical Incorporated
EXHIBIT 10.10
For Purchases and Leases Direct From Supplier
Subject to Competitive Bid Process
CAPITAL EQUIPMENT SUPPLIER AGREEMENT
between
NOVATION, LLC
and
NATUS MEDICAL INC.
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
PAGE
----
1. Introduction......................................................... 1
a. Purchasing and Leasing Opportunities for Members................ 1
b. Supplier........................................................ 1
c. Bid............................................................. 1
2. Contract Award....................................................... 1
a. Letter of Award ................................................ 1
b. Optional Purchasing or Leasing Arrangements..................... 2
c. [***] Terms..................................................... 2
d. Changes in Award Prices......................................... 2
e. Notification of Changes in Pricing Terms........................ 2
f. Underutilized Businesses........................................ 2
3. Term and Termination................................................. 3
a. Term............................................................ 3
b. Termination by Novation......................................... 3
c. Termination by Supplier......................................... 3
4. Product Supply....................................................... 3
a. Delivery and Invoicing.......................................... 3
b. Supplies........................................................ 4
c. Product Fill Rates; Confirmation and Delivery Times............. 4
d. Manuals/Schematics/Inspection Procedures........................ 4
e. Bundled Terms................................................... 4
f. Discontinuation of Products; Changes in Packaging............... 4
g. Replacement or New Products..................................... 5
h. New Technology.................................................. 5
i. Product Acceptance.............................................. 5
j. Site Preparation................................................ 6
k. Installation/Assembly........................................... 6
l. Installation/Environmental Issues............................... 6
m. Member Services................................................. 6
n. Training........................................................ 6
o. Product Deletion................................................ 7
p. Return of Products.............................................. 7
q. Failure to Supply............................................... 7
5. Product Quality...................................................... 7
a. Free From Defects............................................... 7
b. Warranty Service................................................ 8
c. Replacement Parts............................................... 8
d. Service Response Time........................................... 8
e. Uptime Guarantee................................................ 8
|
f. Preventive Maintenance.......................................... 9
g. Upgrades........................................................ 9
h. Customization Software.......................................... 9
i. Operational Software............................................ 9
j. Diagnostic Software............................................. 10
k. Data Conversion/Interfaces...................................... 10
l. Service Contract Cancellation................................... 10
m. Product Compliance.............................................. 10
n. Patent Infringement............................................. 11
o. Product Condition............................................... 11
p. Recall of Products.............................................. 11
q. Shelf Life...................................................... 11
6. Century Compliance................................................... 11
a. Definitions..................................................... 11
b. Representations................................................. 12
c. Remedies........................................................ 12
d. Noncompliance Notice............................................ 12
e. Survival........................................................ 13
7. Reports and Other Information Requirements........................... 13
a. Report Content.................................................. 13
b. Report Format and Delivery...................................... 13
c. Other Information Requirements.................................. 14
8. Obligations of Novation.............................................. 14
a. Information to Members.......................................... 14
b. Marketing Services.............................................. 14
9. Marketing Fees....................................................... 14
a. Calculation..................................................... 14
b. Payment......................................................... 15
10. [***]................................................................ 15
11. Nonpayment or Insolvency of a Member................................. 16
12. Insurance............................................................ 16
a. Policy Requirements............................................. 16
b. Self-Insurance.................................................. 16
c. Amendments, Notices and Endorsements............................ 17
13. Compliance with Law and Government Program Participation............. 17
a. Compliance With Law............................................. 17
b. Government Program Participation................................ 17
14. Release and Indemnity................................................ 17
15. Books and Records; Facilities Inspections............................ 18
16. Use of Names Etc..................................................... 18
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17. Confidential Information............................................. 18
a. Nondisclosure................................................... 18
b. Definition...................................................... 19
18. Miscellaneous........................................................ 19
a. Choice of Law................................................... 19
b. Not Responsible................................................. 19
c. Third Party Beneficiaries....................................... 19
d. Notices......................................................... 19
e. No Assignment................................................... 20
f. Severability.................................................... 20
g. Entire Agreement................................................ 20
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PAGE
----
Agreed Percentage............................................... 15
Award Letter.................................................... 1
Award Prices.................................................... 1
Bid............................................................. 1
Calendar-Related................................................ 12
Century Noncompliance........................................... 12
Clients......................................................... 1
Confidential Information........................................ 19
Effective Date.................................................. 3
Equipment....................................................... 1
FDA............................................................. 17
Federal health care program..................................... 17
Forms........................................................... 1
Gregorian calendar.............................................. 12
Guidebook....................................................... 14
Indemnitees..................................................... 17
Legal Requirements.............................................. 17
Marketing Fees.................................................. 14
Members......................................................... 1
Non-Price Specifications........................................ 1
Novation........................................................ 1
Novation Database............................................... 1
Products........................................................ 1
Reporting Month................................................. 13
Services........................................................ 1
Special Conditions.............................................. 1
Supplier...................................................title page
Supplies........................................................ 1
Systems......................................................... 12
Term............................................................ 3
timely.......................................................... 13
Warranty Period................................................. 7
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NOVATION, LLC
CAPITAL EQUIPMENT SUPPLIER AGREEMENT
1. Introduction.
2. Contract Award.
by Supplier as part of the Bid and that all such representations, warranties and agreements will survive acceptance of the Bid.
(SBE), Historically Underutilized Businesses (HUB) and/or Women-owned Business Enterprises (WBE). To assist Novation in helping Members meet these requirements. Supplier will comply with all Novation policies and programs with respect to such businesses and will provide, on request, Novation or any Member with statistical or other information with respect to Supplier's utilization of such businesses as a vendor, distributor, contractor or subcontractor.
3. Term and Termination.
(1) Supplier breaches this Agreement; or
(2) Supplier becomes bankrupt or insolvent or makes an unauthorized assignment or goes into liquidation or proceedings are initiated for the purpose of having a receiving order or winding up order made against Supplier, or Supplier applies to the courts for protection from its creditors.
Novation's right to terminate this Agreement due to Supplier's breach in accordance with this Subsection is in addition to any other rights and remedies Novation, the Clients or the Members may have resulting from such breach, including, but not limited to, Novation's and the Clients' right to recover all loss of Marketing Fees resulting from such breach through the date of termination and for [***] thereafter.
4. Product Supply.
constituting the minimum delivery lead times for the Equipment from the date of a Member's purchase order. The actual delivery lead times may be increased by the ordering Member based on its needs. Exhibit G attached hereto sets forth the amount of liquidated damages payable by Supplier to the Member in the event of Supplier's failure for any reason to comply with the agreed delivery schedule. Supplier will make whatever arrangements are reasonably necessary with the Members to implement the terms of this Agreement; provided, however, Supplier will not impose any purchasing or leasing commitment on any Member as a condition to the Member's purchase or lease of any Products pursuant to this Agreement.
thereto in writing, in addition to any other rights and remedies Novation or the Members may have by reason of such discontinuation or substantial change, (i) Novation will have the right to terminate any or all of the Product(s) subject to such discontinuation or substantial change or to terminate this Agreement in its entirety immediately upon becoming aware of the discontinuation or substantial change or any time thereafter by delivering written notice thereof to Supplier: (ii) the Members may purchase or lease products equivalent to the discontinued or substantially changed Products from other sources and Supplier will be liable to the Members for all reasonable costs in excess of the Award Prices plus any other damages which they may incur: and (iii) Supplier--will be liable to Novation and the Clients for any loss of Marketing Fees resulting from such unacceptable discontinuation or substantial change plus any other damages which they may incur.
inservice training for both operators and technical service staff of the Member at the Member's site at Supplier's own cost, unless otherwise provided in any exhibit hereto, for the Equipment as requested by any Member prior to the completion of the [***] acceptance period referenced in Subsection 4.i above and will continue such inservice training for the period required by the Member to complete training for the required personnel. Supplier will provide follow-up inservice training as determined by the Member for the life of the Equipment at no additional charge regardless of where the training is performed.
5. Product Quality.
option of the Member, either replace the defective Products or credit the Member. Supplier will bear all costs of returning and replacing the defective Products, as well as all risk of loss or damage to the defective Products from and after the time they leave the physical possession of the Member. The warranties contained in this Subsection will survive any inspection, delivery, acceptance or payment by a Member. In addition, if there is at any time wide-spread failure of the Products even after the Warranty Period has ended, the Member may return all said Products for credit or replacement, at its option. This Subsection and the obligations contained herein will survive the expiration or earlier termination of this Agreement. The remedies set forth in this Subsection are in addition to and not a limitation on any other rights or remedies that may be available against Supplier.
where `T" is the total number of hours that the Equipment is typically used per quarter (determined by multiplying the number of hours per day that the Equipment is typically used by the number of days per week that the Equipment is typically used, and multiplying the result by 13 weeks in a quarter), and "TNF" is the number of hours the Equipment or any component of the Equipment is not functional during the quarter (the hours calculated will only include those hours that the Equipment would typically be in use). If any portion of the total functionality of the Equipment is unavailable for operational use, the Equipment will be considered down. Downtime scheduled for preventive maintenance or any other scheduled event, including those for the convenience of Member, will not be included in the downtime calculation.
Member will calculate uptime after each calendar quarter. If uptime is less than [***], any lost revenue suffered by the Member for downtime beyond the allowable [***] during the quarter will be paid by Supplier to the Member. Lost revenue will be calculated by multiplying the number of procedures that would have been performed or the number of times the Equipment would have been used during any downtime times the Member's current charge rate per procedure or per use. The Member will give written notice to Supplier of its failure to meet the uptime requirement and the amount of lost revenues, and Supplier will pay such amount to the Member within [***] after receipt of the notice. In addition, Supplier will extend the Warranty Period or the service agreement without charge by [***] for every [***] the Equipment or component thereof is not operational beyond the allowable [***].
unless otherwise provided in any exhibit hereto, will be licensed to the Member upon acceptance of the Equipment pursuant to Subsection 4.i above. All new operational software will be provided to the Member, unless otherwise provided in Exhibit N, at no charge. throughout the Warranty Period and thereafter throughout the term of any service agreement. New software will be installed within (2) weeks after release.
of the risks, if any, associated with the use of the Products. Supplier's representations, warranties and agreements in this Subsection will survive the expiration or earlier termination of this Agreement.
6. Century Compliance.
(1) "Systems" means any of the Products, systems of distribution for Products and Product manufacturing systems that consist of or include any computer software, computer firmware, computer hardware (whether general or special purpose), documentation, data, and other similar or related items of the automated, computerized, and/or software systems that are provided by or through Supplier or utilized to manufacture or distribute the Products provided by or through Supplier pursuant to this
Agreement, or any component part thereof, and any services provided by or through Supplier in Connection therewith.
(2) "Calendar-Related" refers to date values based on the "Gregorian calendar" (as defined in the Encyclopedia Britannica, 15th edition. 1982. page 602) and to all uses in any manner of those date values, including without limitation manipulations, calculations, conversions, comparisons, and presentations.
(3) "Century Noncompliance" means any aspects of the Systems that fail to satisfy the requirements set forth in Subsection 6.b below.
(1) In connection with the use and processing of Calendar-Related data, the Systems will not malfunction, will not cease to function, will not generate incorrect data, and will not produce incorrect results.
(2) In connection with providing Calendar-Related data to and accepting Calendar-Related data from other automated, computerized, and/or software systems and users via user inter-faces, electronic interfaces, and date storage, the Systems represent dates without ambiguity as to century.
(3) The year component of Calendar-Related data that is provided by the Systems to or that is accepted by the Systems from other automated, computerized, and/or software systems and user interfaces, electronic interfaces, and data storage is represented in a four-digit CCYY format, where CC represents the two digits expressing the century and YY represents the two digits expressing the year within that century (e.g.. 1996 or 2003).
