As filed with the Securities and Exchange Commission on February 9, 2001
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
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
Katherine H. Stephens, Esq. 825 Eighth Avenue
Wilson Sonsini Goodrich & Rosati New York, NY 10019-7475
Professional Corporation (212) 474-1000
650 Page Mill Road
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(2)
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Common stock, $0.001 par
value.................... $56,925,000 $14,939.65
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(2) A fee of $13,358.40 was previously paid. An additional fee of $1,581.25 is submitted herewith. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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+ +
+The information in this 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 prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + |
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SUBJECT TO COMPLETION, DATED FEBRUARY 9, 2001
PROSPECTUS
4,500,000 Shares
[LOGO OF NATUS MEDICAL INCORPORATED APPEARS HERE]
Natus Medical Incorporated
Common Stock
We are selling 4,500,000 shares of our common stock. This is our initial public offering and no public market currently exists for our shares. We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol "BABY." We anticipate that the initial public offering price will be between $10 and $12 per share.
Per
Share Total
------ ------
Initial public offering price.................................... $ $
Underwriting discount and commissions............................ $ $
Proceeds, before expenses, to Natus Medical Incorporated ........ $ $
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The underwriters have a 30-day option to purchase up to 675,000 additional shares of common stock from us to cover over allotments, if any.
Investing in our common stock involves risks. See "Risk Factors" beginning on page 5.
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. It is illegal for any person to tell you otherwise.
Dain Rauscher Wessels First Union Securities, Inc.
, 2001
[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....................................................... 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Our Policy Regarding Dividends........................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Consolidated Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 34
Management............................................................... 56
Relationships and Related Party Transactions............................. 67
Principal Stockholders................................................... 70
Description of Capital Stock............................................. 73
Shares Eligible for Future Sale.......................................... 77
United States Tax Consequences to Non-United States Holders.............. 79
Underwriting............................................................. 81
Legal Matters............................................................ 83
Experts.................................................................. 83
Where You Can Find Additional Information................................ 83
Index to Consolidated Financial Statements............................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE AS OF THE DATE OF THIS PROSPECTUS.
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 January 2001, we began commercially 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. 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 policies and guidelines for standard medical practices, known as standard of care guidelines, adopted by the American Academy of Pediatrics, the largest physician group for pediatricians and neonatologists in the United States.
Our ALGO products use automated auditory brainstem response technology 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' standard of care 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 2000, we sold disposable supplies to conduct approximately 1.7 million tests.
In addition to ALGO products, we have developed the CO-Stat analyzer that, within hours after birth, enables clinicians 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. Although we began commercially marketing our CO-Stat products in January 2001, 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 a 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 up to five babies 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 87% of births in the United States during 2000 occurred in states with mandates or pending mandates for universal newborn hearing screening. In addition, we estimate that hospitals in five other states without mandates screened 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, the United Kingdom 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 estimate 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, 1988 we changed our name to Natus Medical
Incorporated. We acquired the ALGO product line in 1987. 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 by Natus................. 4,500,000 shares
Common stock outstanding after this offering.. 14,299,568 shares
Use of proceeds............................... To fund international
expansion, research and
development, manufacturing and
customer service activities,
the commercial launch of our
CO-Stat product, working
capital, capital expenditures
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 675,000 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;
. reflects our reincorporation into Delaware in August 2000; 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 9,799,568 shares of common stock outstanding as of December 31, 2000 assuming conversion of all convertible preferred stock;
. does not take into account 1,685,513 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2000 at a weighted average exercise price of $2.73 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 CONSOLIDATED FINANCIAL DATA
Years Ended December 31,
------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Statement of Operations Data:
Revenues..................... $ 6,501 $ 10,031 $ 15,884 $ 19,783 $ 24,633
Cost of revenues............. 2,567 3,612 5,577 6,624 8,745
-------- -------- -------- -------- --------
Gross profit................ 3,934 6,419 10,307 13,159 15,888
-------- -------- -------- -------- --------
Operating expenses:
Marketing and selling....... 2,828 4,259 6,275 7,684 8,984
Research and development.... 962 1,602 2,711 2,457 3,458
General and administrative.. 829 1,231 1,638 2,384 2,586
Amortization of deferred
stock compensation......... -- -- -- -- 611
-------- -------- -------- -------- --------
Total operating expenses... 4,619 7,092 10,624 12,525 15,639
-------- -------- -------- -------- --------
Income (loss) from
operations.................. (685) (673) (317) 634 249
Other income, net............ 21 97 118 20 32
-------- -------- -------- -------- --------
Income (loss) before taxes... (664) (576) (199) 654 281
Income tax expense........... -- -- -- 10 46
-------- -------- -------- -------- --------
Net income (loss)............ (664) (576) (199) 644 235
Accretion of redeemable
convertible preferred
stock....................... 1,079 1,292 1,389 2,085 1,384
-------- -------- -------- -------- --------
Net loss available to common
stockholders................ $ (1,743) $ (1,868) $ (1,588) $ (1,441) $ (1,149)
======== ======== ======== ======== ========
Basic and diluted net loss
per share................... $ (16.29) $ (7.62) $ (3.63) $ (2.56) $ (1.62)
======== ======== ======== ======== ========
Shares used in computing
basic and diluted net loss
per share................... 107 245 438 562 710
Pro forma basic and diluted
net loss per share.......... $ (0.12)
========
Shares used in computing pro
forma basic and diluted net
loss per share.............. 9,642
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During the year ended December 31, 2000, we amortized deferred stock compensation of $795,000, of which $184,000 was included in cost of revenues and $611,000 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 $157,000, research and development of $105,000 and general and administrative of $349,000.