(4) Supplier has verified through testing that the Systems satisfy the requirements of this Subsection including, without limitation, testing of each of the following specific dates and the transition to and from each such date: September 9, 1999; September 10, 1999; December 31, 1999; January 1, 2000; February 28, 2000; February 29, 2000; March 1, 2000; December 31, 2000: January 1. 2001; December 31, 2004; and January 1, 2005.
industrial, or other standard (proposed or adopted) regarding Calendar-Related data and/or processing, or Supplier begins any significant effort to conform the Systems to any such standard, Supplier will promptly provide the Members with all relevant information in writing and will timely provide the Members with updates to such information. Supplier will respond promptly and fully to inquiries by the Members, and timely provide updates to any responses provided to the Members, with respect to (i) any possible or actual Century Noncompliance in the Systems or (ii) any international, governmental, industrial, or other standards. In the foregoing, the use of "timely" means promptly after the relevant information becomes known to or is developed by or for Supplier.
7. Reports and Other Information Requirements.
(1) the name of Supplier, the Reporting Month and year and the Agreement number (as provided to Supplier by Novation);
(2) with respect to each Member (described by LIC number (as provided to Supplier by Novation), health industry number (if applicable), full name, street address, city, state, zip code and, if applicable, tier and committed status), the number of units sold or leased and the amount of net sales and/or net lease revenues for each Product on a line item basis, and the sum of net sales and/or net lease revenues and the associated Marketing Fees for all Products purchased or leased by such Member directly or indirectly from Supplier during the Reporting Month, whether under the pricing and other terms of this Agreement or under the terms of any other purchasing. leasing, licensing, financing or pricing arrangements that may exist between the Member and Supplier;
(3) the sum of the net sales and/or net lease revenues and the associated Marketing Fees for all Products sold or leased to all Members during the Reporting Month; and
(4) such additional information as Novation may reasonably request from time to time.
Novation
Attn: SRIS Operations
220 East Las Colinas Boulevard
Irving, TX 75039
8. Obligations of Novation.
9. Marketing Fees.
any other services listed on Exhibit A. The "Agreed Percentage" will be defined in the Award Letter.
[***]
Please send a copy of the check to:
[***]
10. [***]
11. Nonpayment or Insolvency of a Member. If a Member fails to pay Supplier for Products, or if a Member becomes bankrupt or insolvent or makes an assignment for the benefit of creditors or goes into liquidation, or if proceedings are initiated for the purpose of having a receiving order or winding up order made against a Member, or if a Member applies to the court for protection from its creditors, then, in any such case, this Agreement will not terminate, but Supplier will have the right, upon prior written notice to Novation and the Member, to discontinue selling Products to that Member.
12. Insurance.
the company managing the self-insurance program and providing reinsurance, if any: (3) the most recent annual reports on claims and reserves for the program; and (4) the most recent annual actuarial report on such program.
13. Compliance with Law and Government Program Participation.
14. RELEASE AND INDEMNITY. SUPPLIER WILL RELEASE, INDEMNIFY, HOLD HARMLESS, AND, IF REQUESTED, DEFEND NOVATION, THE CLIENTS AND THE MEMBERS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, REGENTS, AGENTS, SUBSIDIARIES, AFFILIATES AND EMPLOYEES (COLLECTIVELY, THE "INDEMNITEES"), FROM AND AGAINST ANY CLAIMS, LIABILITIES, DAMAGES, ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES, EXPERT FEES AND COURT COSTS) OF ANY KIND OR NATURE, WHETHER AT LAW OR IN EQUITY, INCLUDING CLAIMS ASSERTING STRICT LIABILITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF SUPPLIER CONTAINED IN THIS AGREEMENT OR IN THE BID; (2) THE CONDITION OF ANY PRODUCT, INCLUDING A DEFECT IN MATERIAL, WORKMANSHIP, DESIGN OR MANUFACTURING; OR (3) THE WARNINGS AND
INSTRUCTIONS ASSOCIATED WITH ANY PRODUCT. [***]; PROVIDED, HOWEVER, THAT SUCH INDEMNIFICATION, HOLD HARMLESS AND RIGHT TO DEFENSE WILL NOT BE APPLICABLE WHERE THE CLAIM, LIABILITY, DAMAGE, ACTION, COST OR EXPENSE ARISES [***] AS A RESULT OF AN ACT OR FAILURE TO ACT OF INDEMNITEES. THIS SECTION AND THE OBLIGATIONS CONTAINED HEREIN WILL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS AGREEMENT. THE REMEDIES SET FORTH IN THIS SECTION ARE IN ADDITION TO AND NOT A LIMITATION ON ANY OTHER RIGHTS OR REMEDIES THAT MAY BE AVAILABLE AGAINST SUPPLIER.
15. Books and Records; Facilities Inspections. Supplier agrees to keep, maintain and preserve complete, current and accurate books, records and accounts of the transactions contemplated by this Agreement and such additional books, records and accounts as are necessary to establish and verify Supplier's compliance with this Agreement. All such books, records and accounts will be available for inspection and audit by Novation representatives at any time during the Term and for two (2) years thereafter, but only during reasonable business hours and upon reasonable notice. Novation agrees that its routine audits will not be conducted more frequently than twice in any consecutive twelve (12) month period, subject to Novation's right to conduct special audits whenever it deems it to be necessary. In addition, Supplier will make its manufacturing and packaging facilities available for inspection from time to time during the Term by Novation representatives, but only during reasonable business hours and upon reasonable notice. The exercise by Novation of the right to inspect and audit is without prejudice to any other or additional rights or remedies of either party.
16. Use of Names, Etc. Supplier agrees that it will not use in any way in its promotional, informational or marketing activities or materials (i) the names, trademarks, logos, symbols or a description of the business or activities of Novation or any Client or Member without in each instance obtaining the prior written consent of the person owning the rights thereto: or (ii) the award or the content of this Agreement without in each instance obtaining the prior written consent of Novation.
17. Confidential Information.
(1) keep strictly confidential and hold in trust all Confidential Information, as defined in Subsection 17.b below, of Novation, the Clients and the Members:
(2) not use the Confidential Information for any purpose other than the performance of its obligations under this Agreement, without the prior written consent of Novation;
(3) not disclose the Confidential Information to any third party (unless required by law) without the prior written consent of Novation: and
(4) not later than thirty (30) days after the expiration or earlier termination of this Agreement, return to Novation, the Client or the Member, as the case may be, the Confidential Information.
18. Miscellaneous.
If to Supplier:
To the address set forth by Supplier in the Bid
If to Novation:
Novation
Attn: General Counsel
220 East Las Colinas Blvd.
Irving, TX 75039
or such other address as the party will have furnished in writing in accordance with the provisions of this Subsection.
Exhibit A Product and Service Description and Pricing
Exhibit B Non-Price Specifications
-20-
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Exhibit C Special Conditions
Exhibit D Award Letter
Exhibit E Forms of Purchase, Lease, License, Financing and/or Service
Agreements
Exhibit F Minimum Delivery Schedule
Exhibit G Liquidated Damages
Exhibit H Terms and Conditions for New Technology Exchange
Exhibit I Site Preparation
Exhibit J Installation/Assembly
Exhibit K Description and Schedule of Technical Service Training
Exhibit L Warranty
Exhibit M Optional Software
Exhibit N Pricing Relating to Customization of Software, Operational or
Diagnostic Software and/or Data Conversion/Interfaces
Exhibit O Form of Software License Agreement
Exhibit P Other Information Requirements
Exhibit Q Agreement Exception Form
SUPPLIER: Natus Medical Inc.
------------------
ADDRESS: 1501 Industrial Road
--------------------
San Carlos, CA 94070
--------------------
SIGNATURE: /s/ June M. Fallon
--------------------------
TITLE: Vice President-Field Operations Date: 6-25-99
------------------------------- -------
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EXHIBIT A
PRODUCT AND SERVICE DESCRIPTION AND PRICING
Newborn Hearing Screening Equipment
Types:
Automated Auditory Brainstem Response Equipment
Automated Otocoustic Emission Equipment
Combination ABR and OAE Equipment
Desired abilities:
Screening decibels of 70 dB & 40 dB
Able to descend in 10dB steps and 20dB steps
Able to construct customized protocols
Product typically regularly updated to best, most appropriate model of computer
available.
Current product specifications and descriptions attached.
ALGO NATUS(R)
Newborn Hearing Screener
Model 2e Color
1999 Novation
Hardware Pricing
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Negotiated
Novation Committed Super Committed
Product List Price Member Price Pricing* Pricing** (1,2,3)
-------------------------------------------------------------------------------------------
ALGO(TM) Model 2e Color
Newborn Hearing $17,500.00 [***] [***] [***]
Screener
------------------------------------------------------------------------------------------
ALGO(TM) Portable
Newborn Hearing $10,900.00 [***] [***] [***]
Screener
---------------------------------------------------------------------------------------
C-Stat End Tidal
Breath Analyzer $19,500.00 [***] [***] [***]
------------------------------------------------------------------------------------------
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*Committed Pricing: 1. Hospital commits to [***] of all [***] with [***]
**Super Committed Pricing: 1. Hospital commits to [***] of all [***]
with [***]
2. One (1) Natus [***] purchased for [***]
3. Minimum of [***]
1999 Novation Combination Hardware Pricing*
Special Combination
Natus List Price Pricing
--------------------------------------------------------------------------------------------------------
ALGO(TM) Model 2e Color Newborn Hearing Screener $17,500.00
and and [***]
CO-Stat(TM) End Tidal Breath Analyzer $19,500.00
--------------------------------------------------------------------------------------------------------
ALGO(TM) Portable Newborn Hearing Screener $10,900.00
and and [***]
CO-Stat(TM) End Tidal Breath Analyzer $19,500.00
--------------------------------------------------------------------------------------------------------
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* Applies to product on single purchase order or products purchased within 3 month time frame.
Note: CO-Stat as available. May be upgraded configuration.
1999 Novation
ALGO-COLORADO PAK
Quantity Discount Schedule
Screens per year Number of Volume Cost per Cost per
per facility Boxes Discount Box Screen
----------------------------------------------------------------------
1-252 1-7 list price $351.00 $9.75
253-540 8-15 [***] [***] [***]
541-1,692 16-47 [***] [***] [***]
1,693-3,168 48-88 [***] [***] [***]
3,169-3,456 89-96 [***] [***] [***]
3,457-10,000 97-278 [***] [***] [***]
10,001-16,000 279-445 [***] [***] [***]
16,001-25,000 446-695 [***] [***] [***]
25,001-35,000 696-973 [***] [***] [***]
35,001-100,000 974-2,778 [***] [***] [***]
100,001-125,000 2,779-3,472 [***] [***] [***]
125,001-150,000 3,473-4,167 [***] [***] [***]
150,001+ 4,168+ [***] [***] [***]
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Note:
1 box contains 36 screens
1999 Novation
CO-Stat Nasal Sampler Pak
Quantity Discount Schedule
Number of Volume Cost per Cost per
Tests per year Boxes Discount Box Screen
----------------------------------------------------------------------
1-252 1-7 list price $504.00 $14.00
253-540 8-15 [***] [***] [***]
541-1,692 16-47 [***] [***] [***]
1,693-3,168 48-88 [***] [***] [***]
3,169-3,456 89-96 [***] [***] [***]
3,457-10,000 97-278 [***] [***] [***]
10,001-16,000 279-445 [***] [***] [***]
16,001-25,000 446-695 [***] [***] [***]
25,001-35,000 696-973 [***] [***] [***]
35,001-100,000 974-2,778 [***] [***] [***]
100,001-125,000 2,779-3,472 [***] [***] [***]
125,001-150,000 3,473-4,167 [***] [***] [***]
150,001+ 4,168+ [***] [***] [***]
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Note: 1 box contains 36 screens
1999 Novation MiniMuffs Neonatal Noise Attentuators
Quantity Discount Schedule
Pairs Number Volume Cost per Cost per
Per Year of Boxes Discount Box Pair
----------------------------------------------------------------------
1-252 1-7 list price $180.00 $5.00
253-540 8-15 [***] [***] [***]
541-1,692 16-47 [***] [***] [***]
1,693-3,168 48-88 [***] [***] [***]
3,169-3,456 89-96 [***] [***] [***]
3,457-10,000 97-278 [***] [***] [***]
10,001-16,000 279-445 [***] [***] [***]
16,001-25,000 446-695 [***] [***] [***]
25,001-35,000 696-973 [***] [***] [***]
35,001-100,000 974-2,778 [***] [***] [***]
100,001-125,000 2,779-3,472 [***] [***] [***]
125,001-150,000 3,473-4,167 [***] [***] [***]
150,001+ 4,168+ [***] [***] [***]
|
Note: 1 box contains 36 pairs
Newborn
Hearing
Screener
[GRAPHIC OMITTED]
AABR(TM) AUTOMATED AUDITORY BRAINSTEM RESPONSE TECHNOLOGY: SPECIFICALLY CONCEIVED FOR NEWBORN HEARING SCREENING
Natus patented AABR technology is based upon the "Gold Standard" auditory brainstem response (ABR) test, used for diagnostic assessment of hearing impairment for over twenty years. AABR technology results from a fundamental consideration of the challenges of newborn hearing screening.
. Accuracy: sensitivity and specificity are essential.
. Objectivity: pass/refer results, no professional interpretation.
. Ease of use: fast, cost-effective screening.
Natus' AABR technology screens the entire hearing pathway, from the ear to the brainstem - the most complete approach available to detect hearing impairment.
The ALGO screener is the only device which has been designed and clinically tested specifically to screen newborns for hearing impairment, and has been clinically proven to be both highly sensitive and specific.
EASY TO USE AND COST-EFFECTIVE
The ALGO Model 2e Color screener incorporates a graphical user interface
with provides simple, step-by-step instructions. There are three basic steps:
preparation, screening and recording of results. Its also features an on-line
video tutorial program and help menus which can be easily accessed at any time.
Both ears can be screened simultaneously at the touch of a button, providing
final results in minutes.
CONVENIENT DATA MANAGEMENT
The ALGO(TM) Model 2e Color newborn hearing screener automatically stores screening results and an expanded set of relevant patient information. The information stored by the screener can be customized to ensure key parameters are retained for each newborn screened. The expanded patient information contains the standard high risk indicators that are recommended by the American Academy of Pediatrics.
The ALGO DataBook(R) NHS Data Tracking Software included with the screener, automatically retrieves the results of every screen, allowing for convenient tracking of patient outcomes.
NATUS: THE INDUSTRY LEADER
Clinicians have relied on ALGO screeners for over a decade and they are currently used in successful newborn hearing screening programs in over 22 countries. ALGO screeners are accurate, objective and easy to use - the most clinically appropriate, cost effective tools for newborn hearing screening.
SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER
Product: ALGO(TM) Model 2e Color Newborn Hearing Screener
Warranty: 1 year parts and labor.
Manufacturer: Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070-4111
(650) 802-0400
(800) 255-3901
Fax: (650) 802-0401
Customer_Service@natusmed.com
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Newborn Hearing Screener includes:
Detachable screening module with laptop computer
Natus screening station (cart with built-in storage)
Screening station cover
Fully integrated ALGO DataBook(R) NHS data tracking system
software
Label printer
Patient cable assembly (PCA) and pre-amplifier cable
Laptop lock
Acoustic transducer assembly cable
Acoustic check kit
Starter kit of supplies
Power cord
User Manual
Supporting Clinical Education Supplies and Services included with the
instrument:
(These services are typically available, but may be updated)
Clinical Education inservice training
Newborn Hearing Screening Program Book
Inservice packet
Press kit materials
Inservice training video
Parent education video
The ALGO is the only screener that uses patented AABR(TM) Automated Auditory Brainstem Response technology to evaluate the ABR response with a clinically proven algorithm. The theoretical sensitivity of the instrument is 99.96%.
SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER
. Instrument must provide Pass/Refer results which are objective, easily understood and do not require interpretation.
. Results must be available immediately after screen, before time of patient discharge.
. Results must be automatically stored in an integrated data management system.
. Instrument must provide screen of complete hearing pathway from ear to brainstem.
. Instrument must be simple to use, requiring minimal training to reach proficiency.
. Instrument must be non-invasive, requiring nothing be inserted into the ear.
Instrument shall have:
. AABR Automated Auditory Brainstem Response technology, for automatic waveform template matching and recognition at 35 dB nHL. Optional template matching at 40 and 70 dB nHL.
. Preamp and Amplifier: Gain in 105 dB; the Output Voltage is + 12 VDC with a CMRR of more than 80 dB; Notch Filer is -12 dB @ 60 Hz, -12 dB @ 50 Hz; Bandpass Filter between the ranges of 0.05-1.5 kHz, 6 dB/octave high pass, 24 dB/octave low pass; Input Noise is 0.8 V rms @ 0.05-1.5 kHz.
. Dual Artifact Rejection System: Myogenic noise rejection filter of 2 (mu)V rms @ 275 Hz and Ambient noise rejection filter of 50 dB SPL @ 2 kHz. The instrument must also display a visual warning if either the myogenic or ambient noise rejection system has been employed.
. On screen display, and automatic printout of objective Pass/Refer result.
. On screen display of appropriate impedance measurements.
. Ability to screen ears simultaneously at 35 dB nHL.
. Stimulator with click duration of 100 (mu)sec, intensity of 35 dB nHL, with alternating polarity. The acoustic frequency spectrum must be 700-5000 hz (+ 10dB). Optional screening feature with click intensity of 40 and 70 dB nHL.
. Sweep rate of 37 pulses/sec. For the right ear and 34 pulses/sec for the left ear (simultaneous test). Sweep count of 15,000 maximum.
. Line operated power supply.
. On screen user instructions.
SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER
. Patient demographic filed for automatic transfer of entered information into data tracking system. Fields to include high risk indicators for hearing impairment.
. Data management system output in standard ASCII format via floppy diskette.
. On screen "HELP" instructions.
. Built-in printer which automatically prints the screening results onto labels.
. Compatible with patented, single-use Ear Couplers(R) ear phones for ambient noise attenuation.
. Compatible with single-use Jelly Button(R) sensors for maximum conductivity and minimum neonatal skin irritation.
. Display a visual warning to the user if the electrode impedance drifts above acceptable range during a test.
. Screening station cart for mobility and convenient supply storage.
. Extended Warranty shall be available upon expiration of the Warranty period.
. Dimensions:
Detachable screening module: Laptop Open: 13.5" high x 13.5" wide x
16.5" deep
Laptop Closed: 5.5" high x 13.5" wide x
16.5" deep
Weight: 21 pounds (9.55 kg).
Screening station: 34.5" high x 18" wide x 18" deep
Weight: 40 pounds (18.2 kg)
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. Certified to comply with UL 544, CSA 601, and EN60601-1-2 (pending)
[LOGO] NATUS
Newborn Hearing Screener
Newborn Hearing Screener
[GRAPHIC OMITTED]
AABR(TM) AUTOMATED AUDITORY BRAINSTEM RESPONSE TECHNOLOGY: SPECIFICALLY CONCEIVED FOR NEWBORN HEARING SCREENING
Natus patented AABR technology is based upon the "Gold Standard" auditory brainstem response (ABR) test, used for diagnostic assessment of hearing impairment for over twenty years. AABR technology results from fundamental consideration of the challenges of newborn hearing screening.
. Accuracy, sensitivity and specificity are essential.
. Objectivity; pass/refer results, no professional interpretation.
. Ease of use; fast, cost-effective screening.
Natus' AABR technology screens the entire hearing pathway, from the ear to the brainstem - the most complete approach available to detect hearing impairment.
The ALGO screener is the only device which has been designed and clinically tested specifically to screen newborns for hearing impairment, and has been clinically proven to be both highly sensitive and specific.
IDEALLY PACKAGED FOR A RANGE OF SCREENING SETTINGS
Weighing less than five pounds, the ALGO Portable screener's compact size makes it an ideal screening tool where portability is desired.
Whether the baby is in the newborn nursery, the doctor's office, clinic or even at home, the battery-operated ALGO Portable screener provides the flexibility to screen newborns in a variety of settings.
NATUS: THE INDUSTRY LEADER
Clinicians have relied on ALGO screeners for over a decade, and they are currently used in successful newborn hearing screening programs in over 22 countries. ALGO screeners are accurate, objective and easy to use - the most clinically appropriate, cost effective tools for newborn hearing screening.
SPECIFICATIONS: ALGO(TM) Portable Newborn Hearing Screener
Product: ALGO(TM) Portable Newborn Hearing Screener
Warranty: 1 year parts and labor.
Manufacturer: Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070-4111
(650) 802-0400
(800) 255-3901
Fax: (650) 802-0401
Customer_Service@natusmed.com
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Newborn Hearing Screener includes:
Thermal Paper Printer
Battery Pack
Battery Charger
Patient cable assembly (PCA) and pre-amplifier cable
Carrying case
Acoustic transducer assembly cable
Acoustic check kit
Starter kit of supplies
User Manual
Supporting Clinical Education Supplies and Services included with the
instrument: (These services are typically available, but may be updated)
Clinical Education inservice training
Newborn Hearing Screening Program Book
Inservice packet
Press kit materials
Inservice training video
Parent education video
The ALGO is the only screener that uses patented AABR(TM) Automated Auditory Brainstem Response technology to evaluate the ABR response with a clinically proven algorithm. The theoretical sensitivity of the instrument is 99.96%
. Instrument must provide Pass/Refer results which are objective, easily understood and do not require interpretation.
. Results must be available immediately after screen, before time of patient discharge.
. Instrument must provide screen of complete hearing pathway from ear to brainstem.
. Instrument must be simple to use, requiring minimal training to reach proficiency.
. Instrument must be non-invasive, requiring nothing be inserted into the ear.
SPECIFICATIONS: ALGO(TM) PORTABLE NEWBORN HEARING SCREENER
Instrument shall have:
. AABR Automated Auditory Brainstem Response technology, for automatic waveform template matching and recognition at 35 dB nHL.
. Preamp and Amplifier: Gain in 105 dB; the Output Voltage is + 12 VDC with a CMRR of more than 80 dB; Notch Filer is -12 dB @ 60 Hz, -12 dB @ 50 Hz; Bandpass Filter between the ranges of 0.05-1.5 kHz, 6 dB/octave high pass, 24 dB/octave low pass; Input Noise is 0.8V rms @ 0.05-1.5 kHz.
. Dual Artifact Rejection System: Myogenic noise rejection filter of 2 (mu)V rms @ 275 Hz and Ambient noise rejection filter of 50 dB SPL @ 2 kHz. The instrument must also display a visual warning if either the myogenic or ambient noise rejection system has been employed.
. Display, and automatic printout, of objective Pass/Refer result: likelihood ration (LR) and the number of sweeps (SWP) required for both the left and right ear separately.
. Display of appropriate impedance measurements.
. Ability to screen ears sequentially.
. Stimulator with click duration of 100 (mu)sec, intensity of 35 dB nHL, with alternating polarity. The acoustic frequency spectrum must be 700-5000 Hz (+/- 10 dB).
. Sweep rate of 37.3 pulses/sec. Sweep count of 15,000 maximum.
. Battery pack used as power supply.
. Thermal paper printer which automatically prints the results. Printer output includes Pass or Refer, LR, and number of sweeps.
. Compatible with patented patient-dedicated disposable Ear Couplers(R) ear phones for ambient noise attenuation.
. Compatible with Jelly Buttons(R) sensors for maximum conductivity and minimum neonatal skin irritation.
. Display a visual warning to the user if the electrode impedance drift above acceptable range during a test.
. Carrying case for mobility of testing.
. Extended Warranty shall be available upon expirations of the Warranty period.
SPECIFICATIONS: ALGO(TM) PORTABLE NEWBORN HEARING SCREENER
. Dimensions (screener): 8.0 x 9.2 x 2.6 inches (H x W x D) 20.2 x 23.2 x 6.6 cm
. Weight (with battery): 4.25 lbs. (1.93 kg)
Co-stat(TM)
End Tidal Breath Analyzer
NATUS
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Revealing More About Neonatal Jaundice Than Ever Before
IDENTIFYING HEMOLYSIS - A CRITICAL COMPONENT IN THE MANAGEMENT OF NEONATAL JAUNDICE.
The CO-Stat end Tidal Breath Analyzer is the only device available for use in the neonatal nursery to non-invasively detect the presence of hemolysis, assisting in the rapid identification of those at risk for hyperbilirubinemia or other hemolytic disease. The ability to accurately identify the presence or absence of hemolysis provides one of the most clinically significant pieces of information necessary for the effective management of neonates with jaundice and hyperbilirubinemia. Early detection of at-risk patients aids in different diagnosis and more appropriate follow-up, allowing for cost-effective care and optimal patient outcomes.