Pro forma basic and diluted net loss per share for the year ended December 31, 2000 have been calculated assuming the conversion of all outstanding shares of our convertible preferred stock as of December 31, 2000 into 8,931,534 shares of common stock as if the stock had been converted at the beginning of the respective period.
December 31, 2000
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
Balance Sheet Data:
Cash equivalents and short-term investments.... $ 983 $ 983 $45,368
Working capital................................ 4,065 4,065 48,450
Total assets................................... 10,718 10,718 55,103
Convertible preferred stock.................... 25,226 -- --
Total stockholders' equity (deficit)........... (18,283) 6,943 51,234
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The pro forma balance sheet data reflects the conversion of all outstanding shares of convertible preferred stock as of December 31, 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 4,500,000 shares of common stock in this offering at an assumed initial public offering price of $11.00 after deducting estimated underwriting discounts, commissions and offering expenses.
RISK FACTORS
An investment in our common stock involves significant risks. You should carefully consider the following risks described below and the other information in this prospectus including our financial statements and related notes before you decide to buy our common stock. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment.
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 $1.6 million in 1998, $1.4 million in 1999 and $1.1 million in 2000. In addition, we had an accumulated deficit of $19.7 million as of December 31, 2000. We expect to continue to incur net losses in 2001.
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 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 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 were our only lines of commercially marketed products through 2000, if more physicians do not adopt our ALGO and MiniMuff products, we will not achieve future sales growth
We acquired the ALGO product family in 1987, and we introduced our MiniMuff product 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;
. 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 existing ALGO screener prior to the announced launch date of our next generation ALGO 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, 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 and the following quarter.
We have limited 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 have been and may continue to be subject to seasonal fluctuations during the first fiscal quarter of each year
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.
Our operating results will not improve if we do not succeed in developing and marketing additional newborn testing products 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 and improving our existing products to meet the needs of neonatologists and pediatricians requires significant investments in research and development. If we fail to successfully develop and market new products and update our existing products, our operating results will not improve as our existing products reach the end of their commercial life cycles.
Our future growth and profitability will depend on our ability to begin commercial, volume sales of our CO-Stat products
We introduced our CO-Stat product family for clinical research uses in July 1999 and began commercially marketing it in January 2001. 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 limited experience marketing our CO-Stat product for commercial use. However, our future growth and profitability will depend on our ability to commercially sell 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.
Physicians may not adopt our CO-Stat products if we cannot show that these products are cost-effective or if long-term clinical data does not support our early results, which would harm our operating results
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 in part on a study of over 1,300 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 elevated hemolysis 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 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 and monitoring.
Our revenues may not grow if densely populated states and foreign countries do not adopt guidelines requiring universal newborn hearing screening or jaundice monitoring or if those guidelines have a long phase-in period
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 December 31, 2000, 32 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 applicable government provides for a lengthy phase-in period for compliance.
Our revenues may not grow if state and foreign governments do not mandate hemolysis monitoring as the standard of care for newborn jaundice screening
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 educational support, policy development and research support 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.
Acceptance of our products in international markets will be dependent upon the availability of adequate reimbursement or funding, as the case may be, within prevailing health care payment systems. Reimbursement, funding 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 or funding, as the case may be, approvals, we may not obtain these approvals in a timely manner or at all.
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 only recently began to market 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 15 persons as of December 31, 2000. We must expand our sales team over the next year 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. We must also increase our manufacturing personnel or increase the volume of products we purchase from contract manufacturers to produce the CO- Stat products for us.
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 or 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 Natus approved 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.
We rely on a continuous power supply to conduct our operations and California's current energy crisis could disrupt our operations and increase our expenses
California is in the midst of an energy crisis that could disrupt our operations and increase our expenses. In the event of an acute power shortage, that is, when power reserves for the State of California fall below one and one-half percent, the State of California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout the state. We currently do not have backup generators or alternate sources of power in the event of a blackout, and our current insurance does not provide coverage for any damages we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our ability to continue operations at our facilities, then our reputation could be damaged, our ability to retain existing customers could be harmed and we could fail to obtain new customers. These interruptions could also result in lost revenue, any of which could substantially harm our business and results of operations.