BILIRUBIN PRODUCTION - A MORE DIRECT MEASURE OF HEMOLYSIS.
Neonates are commonly evaluated with a series of laboratory tests to identify those infants with jaundice caused by hemolytic disease, since they are at higher risk of bilirubin toxicity and require more aggressive treatment.* However, due to their lack of sensitivity and specificity, currently available laboratory tests make the diagnosis of hemolysis, or its exclusion, elusive.* Because heme degradation yields equimolar concentrations of carbon monoxide (CO) and bilirubin, end tidal carbon monoxide (ETCO) provides an estimation of the rate of bilirubin production and a more direct measure of hemolytic rate.*
EXHIBIT B
NON-PRICE SPECIFICATIONS
Please include in this Exhibit information on what assistance your company will offer our hospitals in the development, implementation and maintenance of their universal infant hearing screening programs.
See attached
Term of Contract -- February 1, 2000 through January 31, 2003, with two optional one-year extensions.
Novation marketing fee -- [***]
For "Super Committed" participation level, an additional [***] fee will be added for the [***].
CLINICAL EDUCATION NATUS
SUCCESSFUL SCREENING PROGRAMS REQUIRE NOT ONLY ADVANCE TECHNOLOGY, BUT COMPREHENSIVE TRAINING AND SUPPORT.
More than just a developer of the most advanced medical equipment, Natus is committed to supporting every aspect of a newborn hearing screening program. Highly qualified clinical educators provide every customer with comprehensive, hands-on training. Our customers receive educational tools designed for a diverse screening staff, from neonatologists to volunteers, and support materials for program follow-up.
With every ALGOTM Newborn Hearing Screener, you receive the best equipment available, as well as comprehensive training materials, including educational videos and handbooks with examples of successful ALGO screening programs nationwide.
The ALGO screener's standardized technology combined with the expertise of our clinical educators allows you to focus on patient care. Natus is the only company with the capacity an experience required to implement universal newborn screening at any level, in hospital or state-based programs.
Helping you meet the standard of care in your hospital community, and state. That's Natus.
NATUS MEDICAL CLINICAL EDUCATION INCLUDES:
. On-Site Inservice training
. Newborn Hearing Screening Program Handbook
. Inservice and Parent Educational Videos
. Clinical References
. Ongoing Customer and Technical Support
. Ongoing Program Support
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Natus Medical Inc.
1501 Industrial Road
San Carlos, CA 94070-4111
650-802-0400
800-255-3901
Fax: 650-802-0401
Customer_Service@natusmed.com
www.natus.com
EXHIBIT C
SPECIAL CONDITIONS
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[LETTERHEAD OF NOVATION]
Award Letter
December 15, 1999
Ms. June Fallon
Vice President - Worldwide Sales
Natus Medical Inc.
1501 Industrial Road
San Carlos, CA 94070-4111
Subject: Acceptance of Bid (Supplier Agreement # CE 90270)
Dear Ms. Fallon:
Novation, LLC ("Novation"), acting in its capacity as agent for VHA, UHC, and HPPI, respectively (and not collectively) and certain of their respective subsidiaries and affiliates, accepts our sole-sourced proposal for universal infant hearing screening equipment in response to our Invitation To Bid dated May 7, 1999, which was signed and dated by you on June 25, 1999. Attached to this letter is Exhibit Q of CE90270.
The "Agreed Percentage" for the Marketing Fee will be [***] and for the [***] the Marketing Fee will be [***].
The Effective Date of this Agreement will be February 1, 2000.
Novation looks forward to a successful implementation of this Agreement.
Sincerely,
/s/ Eldon Petersen Eldon Petersen Group Senior Vice President Novation, LLC |
EXHIBIT E
FORMS OF PURCHASE, LEASE, LICENSE, FINANCING
AND/OR SERVICE AGREEMENTS
Financing: Natus agrees to cooperate with Member's request for alternative financing which may be offered through third parties upon Natus' review and acceptance of any such program.
EXHIBIT F
MINIMUM DELIVERY SCHEDULE
Delivery of Hardware: [***]
Delivery of Supplies: [***]
These terms are part of our standard terms noted on all quotations. Terms are also confirmed with the customer via fax and/or phone when the order is received.
EXHIBIT G
LIQUIDATED DAMAGES
Not applicable-None
EXHIBIT H
TERMS AND CONDITIONS FOR NEW TECHNOLOGY EXCHANGE
As offered and available, upgrades and trade-ins allowances will be offered
to Novation Members at a [***] at or [***] or [***] to [***] who [***] at a
[***] or [***].
EXHIBIT I
SITE PREPARATION
Not applicable
EXHIBIT J
INSTALLATION/ASSEMBLY
Not applicable
EXHIBIT K
SCHEDULE OF TECHNICAL SERVICE TRAINING
Not applicable
EXHIBIT L
WARRANTY
Warranty is valid for one year from the date of purchase.
WARRANTY - ALGO(TM) NEWBORN HEARING SCREENER
Standard Warranty
Natus Medical Inc. warrants to the initial Purchaser that each new "Warranted Product" purchased hereunder will be free from defects in workmanship and materials for a specified period of one year ("Warranty Period") from the date of its initial shipment to Purchaser. "WARRANTED Products" consist solely of (a) each product which expressly states that the product includes a warranty for a specified time period (the Warranty Period for that product), and (b) those other Natus products for which express warranties are given and Warranty Periods are stated in the user manuals or package inserts for such products. Repair or replacement of Products under this warranty does not extend the Warranty Period.
Natus' only obligations under this warranty are (1) to repair or replace any Warranted Product (or part thereof) that Natus reasonably determines to be covered by this warranty and to be defective in workmanship or materials and (2) to provide loaner equipment in the circumstances stated below.
To request repair or replacement under this warranty, Purchaser should contact Natus at 1501 industrial Road, San Carlos, California 94070, 1-800-255-3901 or 650-802-0400. If, on the basis of the information provided by Purchaser, Natus reasonably believes that the defect is covered by this warranty, Natus will authorize Purchaser to return the Warranted Product (or part thereof) to Natus. If the Warranted Product is to be repaired rather than replaced, Natus will promptly ship a comparable loaner product for use by Purchaser during the period that the Warranted Product or part is at the Natus facility for service. Natus shall determine whether to repair or replace products and parts covered by this warranty and all Products or parts replaced shall become property of Natus. In the course of warranty service, Natus may, but shall not be required to, make engineering improvements to the Warranted product or part thereof.
Loaner Policy
Purchaser is responsible for any damage to or loss of any loaner equipment while it is at Purchaser's location. Purchaser must return loaner equipment within 14 days after receiving the repaired or replaced product or receiving notice from Natus that the Product returned by Purchaser is not covered by warranty. If Purchaser does not return loaner equipment within 14 days after the return due date, then Purchaser agrees to pay Natus reasonable value of the loaner equipment or a reasonable daily rental fee, whichever Natus selects.
Shipping Procedures
If Natus reasonably determined that a repair or replacement is covered by the warranty, Natus shall bear the costs of shipping the loaner Product and the repaired or replacement Product to Purchaser. All other shipping costs shall be paid by Purchaser. Risk of loss or damage during shipments under this warranty shall be borne by the party shipping the Product.
Products shipped by Purchaser under this warranty shall be suitably packaged to protect the Product. If Purchaser ships a product to Natus in unsuitable packaging, any physical damage present in the Product on receipt and inspection by Natus (and not previously reported) will be presumed to have occurred in transit and will be the responsibility of Purchaser.
Exclusions
This warranty does not extend to any Warranted Products or parts thereof: that have been subject to misuse, neglect or accident; that have been damaged by causes external to the Warranted Product, including by but not limited to failure of or faulty electrical power; that have been used in violation of Natus' instructions; that have been affixed to any nonstandard accessory attachment; on which the serial number has been removed or made illegible; that have been modified by anyone other than Natus; or that have been disassembled, serviced or reassembled by anyone other than Natus, unless authorized prior to such service by Natus. ALGO(TM) Newborn Hearing Screener calibration is not covered under standard warranty service.
Natus makes no warranty (a) with respect to ALGO(TM) Newborn Hearing Screeners, any other disposable products or any other products that are not Warranted Products, (b) with respect to any products purchased from a person other than Natus or a Natus-authorized distributor or (c) with respect to any product sold under a brand name other than Natus.
THIS WARRANTY, TOGETHER WITH ANY OTHER EXPRESS WRITTEN WARRANTY THAT MAY BE ISSUED BY NATUS, IS THE SOLE AND EXCLUSIVE WARRANTY AS TO NATUS' PRODUCTS, EXTENDS ONLY TO THE PURCHASER AND IS EXPRESSLY IN LIEU OF ANY OTHER ORAL OR IMPLIED WARRANTIES INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NATUS SHALL NOT BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS, DAMAGE OR EXPENSE (INCLUDING, WITHOUT LIMITATION, LOST PROFITS) DIRECTLY ARISING FROM THE SALE, INABILITY TO SELL, USE OR LOSS OF USE OF ANY PRODUCT.
Extended Warranty
Extended warranties are available to cover the ALGO(TM) Newborn Hearing Screener. An extended warranty covers all items listed under the standard warranty agreement above and is valid for one year. The extended warranty also covers ONE annual calibration. To inquire about pricing, please contact Natus Technical Service.
EXHIBIT M
OPTIONAL SOFTWARE
(if applicable)
Not applicable
EXHIBIT N
PRICING RELATING TO
CUSTOMIZATION OF SOFTWARE
(if applicable)
Not applicable
EXHIBIT O
FORM OF SOFTWARE LICENSE AGREEMENT
(if applicable)
See attached
Other third party commercial licenses available on request.
(i.e. NT, McAfee, etc.)
NATUS SOFTWARE LICENSE AGREEMENT
IMPORTANT - READ CAREFULLY: This Natus Software License Agreement (NSLA) is a legal agreement between you (either an individual or a single entity) and Natus Medical Incorporated (Natus) for the software included with the ALGO(TM) Newborn Hearing Screening System (ALGO System) and any software options or upgrades supplied therewith, which includes computer software and associated media, printed materials, and "online" or electronic documentation ("SOFTWARE PRODUCT"). By installing or otherwise using the SOFTWARE PRODUCT, you agree to be bound by the terms of this NSLA. If you do not agree to the terms of this NSLA, do not install or use the SOFTWARE PRODUCT; you may, however, return it and the rest of the ALGO System to the company or authorized distributor from which you purchased it for a full refund by following the procedure for authorized product returns set forth in the materials supplied with the product.
SOFTWARE PRODUCT LICENSE
The SOFTWARE PRODUCT is protected by copyright laws and international copyright treasures, as well as other intellectual property laws and treaties. The SOFTWARE PRODUCT is part of a medical device and may not be modified in any way. The SOFTWARE PRODUCT is licensed, not sold.
1. GRANT OF LICENSE. This NSLA grants you the following rights:
1.1 License. You may install and use one copy of the SOFTWARE PRODUCT on the ALGO System with which it was supplied.
1.2 Limitations on Modification, Reverse Engineering, Decompilation, And Disassembly. You may not nor may you allow or encourage any third party to, modify, reverse engineer, decompile, or disassemble the SOFTWARE PRODUCT, except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation.
1.3 Separation of Components. The SOFTWARE PRODUCT is licensed as a single product. Its component parts may not be separated for use on more than one computer.
1.4 Rental. You may not rent, lease, or lend the SOFTWARE PRODUCT.
1.5 Software Transfer. You may not sell, lend, lease, or otherwise transfer the SOFTWARE PRODUCT to any third party without Natus' prior written consent which Natus may withhold at its sole discretion.
1.6 Termination. Without prejudice to any other rights, Natus may terminate this NSLA if you fail to comply with the terms and conditions of this NSLA. In such event, you may not use the SOFTWARE PRODUCT or any of its component parts in any way.
2. COPYRIGHT. All title and copyrights in and to the SOFTWARE PRODUCT (including but not limited to any images, photographs, animations, video, audio, music, text, and "applets" incorporated into the SOFTWARE PRODUCT), the accompanying printed materials, and any copies of the SOFTWARE PRODUCT are owned by Natus or its suppliers. The SOFTWARE PRODUCT is protected by copyright laws and international treaty provisions. Therefore, you must treat the SOFTWARE PRODUCT like any other copyrighted material except that you may install the SOFTWARE PRODUCT on the ALGO System with which it was supplied. You may not copy the printed materials accompanying the SOFTWARE PRODUCT.
3. U.S. GOVERNMENT RESTRICTED RIGHTS. If you are acquiring the SOFTWARE PRODUCT on behalf of any part of the United States Government, the following provisions apply. The SOFTWARE PRODUCT and accompanying documentation are deemed to be "commercial
computer software" and "commercial computer software documentation" respectively
pursuant to DFAR Section 227 7202 and FAR 12.212(b), as applicable. Any use,
modification, reproduction, release, performance, display, or disclosure of the
SOFTWARE PRODUCT and/or the accompanying documentation by the U.S. Government or
any of its agencies shall be governed solely by the terms of this NSLA and shall
be prohibited except to the extent expressly permitted by the terms of this
NSLA. Any technical data provided that is not covered by the above provisions is
deemed to be "technical data-commercial items" pursuant to DFAR Section
227.7015(a). Any use, modification, reproduction, release, performance, display,
or disclosure of such technical data shall be governed by the terms of DFAR
Section 227.7015(b).
4. MISCELLANEOUS
4.1 Governing Law. This NSLA is governed by the laws of the State of California (without regard to its conflict of law rules).
4.2 Severability. In the event that any court of competent jurisdiction declares any portion of this NSLA invalid or otherwise unenforceable, the remainder of this NSLA shall remain in force and shall be unaffected by such invalidity or unenforceability.
4.3 Entire Agreement. This NSLA constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations, and understandings, oral or written.
5. LIMITED WARRANTY
5.1 Warranty. The SOFTWARE PRODUCT is warranted as part of the ALGO System. The warranty for the product is set forth in the documentation for the product.
5.2 Disclaimer. NATUS DOES NOT WARRANT THAT THE SOFTWARE PRODUCT WILL BE ERROR FREE OR THAT ITS USE WILL BE UNINTERRUPTED. THE WARRANTY SPECIFIED IN PARAGRAPH 5.1 IS THE SOLE WARRANTY APPLICABLE TO THE SOFTWARE PRODUCT AND NATUS HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT.
6. INDEMNIFICATION OF NATUS. You hereby indemnify Natus, its officers, directors, and employees, and agree to defend and hold them harmless from and against any and all fines, liability, damage, loss, or expense (including reasonable attorneys fees) arising from any third party claim, demand, action, or proceeding based upon (a) any operation or failure of the ALGO System caused by any improper maintenance of, modification of, or tampering with the SOFTWARE PRODUCT or any other portion of the ALGO System by you or any third party, (b) any operation or failure of the ALGO System caused by your failure to install any updated or corrected software provided to you directly or indirectly by Natus, or incurred in the settlement or avoidance of any such claim, provided, however, that Natus shall give prompt notice to you of the assertion of any such claims and provided further that you shall have the right to select counsel and participate (at your own expense) in the defense thereof.
7. CONFLICT WITH REGULATORY REQUIREMENTS. In the event of any conflict between the terms of this NSLA and any law, or federal or state medical device regulations, such law or regulations shall prevail and the conflicting provisions of this NSLA shall be deemed inoperative.
EXHIBIT P
OTHER INFORMATION REQUIREMENTS
Novation and Supplier desire to facilitate contract administration transactions ("Transactions") by electronically transmitting and receiving data in agreed formats in substitution for conventional paper-based documents and to assure that such Transactions are not legally invalid or unenforceable as a result of the use of available electronic technologies for the mutual benefit of the parties.
The parties agree as follows:
1. Prerequisites.
the party initially transmitting such Document has properly received in return an Acceptance Document (as specified in the Guidebook).
3. Transaction Terms.
4. Standards.
ASC x 12 - Novation Information Requirements Guidebook
5. Third Party Service Providers.
(If the parties will be transmitting Documents directly, insert "NONE")
Company Van Name Address Telephone
------- -------- ------- ---------
Number
------
Novation AT&T 12976 Hollander Drive 800/624-5672
Bridgeton, MO 63044
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NOVATION ELECTRONIC COMMUNICATION REQUIREMENTS SCHEDULE
This form is being completed by: June Fallon Date: 11-17-99
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(Your Name)
Your Company Name: Natus Medical Inc. Your Title: VP - Field Operations
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Phone: (800) 255-3901 E-mail: jfallon@natus.com Fax: (650) 802-6620
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Please complete the following questionnaire. Your answers to the following will be used for planning purposes by the Novation Information Services staff. If your company can already send the listed electronic information, please note this in the date field.
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WHEN WILL YOUR
COMPANY MEET THIS
NOVATION REQUIREMENT NOVATION EXPECTATION REQUIREMENT (MM/DD/YY)
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Requirement 1: New Contract Launch This only applies to new contracts Your Novation product manager will
unless your company never provided address this as new contacts are
See Section 4.2 this information. If needed, your negotiated
Novation product manager will contact
you.
Due at Contract Signing
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Requirement 2: Ongoing Contract Maintenance Novation must receive contract item Date: 11/17/99
and pricing updates as prices change,
See Section 4.3 and when items are added or deleted Will send information via (check one)
form contract. ( ) EDI 832
Due 60 days prior to the effective ( X ) Novation Interim
date of the line item add/delete/change File Format
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Requirement 3A Summary Sales Reporting Current paper reports must be Date: 11/17/99
converted to electronic reporting
See Section 4.4.2 immediately. This will not be needed You will report sales by
once your company can report line item ( ) LIC or ( ) HIN (x) Zip code
sales. See Requirement 3B. One or the other MUST BE USED
Due at the first contract reporting
period.
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Requirement 3B: Detailed Line Item Sales Instead of monthly summary reports, Date: 11/17/99
Reporting detailed line item reports will be You will report sales by
sent electronically. Plan for a ( ) LIC Number or ( ) HIN Zip Code
See Section 4.4.3 90-day testing period before
stopping Requirement 3A. (x) Interim file or ( )EDI 867
Begin testing within 120 days of If using interim file, proposed
contract effective date date for converting to EDI
Date: unknown
One of the other MUST BE USED
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Requirement 4: Membership You must be able to receive and Date: 11/17/99
process periodic membership updates
See Section 4.5 Due immediately e-mail
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Requirement 5: Commitment Forms Details which members have and have Date: 11/17/99
not signed your contract enrollment
forms, if needed.
See section 4.6 Due immediately, if applicable e-mail
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Requirement 6: Sales Representative Contract Able to update Sales Representative Date: 11/17/99
Information information from a Business Partner
Repository System download. e-mail
See Section 4.7 Due within 30 days of contract signing.
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Requirement 7: Product Cross-referencing Able to update the items on contract Date: 11/17/99
with competitive cross-reference
information.
See Section 4.8 Due within 90 days of contract signing e-mail
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Business Partner Repository System (BPRS) Access Able to connect to Novation BPRS via Date: 11/17/99
the VHAseCURE.net(TM). How many of our company employees
See Section 3.0 Due within 60 days of contract signing. need access to your Novation BPRS
site? 5
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Return within 30 Days to:
Bill King, Manager, Supply Partner Operations, Novation LLC, 220 East Las Colinas Blvd., Irving, TX 75039
Telephone: (972) 581-5022, Fax: (972) 581-5154, E-mailbking@novationco.com
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EXHIBIT Q
AGREEMENT EXCEPTION FORM
Authorized
Signature: /s/ W. H. Lawrenson
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W. H. LAWRENSON, CFO
Title: Vice President-Field Operations Date: 11/23/99
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The agreement is hereby amended by the following items:
Page 1. Section 1a. Introduction - Purchasing and Leasing Opportunities for Members. End of section.
-Add "Not withstanding the above, Member will not include any Supplier customer that, at the time of placing an order, declares themselves to be a member of a different buying group, or who maintains they are not a member of Novation. Supplier will keep Novation apprised of apparent differences in memberships.
Page 2. Section 2c. Contract Award - [***] Terms. 2/nd/ sentence. -After second reference to [***] add [***]
Page 2. Section 2c. Contract Award - [***] Terms. 4/th/ sentence.
-Change sentence to read, "If at any time during the [***] any [***]
that [***] or [***] are [***], [***] may provide [***] of such [***] to
[***], and [***] within [***] days for [***] and within [***] days for
all other [***], advise [***] in [***] of and [***] will [***] agree
that [***] will [***]."
-Add "The parties shall [***] to reach such [***]."
Page 2. Section 2e. Contract Award - Notification of Changes of Pricing and
Terms. 1/st/ sentence.
-Change [***]
-Delete [***] to [***].
-Change "change" to [***]
Page 2. Section 2e. Contract Award - Notification of Changes of Pricing and
Terms. 2/nd/ sentence.
-Delete sentence.
Page 3. Section 2f. Contract Award - Underutilized Businesses. 2/nd/ sentence.
-After 2/nd/ reference to "Novation" add "commercially reasonable"
-After the word "programs" add "of which Member informs Novation in
writing"
Page 3. Section 2f. Contract Award - Underutilized Businesses. End of section.
-Add to end of section. "Information will be supplied to Novation as is
routinely available from Supplier."
Page 3. Section 3b. Terms and Termination - Termination by Novation. Subsection (1).
-After "Agreement" add "after being given [***] prior written notice of breach and opportunity to cure, except for a breach of either Section 9 or Section 13, for which there shall be no cure period."
Page 3. Section 3b. Term and Termination - Termination by Novation. Last
sentence.
-The number [***] is changed to [***].
Page 3. Section 3c. Termination by Supplier.
-Add to end of sentence "and may terminate immediately if Novation
is in breach of Section 13."
Page 3. Section 4a. Product Supply - Delivery and Invoicing. 1/st/ sentence.
-Change "destination" to [***].
Page 3. Section 4a. Product Supply - Delivery and Invoicing 2/nd/ sentence.
-Change "absorb" to [***].
Page 4. Section 4a. Product Supply - Delivery and Invoicing. 4/th/ sentence.
-After the word "needs" add "and when mutually agreed to at the time
of order."
Page 4. Section 4a. Product Supply - Delivery and Invoicing. Last sentence.
-After last reference to "Agreement" add "unless otherwise agreed to
by Member."
Page 4. Section 4b. Product Supply - Supplies. Second sentence.
-After the "All" add "reasonable".
-After the word "Supplies" add "as long as all Product recommendations and Directions for use are in full compliance."
Page 4. Section 4c. Product Supply - Product Fill Rates; Confirmation and
Delivery Times. 2/nd/ sentence.
-After the word "via" add "either hard copy or by"
-Change [***]
-Delete all words after the 2/nd/ reference to the word "within"
-After the 2/nd/ reference to the word "within" add "specified and
usual delivery terms."
Page 4. Section 4d. Product Supply - Manuals/Schematics/Inspection Procedures.
2/nd/ sentence.
-After the word "manuals" add "for user maintained items in accordance
with Supplier's Product warranty and guidelines"
Page 4. Section 4d. Product Supply - Manuals/Schematics/Inspection Procedures.
Last sentence.
-Change "two (2) to [***]
Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes is
Packaging. 1/st/ sentence.
-After "unilateral right" add "unless implemented on a national basis
to all customers"
Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 2/nd/ sentence.
-Change [***] to [***]
Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 3/rd/ sentence.
-After "Novation's agreement" add "which agreement will not be
unreasonably withheld,"
Page 5. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 4th sentence Part (ii).
-Add [***]
Page 5. Section 4f. Product Supply - Discontinuation of Products, Changes in Packaging. 4th sentence Part (iii).
-Add [***]
Page 5. Section 4h. Product Supply - New Technology. 1/st/ sentence.
-After "thereof" and "when such technology is ready for the market."
Page 5. Section 4i. Product Supply - Product Acceptance. Entire Section.
-Delete in its entirety.
-Replace with "At the [***] of the [***], [***] will [***] with an [***]
and a [***] at [***] to the [***] for the [***] the [***] of the [***]
for a period not to exceed [***]. [***] will [***] return [***] at the
[***] of the [***]."
Page 6. Section 4j. Product Supply - Site Preparation.
-Delete in its entirety as section is not applicable.
Page 6. Section 4k. Product Supply - Installation/Assembly.
-Delete in its entirety as section is not applicable.
Page 6. Section 4l. Product Supply - Installation/Environmental Issues. 1/st/
sentence.
-"Supplier" is changed to [***].
Page 6. Section 4m. Product Supply - Member Services. 2/nd/ sentence.
-After the word "and" add ", if applicable,".
-After first reference to "representatives" delete remainder of sentence.
Page 6. Section 4n. Product Supply - Training. 1/st/ through 4/th/ sentences.
-Delete in their entirety.
Pages 6 and 7. Section 4n. Product Supply - Training. 5/th/ sentence.
-Delete "In addition,".
-After the word "provide" add "reasonable, mutually agreeable".
-Change [***] to [***].
-Change "for the period required" to "for a reasonable period as
required"
Page 7. Section 4n. Product Supply - Training. Last sentence.
-Change "Member" to "Member (original owner)".
-Change "the life" to "the reasonable life".
-Change "no additional charge" to [***].
-Delete "regardless of where training is performed".
Page 7. Section 4o. Product Supply - Product Deletion.
-Delete entire Section.
Page 7. Section 4p. Product Supply - Return of Products. 1/st/ sentence.
Subsection (1).
-Delete "ordered or"
Page 7. Section 4p. Product Supply - Return of Products. 1/st/ sentence.
Subsection (2).
-After "nonconforming" add "through no act or omission of the Member;"
Page 7. Section 4p. Product Supply - Return of Products. 2/nd/ sentence.
-Delete "under any of the following circumstances: (1) the Supplies are
no longer needed by the Member due to deletion from its standard supply
list or changes in use patterns, provided the Supplies are returned
at least (6) months prior to their expiration date and are in re-
saleable condition; or (2)"
-After "Supplier" add "if"
Page 7. Section 4q. Product Supply - Failure to Supply. 1/st/ sentence.
-After the word "sources" add ", as may be specified in the Product Documentation and labeling from time to time.
Page 7. Section 4q. Product Supply - Failure to Supply. End of section.
-Add [***] of any [***] shall be [***] to the extent that [***] is
[***] by [***] or [***] or [***]. [***] in [***] shall [***] have
[***] for any [***] or [***], [***] and on [***], whether for [***]
(including [***]) or otherwise, [***] this [***] including but not
limited to [***] such [***] has been [***] of the [***] of [***].
These [***] shall [***] any [***] of any [***]. The [***] such [***]
from [***] shall have used [***] to [***] the [***] of the [***] and
[***]. If such [***] occurs [***] for a [***] or [***], the [***] not
[***] the [***] may [***] upon [***] to the [***]."
Page 8. Section 5a. Product Quality - Free From Defects. 3rd sentence -After "will" add "substantially".
Page 8. Section 5a. Product Quality - Free From Defects. 7/th/ sentence.
-Change "widespread failure" to read "a general recall".
-Delete "credit or".
-Delete "at its option".
Page 8. Section 5a. Product Quality - Free From Defects. Last sentence.
-End of sentence add "elsewhere under this Agreement".
Page 8. Section 5b. Product Quality - Warranty Service. 2/nd/ sentence.
-After "reason" add "due to the fault of the Supplier".
Page 8. Section 5b. Product Quality - Warranty Service. Last sentence.
-After the last "Member" add "per Supplier's Technical Services
Terms and Conditions".
Page 8. Section 5c. Product Quality - Replacement Parts. 1/st/ sentence.
-After "assembles", add "if available".
Page 8. Section 5c. Product Quality - Replacement Parts. 4/th/ sentence.
-Delete entire sentence.
Page 8. Section 5c. Product Quality - Replacement Parts. Last sentence.
-After the word "longer" add "for parts it manufactures, or its
third party vendor's standard warranty for parts it purchases."
Page 8. Section 5d. Product Quality - Service Response Time. 1/st/ sentence.
-Delete "guarantees".
-After "Supplier" add "will make best efforts to provide"
-Change "one (1)" to [***].
-After the word "phone" delete [***]
-Delete "service".
-After the word "equipment" add "; on-site service is not appropriate
or not available."
Page 9. Section 5e. Product Quality - Up Time Guarantee. 2/nd/ paragraph.
Sentences 2, 3, 4.
-Delete [***].
Page 9. Section 5e. Product Quality - Up Time Guarantee. 2/nd/ paragraph.
Sentence 5.
-Delete [***].
-After [***] add "as is supported by continuous auditable written records of such up time"
Page 9. Section 5g. Product Quality-Upgrades. 2/nd/ sentence.
-Change "given" to "offered".
-Change [***] to [***] at [***] any such [***] becomes [***].
Page 9. Section 5g. Product Quality-Ugrades. 3/rd/ sentence.
-Delete in its entirety
Page 9. Section 5g. Product Quality - Upgrades. End of section.
-Add "Documentation will be made available to assist users in the
installation".
Page 9. Section 5h. Product Quality - Customization Software.
-Delete in its entirety.
Page 10. Section 5i. Product Quality-Operation Software. 3/rd/ sentence.
-After "software" add "proprietary to Supplier and commercially
available".
-After "Member" add "only to the extent licensed by the Supplier"
Page 10. Section 5i. Product Quality-Operation Software. 2nd sentence -After "Member" add only to the extent licensable by Supplier"
Page 10. Section 5i. Product Quality-Operation Software. 3rd sentence -After "software" add "and commercially available"
Page 10. Section 5i. Product Quality-Operation Software. Last sentence.
-Change "be installed within two (2) weeks after release" to "be
user installable".
Page 10. Section 5j. Product Quality-Diagnostic Software. Entire Section.
-Delete in its entirety
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 1/st/ sentence.
-Change "perform" to "support".
-After 2/nd/ reference to "conversion", add "by providing information normally provided by Supplier which may be useful in the Member's data conversion".
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 2/nd/ sentence.
-Delete in its entirety.
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 3/rd/ sentence.
-After "requested" add "and publicly available as requested".
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 5/th/ sentence.
-Delete in its entirety.
Page 10. Section 51. Service Contract Cancellation.
-Delete entire section.
Page 10. Section 5(m). Product Compliance.
-After each reference to Products add "manufactured by or under the
direction of Supplier".
Page 11. Section 5n. Product Quality - Patent Infringement. 1/st/ sentence.
-After "warrants" insert "to the best of its knowledge and belief".
Page 11. Section 5n. Product Quality - Patent Infringement. End of section.
-Add "Uses Excluded from Patent Indemnity. (i) the use of the Product
modified or altered in any way except as expressly modified,
authorized or specified by Supplier; (ii) the combination, operation,
or use of the Products with any equipment not supplied by Supplier or
expressly authorized or specified by Supplier; or (iii) any alteration
of the Products made by any person other than Supplier except as
expressly authorized or specified by Supplier.".
Page 11. Section 5p. Product Quality - Recall of Products. 1/st/ sentence.
-After "Member" replace "any cost" with "actual and reasonable costs".
Page 11. Section 5q. Product Quality-Shelf Life. 2/nd/ sentence.
-Change [***] to [***].
Page 13. Section 7a. Reports and Other Information Requirements - Report
Content. Subsection (4).
-After "Novation" add "and Supplier".
-Change "request" to "agree upon".
Page 14. Section 7c. Reports and Other Information Requirements-Other
Information Requirements. End of section.
-Add "Electronic commerce will be provided when available, in
accordance with industry guidelines".
Page 14. Section 8b. Obligations of Novation. Marketing Services. End of
section.
-Add "[***] will support [***] to [***] and [***]."
Page 14. Section 9a. Marketing Fees-Calculation. 1/st/ sentence.
-After "net lease revenues" and ", including [***] and [***],".
Page 15. Section 9b. Marketing Fees-Payment.
-Delete [***].
-Add "[***] will pay [***] on [***], as determined in [***], for the
[***] by the [***]."
Page 15. Section 9b. Marketing Fee - Payment. Third paragraph.
-After "check" add [***]
Page 16. Section 10. [***].
-Delete [***].
Page 16. Section 11. Nonpayment or Insolvency of a Member. First sentence.
-Delete "prior".
Page 16. Section 12a. Insurance-Policy Requirements. 2/nd/ sentence.
-Change [***] to [***].
-Delete [***].
Page 16. Section 12a. Insurance-Policy Requirements. 3/rd/ sentence.
-Change [***] to [***].
Page 17. Section 14. Release and Indemnity. 1/st/ sentence.
-Delete [***].
Page 18. Section 14. Release and Indemnity. 2/nd/ sentence.
-Delete [***].
-Change "WHERE" to "TO THE EXTENT";
-Delete [***].
Page 18. Section 15. Books and Records; Facilities Inspections. 2/nd/ sentence.
-After "audit by" add "an independent CPA designated by".
-Delete "representatives".
Page 18. Section 15. Books and Records; Facilities Inspections. 3/rd/ sentence.
-Delete "subject to Novation's right to conduct special audits whenever
it deems it to be necessary to carry out the purposes of this
agreement".
Page 18. Section 15. Books and Records; Facilities Inspections. 4/th/ sentence.
-After "will" add "reasonably".
Page 18. Section 17a. Nondisclosure. 1/st/ sentence.
-Change "Supplier agrees that it will:" to "Novation and Supplier agree
to:"
Page 18. Section 17a. Nondisclosure. Subsection (1).
-Change "Novation, the Clients, and the Members;" to "the parties;".
Page 18. Section 17a. Nondisclosure. Subsection (2).
-Delete "Novation" add "the other;".
Page 19. Section 17a. Nondisclosure. Subsection (3).
-Delete "Novation" add "the other".
Page 19. Section 17a. Nondisclosure. Subsection (4).
-Change "return to Novation, the Client, or the Member, as the case may
be, the" to read "both Will destroy or return to the other pertinent".
Page 19. Section 17c. Nondisclosure. Addition of Section.
-Add "Novation shall instruct the Members to keep confidential
information related to prices."
Page 20. Section 18e. Miscellaneous - No Assignment. 1/st/ sentence.
- End of sentence, add "upon prior written notice."
Exhibit P. Other Information Requirements. End of First Paragraph.
- Add "Electronic commerce transactions will be conducted according to
industry standards, when available.
- Remainder of Exhibit P is deleted in its entirety.
have been filed separately with the Commission.
EXHIBIT 10.11
MANUFACTURING AGREEMENT
between
CMA INTERNATIONAL, INC.
and
NATUS MEDICAL, INC.
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as *****. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
PAGE
ARTICLE 1 - DEFINITIONS................................................. 3
ARTICLE 2 - MANUFACTURING OF PRODUCT.................................... 6
ARTICLE 3 - PRICE; PRICE ADJUSTMENTS.................................... 10
ARTICLE 4 - RECORDS..................................................... 11
ARTICLE 5 - TERM; TERMINATION........................................... 11
ARTICLE 6 - INDEMNIFICATION............................................. 15
ARTICLE 7 - FORCE MAJEURE............................................... 17
ARTICLE 8 - LEGAL COMPLIANCE; AUTHORIZATION............................. 18
ARTICLE 9 - PRESS RELEASES; USE OF NAMES................................ 18
ARTICLE 10 - DISPUTE RESOLUTIONS; VENUE.................................. 19
ARTICLE 11 - CONFIDENTIALITY............................................. 20
ARTICLE 12 - PROTECTION OF INTELLECTUAL PROPERTY......................... 21
ARTICLE 13 - MISCELLANEOUS............................................... 23
|
--- -----
the "Parties").
-------
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WHEREAS, Natus wishes to distribute commercially certain products; and
WHEREAS, CMA wishes to perform manufacturing, testing and quality assurance services for the manufacturing, of such products for sale to Natus; and
WHEREAS, Natus desires CMA to perform such services and sell such products to Natus, and CMA desires to perform such services and sell such product to Natus, all on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the Parties agree as follows:
ARTICLE 1
The following terms, whether used in the singular or plural, shall have the meanings assigned to them below for purposes of this Agreement:
ARTICLE 2
supply the Products, in such quantities and shall deliver such Products to
Natus by the Delivery Dates specified in such purchase order. CMA shall
maintain in its inventory a safety stock of Products in an amount equal to
[***] percent [***] of the forecast set forth in Section 2.8 hereof for the
next month to ensure Product availability.
FIT FOR ANY PARTICULAR PURPOSE, NOR DOES CMA MAKE ANY OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT.
the Warranty Period as set forth in Article 2.13 hereof will be repaired and shipped back to the appropriate destination at no charge to Natus. Repair of non-warranty and/or post-warranty Products shall be in accordance with Natus' instruction. Repair and shipping costs for Products returned for defects that are not the responsibility of CMA, including Products that have been improperly used and/or handled, non-warranty Products, and post-warranty Products, shall be paid by Natus. If the Products are returned to CMA, and CMA determines that said Products are not defective in any way, and Natus agrees with CMA's findings, Natus agrees to pay CMA a fixed amount to be negotiated between CMA and Natus (no defects found charge) for each such Product. CMA's warranty shall not apply to any defects caused by improper use, handling, or transportation, unless improperly packaged by CMA for delivery to Natus or its designee.
ARTICLE 3
from time to time in accordance with Section 13.8 hereof. Natus shall notify the following person prior to the date of each wire transfer:
Richard M. West
President
CMA International, Inc.
100 Europa Drive, Suite 520
Chapel Hill, NC 27514
Facsimile No.: 919-968-7829
The wire transfer shall be due net fifteen (15) days from the date of CMA's invoice during the first Contract Year and net thirty (30) days thereafter, which invoice will be sent out concurrently with shipment of Product.
ARTICLE 4
ARTICLE 5
TERM: TERMINATION
prior to the fifth anniversary of the Effective Date, both Parties agree in writing that the Initial Term shall be so extended.
(a) The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of such Party in an involuntary case under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable federal or state insolvency or
other similar law in any applicable jurisdiction and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days; or
(b) The filing by such Party of a petition for relief under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable federal or state insolvency or other similar law.
(a) Upon expiration or termination of this Agreement, whichever is sooner, (but in the case of termination, only if directed by the terminating Party in the notice of termination), CMA shall manufacture and ship, and Natus shall purchase in accordance with the provisions hereof, any and all amounts of Product ordered by Natus hereunder prior to the date on which such notice is given.
(b) Upon expiration or termination of this Agreement for any reason,
(i) Natus shall purchase from CMA and CMA shall sell at CMA's Acquisition Cost
all usable inventories and materials reasonably acquired by CMA hereunder for
the manufacture of or development of Product, (ii) Natus shall purchase from CMA
and CMA shall sell all work-in-progress for the
Product at CMA's cost and (iii) Natus shall purchase and CMA shall sell all other finished Product then in CMA's possession.
(c) Upon expiration or termination of this agreement for any reason, CMA shall immediately and without delay release to the custody of Natus or Natus' designee all Product Specifications (in whatever form occurring, whether hard copy, magnetic or optical disk, etc.), all Natus-owned tooling, dies, molds, testing or manufacturing or other Natus equipment, together with either originals or validated copies of all testing, inspection, or other data regarding the performance or regulatory compliance of any Product sold to Natus hereunder, as well as any other property of Natus that is on the premises of CMA or any Affiliate, it being understood that all such items constitute Natus property that has been created by, or for the benefit of, Natus or, in the case of Natus-owned equipment, that a bailment has been created for such equipment, obligating CMA to return such equipment to Natus. In addition, CMA shall sell to Natus, at Natus' option, for a reasonable and mutually-agreeable price, any property or equipment owned by CMA or its Affiliates specifically and solely for the production of Natus' Products.
ARTICLE 6
ARTICLE 7
further agrees to use commercially reasonable efforts to correct the Force Majeure Event as quickly as possible and to give the other Party prompt written notice when it is again fully able to perform such obligations.
ARTICLE 8
ARTICLE 9
of the other Party or any trade name or trademark belonging to the other Party in any advertising or promotional material without the prior consent of the other Party, and no right or license to use, register or claim any other right in respect thereto is created by or implied by this Agreement.
ARTICLE 10
For Natus - President
For CMA - President
In the event the designated officers are not able to resolve such dispute within such ten (10) day period, or such other period of time as the Parties may mutually agree in writing, each Party shall have the right to pursue any and all remedies available at law or in equity.
if the court proceeding is brought as a third party action as part of a pending proceeding in a different venue, either Party may initiate such third party action against the other Party in such other venue.
ARTICLE 11
A. already in the possession of CMA and not furnished in confidence by Natus;
B. rightfully received from a third party without obligation of confidence;
C. independently developed by CMA;
D. now, or hereafter, becomes publicly available without breach of this Agreement; or
E. approved for release by written agreement of Natus.
Natus Confidential all information prepared or developed by CMA for Natus and reduced to writing by CMA which is deliverable to Natus hereunder.
ARTICLE 12
was developed under Natus' direction and at Natus' expense. Those features and processes as well as any other features and processess which may be subsequently developed under Natus' direction and at Natus' expense, are the proprietary and confidential designs of Natus, and are the sole and exclusive property of Natus. CMA agrees that all right, title and interest therein shall at all times vest in and remain in Natus. Nothing in this Agreement shall be construed as establishing, transferring, or otherwise conveying to CMA any rights, interest or license in such features and processes, whether by implication, estoppel or otherwise.
pursuant to this Agreement, and prepared for and submitted to Natus by CMA under this Agreement and CMA shall deliver all copies of such works and/or items to Natus upon termination of this Agreement or before said termination upon Natus' written request.
ARTICLE 13
service guaranteeing next-day delivery, charges prepaid or (c) facsimile (with the original promptly sent by any of the foregoing manners), and shall be deemed to have been given upon mailing or upon transmission by facsimile, as the case may be. Any such notices shall be addressed to the receiving Party at such Party's address set forth below, or at such other address as may from time to time be furnished by similar notice by either Party:
If to CMA: CMA International, Inc.
100 Europe Drive, Suite 520
Chapel Hill, NC 27514
Attn: Richard M. West
Facsimile No.: 919-968-7829
With a copy of legal notices to:
Byron B. Kirkland, Esq.
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
P.O. Box 2611
Raleigh, NC 27602-2611
Facsimile No. 919-821-6800
If to Natus: Natus Medical, Inc.
1501 Industrial Road
San Carlos, California 94070
Attn: President
Facsimile No. 650-802-0401
With a copy of legal notices to:
Corporate Secretary
|
execution of this Agreement and any such amendment or supplement by any Party hereto will not become effective until counterparts hereof have been executed by both Parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized representatives as of the day and year first above written.
CMA INTERNATIONAL, INC.
By: /s/ Richard M. West
-----------------------------
Name: Richard M. West
Title: President
Date: /s/ December 3, 1998
-----------------------------
NATUS MEDICAL, INC.
By: /s/ Tim C. Johnson
-----------------------------
Name: Tim C. Johnson
Title: President
Date: December 3, 1998
-----------------------------
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EXHIBIT 10.12
COMMERCIAL LEASE AND DEPOSIT RECEIPT
AGENCY RELATIONSHIP CONFIRMATION. The following agency relationship is hereby
[_] confirmed for this transaction and supersedes any prior agency election:
[_] The Lessor exclusively; or [_] both the Lessee and the Lessor.
(Print Firm Name)
[_] the Lessee exclusively; or [_] the Lessor exclusively; or [_] both the Lessee and the Lessor.
Note: This confirmation DOES NOT take the place of the AGENCY DISCLOSURE form which may be required by law.
BALANCE DUE
PRIOR TO
TOTAL RECEIVED OCCUPANCY
Rent for the period from ________ to __________ ............ $1,770.00 $1,770.00 $__________
Security deposit (not applicable toward last month's rent).. $1,770.00 $1,770.00 $__________
Other....................................................... $1,770.00 $1,770.00 $__________
TOTAL....................................................... $5,310.00 $5,310.00 $__________
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In the event this Lease is not accepted by the Lessor within-1-days, the total deposit received will be refunded.
Lessee offers to lease from Lessor the premises situated in the City of REDDING, County of SHASTA State of CALIFORNIA described as 2865 CHURN CREEK RD, SUITE "A" consisting of approximately ________ square feet, upon the following terms and conditions:
1. TERM. The term will commence on (date) September 1, 2000, and end on (date) December 31, 2001
2. RENT. The total rent will be $_____, payable at $1,770.00 per month (based on first year's rates) payable on the 5th day of each month. All rents will be paid to Lessor or his or her authorized agent, at the following address: 2865 CHURN CREEK RD., SUITE "D", REDDING, CA 96002 or at such other places as may be designated by Lessor from time to time. In the event rent is not paid within ____ days after due date, Lessee agrees to pay a late charge of $50.00 plus interest at -0-% per annum on the delinquent amount. Lessee further agrees to pay $_____ for each dishonored bank check. The late charge period is not a grace period, and Lessor is entitled to make written demand for any rent if not paid when due.
3. USE. The premises are to be used for the operation of MEDICAL EQUIPMENT SERVICE CENTER, and for no other purpose, without prior written consent of Lessor. Lessee will not commit any waste upon the premises, or any nuisance or act which may disturb the quiet enjoyment of any tenant in the building.
4. USES PROHIBITED. Lessee will not use any portion of the premises for purposes other than those specified. No use will be made or permitted to be made upon the premises, nor acts done, which will increase the existing rate of insurance upon the property, or cause cancellation of insurance policies covering the property. Lessee will not conduct or permit any sale by auction on the premises.
5. ASSIGNMENT AND SUBLETTING. Lessee will not assign this Lease or sublet any portion of the premises without prior written consent of the Lessor, which will not be unreasonably withheld. Any such assignment or subletting without consent will be void and, at the option of the Lessor, will terminate this Lease.
6. ORDINANCES AND STATUTES. Lessee will comply with all statutes, ordinances, and requirements of all municipal, state and federal authorities not in force, or which may later be in force, regarding the use of the premises. The commencement or pendency of any state or federal court abatement proceeding affecting the use of the premises will, at the option of the Lessor, be deemed a breach of this Lease.
7. MAINTENANCE, REPAIRS, ALTERATIONS. Unless otherwise indicated, Lessee
acknowledges that the premises are in good order and repair. Lessee will,
at his or her own expense, maintain the premises in a good and safe
condition, including plate glass, electrical wiring, plumbing and heating
and air conditioning installations, and any other system or equipment. The
premises will be surrendered, at termination of the Lease, in as good
condition as received, normal wear and tear excepted. Lessee will be
responsible for all repairs required, except the following which will be
maintained by Lessor: roof, exterior walls, structural foundations
(including any retrofitting required by governmental authorities) and:
H.V.A.C. Lessee [_] will, [X] will not maintain the property adjacent to
the premises, such as sidewalks, driveways, lawns, and shrubbery, which
would otherwise be maintained by Lessor.
No improvement or alteration of the premises will be made without the prior written consent of the Lessor. Prior to the commencement of any substantial repair, improvement, or alteration, Lessee will give Lessor at least two (2) days written notice in order that Lessor may post appropriate notices to avoid any liability for liens.
Lessee [___] [___] has read this page.
CAUTION: The copyright laws of the United States forbid the unauthorized reproduction of this form by any means including scanning or computerized formats.
Page 1 of 4 [LOGO OMITTED]
Property Address: 2865 "A" CHURN CREED RD, REDDING, CA 96002
8. ENTRY AND INSPECTION. Lessee will permit Lessor or Lessor's agents to enter the premises at reasonable times and upon reasonable notice for the purpose of inspecting the premises, and will permit Lessor, at any time within sixty (60) days prior to the expiration of this Lease, to place upon the premises any usual "For Lease" signs, and permit persons desiring to lease the premises to inspect the premises at reasonable times.
9. INDEMNIFICATION OF LESSOR. Lessor will not be liable for any damage or injury to Lessee, or any other person, or to any property, occurring on the premises. Lessee agrees to hold Lessor harmless from any claims for damages arising out of Lessee's use of the premises, and to indemnify Lessor for any expense incurred by Lessor in defending any such claims.
10. POSSESSION. If Lessor is unable to deliver possession of the premises at the commencement date set forth above, Lessor will not be liable for any damage caused by the delay, nor will this Lease be void or voidable, but Lessee will not be liable for any rent until possession is delivered. Lessee may terminate this Lease if possession is not delivered within 20 days of the commencement term in Item 1.
11. LESSEE'S INSURANCE. Lessee, at his or her expense, will maintain plate glass, public liability, and property damage insurance insuring Lessee and Lessor within minimum coverage as follows: 1,000,000 Lessee will provide Lessor with a Certificate of Insurance showing Lessor as additional insured. The policy will require ten (10) day's written notice to lessor prior to cancellation or material change of coverage.
12. LESSOR'S INSURANCE. Lessor will maintain hazard insurance covering one hundred percent (100%) actual cash value of the improvements throughout the Lease term. Lessor's insurance will not insure Lessee's personal property, leasehold improvements, or trade fixtures.
13. SUBROGATION. To the maximum extent permitted by insurance policies which may be owned by the parties, Lessor and Lessee waive any and all rights of subrogation against each other which might otherwise exist.
15. SIGNS. Lessee will not place, maintain, nor permit any sign or awning on any exterior door, wall, or window of the premises without the express written consent of Lessor, which will not be unreasonably withheld, and of appropriate governmental authorities.
16. ABANDONMENT OF PREMISES. Lessee will not vacate or abandon the premises at any time during the term of this Lease. If Lessee does abandon or vacate the premises, or is dispossessed by process of law, or otherwise, any personal property belonging to Lessee left on the premises will be deemed to be abandoned, at the option of Lessor.
17. CONDEMNATION. If any part of the premises is condemned for public use, and a part remains which is susceptible of occupation by Lessee, this Lease will, as to the part taken, terminate as of the date the condemnor acquires possession. Lessee will be required to pay such proportion of the rent for the remaining term as the value of the premises remaining bears to the total value of the premises at the date of condemnation; provided, however, that either party may, at his or her option, terminate this Lease as of the date the condemnor acquires possession. In the event that the premises are condemned in whole, or the remainder is not susceptible for use by the Lessee, this Lease will terminate upon the date which the condemnor acquires possession. All sums which may be payable on account of any condemnation will belong solely to the Lessor; except that Lessee will be entitled to retain any amount awarded to him or her for his or her trade fixtures and moving expenses.
18. TRADE FIXTURES. Any and all improvements made to the premises during the term will belong to the Lessor, except trade fixtures of the Lessee. Lessee may, upon termination, remove all his or her trade fixtures, but will pay for all costs necessary to repair any damage to the premises occasioned by the removal.
19. DESTRUCTION OF PREMISES. In the event of a partial destruction of the premises during the term, from any cause except acts or omission of Lessee, Lessor will promptly repair the premises, provided that such repairs can be reasonably made within sixty (60) days. Such partial destruction will not terminate this Lease, except that Lessee will be entitled to a proportionate reduction of rent while such repairs are being made, based upon the extent to which the making of such repairs interferes with the business of lessee on the premises. If the repairs cannot be made within sixty (60) days, this Lease may be terminated at the option of either party by giving written notice to the other party within sixty (60) day period.
20. HAZARDOUS MATERIALS. Lessee will not use, store, or dispose of any hazardous substances upon the premises, except the use and storage of such substances that are customarily used in Lessee's business, and are in compliance with all environmental laws. Hazardous substances means any hazardous waste, substance or toxic materials regulated under any environmental laws or regulations applicable to the property. Lessee will be responsible for the cost of removal of any toxic contamination caused by lessee's use of the premises.
21. INSOLVENCY. The appointment of a receiver, an assignment for the benefits of creditors, or the filing of a petition in bankruptcy by or against Lessee, will constitute a breach of this Lease by Lessee.
22. DEFAULT. In the event of any breach of this Lease by Lessee, Lessor may, at his or her option, terminate the Lease and recover from Lessee: (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (c) the worth at the time of
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CAUTION: The copyright laws of the United States forbid the unauthorized reproduction of this form by any means including scanning or computerized formats.
Property Address: 2685 "A" CHURN CREED RD, REDDING CA.
award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (d) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform his or her obligations under the Lease or which in the ordinary course of things would be likely to result therefrom.
Lessor may, in the alternative, continue this Lease in effect, as long as Lessor does not terminate Lessee's right to possession, and Lessor may enforce all of Lessor's rights and remedies under the Lease, including the right to recover the rent as it becomes due under the Lease. If said breach of lease continues, Lessor may, at any time thereafter, elect to terminate the Lease.
These provisions will not limit any other rights or remedies which Lessor may have.
23. SECURITY. The security deposit will secure the performance of the Lessee's obligations. Lessor may, but will not be obligated to, apply all or portions of the deposit on account of Lessee's obligations. Any balance remaining upon termination will be returned to Lessee. Lessee will not have the right to apply the security deposit in payment of the last month's rent.
24. DEPOSIT REFUNDS. The balance of all deposits will be refunded within three
(3) weeks (or as otherwise required by law), from date possession is
delivered to Lessor or his or her authorized agent, together with a
statement showing any charges made against the deposits by Lessor.
25. ATTORNEY FEES. In any action or proceeding involving a dispute between Lessor and Lessee arising out of this Lease, the prevailing party will be entitled to reasonable attorney fees.
26. WAIVER. No failure of Lessor to enforce any term of this Lease will be deemed to be a waiver.
27. NOTICES. Any notice which either party may or is required to give, will be given by mailing the notice, postage prepaid, to Lessee at the premises, or to Lessor at the address shown in Item 2, or at such other places as may be designated in writing by the parties from time to time. Notice will be effective five (5) days after mailing, or on personal delivery, or when receipt is acknowledged in writing.
28. HOLDING OVER. Any holding over after the expiration of this Lease, with the consent of Owner, will be a month-to-month tenancy at a monthly rent of $1,770.00, payable in advance and otherwise subject to the terms of this Lease, as applicable, until either party will terminate the tenancy by giving the other party thirty (30) days written notice.
29. TIME. Time is of the essence of this Lease.
30. HEIRS, ASSIGNS, SUCCESSORS. This Lease is binding upon and inures to the benefit of the heirs, assigns, and successors of the parties.
32. COST OF LIVING INCREASE. The rent provided for in Item 2 will be adjusted
effective upon the first day of the month immediately following the
expiration of 12 months from date of commencement of the term, and upon the
expiration of each 12 months thereafter, in accordance with changes in the
U.S. Consumer Price Index for [X] All Urban Consumers (1982-84 = 100), or
[_] (other index) ____________ ("CPI"). The monthly rent will be increased
to an amount equal to the monthly rent set forth in Item 2, multiplied by a
fraction the numerator of which is the CPI for the second caldndar month
immediately preceding the adjustment date, and the denominator of which is
the CPI for the second calendar month preceding the commencement of the
Lease term; provided, however, that the monthly rent will not be less than
the amount set forth in Item 2.
33. OPTION TO RENEW. Provided that Lessee is not in default in the performance of this Lease, Lessee will have the option to renew the Lease for an additional term of N/A months commencing at the expiration o the initial Lease term. All of the terms and conditions of the Lease will apply during the renewal term, except that the monthly rent will be the sum of $N/A which will be adjusted after commencement of the renewal term in accordance with the cost of living increase provision set forth in Item 32.
The option will be exercised by written notice given to Lessor not less than 120 days prior to the expiration of the initial Lease term. If notice is not given within the time specified, this Option will expire.
34. AMERICANS WITH DISABILITIES ACT. The parties are alerted to the existence of the Americans With Disabilities Act, which may require costly structural modifications. The parties are advised to consult with a professional familiar with the requirements of the Act.
35. LESSOR'S LIABILITY. In the event of a transfer of Lessor's title or interest to the property during the term of this Lease, Lessee agrees that the grantee of such title or interest will be substituted as the Lessor under this Lease, and the original Lessor will be released of all further liability; provided, that all deposits will be transferred to the grantee.
36. ESTOPPEL CERTIFICATE.
(a) On ten (10) days' prior written notice from Lessor, Lessee will execute, acknowledge, and deliver to Lessor a statement in writing: [1] certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the amount of any security deposit, and the date to which the rent and other charges are paid in advance, if any; and [2] acknowledging that there are not, to Lessee's knowledge, any uncured defaults
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CAUTION: The copyright laws of the United States forbid the unauthorized
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Property Address: 2685 "A" CHURN CREED RD, REDDING CA. 96002
on the part of Lessor, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective buyer or encumbrancer of the premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within such time will be a material breach of this Lease or will be conclusive upon Lessee: [1] that this Lease is in full force and effect, without modification except as may be represented by Lessor; [2] that there are no uncured defaults in Lessor's performance; and [3] that not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the premises, or any part thereof, Lessee agrees to deliver to any lender or buyer designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or buyer. All financial statements will be received by the Lessor or the lender or buyer in confidence and will be used only for the purposes set forth.
37. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement between the parties and may be modified only in writing signed by all parties. The following exhibits are a part of this Lease:
Exhibit A:____________________________________________________________ Exhibit B:____________________________________________________________ Exhibit C:____________________________________________________________
38. ADDITIONAL TERMS AND CONDITIONS. Lessor agrees to build 1 lunchroom and 1 office. Lessor will supply window coverings on doors and windows.
The undersigned Lessee acknowledges that he or she has thoroughly read and approved each of the provisions contained in this Offer, and agrees to the terms and conditions specified.
Receipt for deposit acknowledged by ________________________ _____ Date______
Lessor /s/ [ILLEGIBLE]^^ Date 7/26/00 Lessor /s/ [ILLEGIBLE]^^ Date 7/26/00
----------------- ------- ----------------- -------
CONCEPT DEVELOPMENT CORP C.D.C. - VICE PRESIDENT
PRESIDENT
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Lessee acknowledges receipt of a copy of the accepted Lease on (date) 8/7/00
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(Initials)
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Exhibit 21.1
SUBSIDIARIES
Jurisdiction of
Name Incorporation
---- ---------------
Natus Japan K. K. Japan
|
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of Natus Medical Incorporated:
We consent to the use in this Registration Statement of Natus Medical Incorporated on Form S-1 of our report dated March 10, 2000 (August 16, 2000 as to Note 14), appearing in the Prospectus, which is a part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Natus Medical Incorporated, listed in Item 16(b). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
San Jose, California
August 18, 2000
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 6 MOS | YEAR |
| FISCAL YEAR END | DEC 31 2000 | DEC 31 1999 |
| PERIOD START | JAN 01 2000 | JAN 01 1999 |
| PERIOD END | JUN 30 2000 | DEC 31 1999 |
| CASH | 1,510 | 2,087 |
| SECURITIES | 295 | 289 |
| RECEIVABLES | 3,559 | 3,329 |
| ALLOWANCES | 225 | 201 |
| INVENTORY | 1,799 | 1,253 |
| CURRENT ASSETS | 7,195 | 6,897 |
| PP&E | 2,931 | 3,298 |
| DEPRECIATION | 1,592 | 2,021 |
| TOTAL ASSETS | 9,059 | 8,699 |
| CURRENT LIABILITIES | 3,336 | 3,083 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 24,534 | 23,842 |
| PREFERRED | 0 | 0 |
| COMMON | 1,824 | 278 |
| OTHER SE | (20,635) | (18,504) |
| TOTAL LIABILITY AND EQUITY | 9,059 | 8,699 |
| SALES | 11,009 | 19,783 |
| TOTAL REVENUES | 11,009 | 19,783 |
| CGS | 3,908 | 6,624 |
| TOTAL COSTS | 3,908 | 6,624 |
| OTHER EXPENSES | 7,430 | 12,525 |
| LOSS PROVISION | 24 | 63 |
| INTEREST EXPENSE | (12) | (20) |
| INCOME PRETAX | (317) | 654 |
| INCOME TAX | 0 | 10 |
| INCOME CONTINUING | (317) | 644 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (317) | 644 |
| EPS BASIC | (0.11) | (0.17) |
| EPS DILUTED | (0.11) | (0.17) |