Furthermore, the deregulation of the energy industry instituted in 1996 by the California state government has caused power prices to increase. Under deregulation, utilities were encouraged to sell their plants, which traditionally had produced most of California's power, to independent energy companies that were expected to compete aggressively on price. Instead, due in part to a shortage of supply, wholesale prices have skyrocketed over the past year. If wholesale prices continue to increase, our operating expenses will likely increase, as our primary North American facilities are located in California.
Some of our component suppliers are also located in California. While our orders from our suppliers have not been affected by power failure to date, the continuance of blackouts may affect our suppliers' ability to manufacture our products and meet scheduled delivery needs.
Our sales efforts through group purchasing organizations may reduce our average selling prices, which would reduce our revenues and gross profits from these sales
In September 1999 and February 2000, we entered into two agreements to sell our products to members of group purchasing organizations, which negotiate volume purchase prices for medical devices and supplies for member hospitals, group practices and other clinics. While we still make sales directly to group purchasing organization members, the members of these group purchasing organizations now receive volume discounts off our normal selling price and other special pricing considerations from us. Sales to members of one group purchasing organization, Novation, LLC, accounted for approximately 22% of our total revenues in 2000, and approximately 79% of the customers who bought from us under the Novation agreement were also our customers prior to the time we entered into the Novation agreement. Other of our existing customers may be members of group purchasing organizations with which we do not have agreements. Our sales efforts through group purchasing organizations may conflict with our direct sales efforts to our existing customers. If we were to enter into agreements with other group purchasing organizations and our existing customers begin purchasing our products through those group purchasing organizations, our revenues and profit margin could decline.
We rely on sales to existing customers for a majority 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 products to our existing customers for a majority of our revenues. Of our customers that purchased products from us in 1999, 90% also purchased products from us in 2000. If we fail to sell additional screening products 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 relationship with any of these distributors is terminated
We rely on our distributors 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 revenues in 1999 and approximately 14% of our revenues in 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 international distributors, we would experience a decline in revenues unless we begin to sell our products directly in those markets. 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. These payments could be equal to a year or more of gross margin on sales of our products the distributor would have earned. 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. For example, we acquired our United Kingdom distributor in January 2001, and we have agreed to assume our Japanese distributor's sales and support efforts for our products when our existing distribution agreement terminates in June 2001. 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.
Our operating results may suffer because of foreign currency exchange rate fluctuations or strengthening of the U.S. dollar relative to local currencies
Although historically substantially all of 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 established a Japanese subsidiary in July 2000 and a United Kingdom subsidiary in December 2000. These operations will incur expenses in the applicable 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.
We face other risks from foreign operations, which could reduce our operating results and harm our financial condition
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;
. 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; and
. difficulty in obtaining foreign regulatory approvals.
Our failure to obtain necessary U.S. Food and Drug Administration clearances or approvals or to comply with Food and Drug Administration 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 Food and Drug Administration 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 Food and Drug Administration has determined that the medical device in question poses a greater risk of injury.
The Food and Drug Administration'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 cannot assure you that the Food and Drug Administration will ever grant either 510(k) clearance or premarket approval for any product we propose to market. Furthermore, if the Food and Drug Administration 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 Food and Drug Administration 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.
Our business may suffer if we are required to revise our labeling or promotional materials or the Food and Drug Administration takes an enforcement action against us for off-label uses
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 Food and Drug Administration determines that our claims are outside the scope of our clearances or are unsupported it could require us to revise our promotional claims or take enforcement action against us. If we were subject to such an action by the Food and Drug Administration, our sales could be delayed, our revenues could decline and our reputation among clinicians could be harmed.
Our business would be harmed if the Food and Drug Administration determines that we have failed to comply with applicable regulations or we do not pass an inspection
We are subject to inspection and market surveillance by the Food and Drug Administration concerning compliance with pertinent regulatory requirements. If the Food and Drug Administration 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.
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 Food and Drug Administration and are subject to regulatory requirements similar to the Food and Drug Administration's in foreign 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 the Food and Drug Administration 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 Food and Drug Administration's quality system regulation and comparable regulations of states and other countries. The Food and Drug Administration enforces the quality system regulation through periodic 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 Food and Drug Administration 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 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.
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 introduce new, lower priced hearing screening equipment similar to our products. Similarly, we believe that Chromatics Color Sciences International, Inc., Minolta Co., Ltd. and SpectRx, Inc., each of which is currently marketing skin color analysis products for bilirubin monitoring, or Johnson & Johnson and F. Hoffman-La Roche Ltd., each of which is currently marketing equipment for blood-based bilirubin or antibody tests, could also introduce new, lower-priced options for the management of newborn jaundice. Some of our competitors may have greater financial resources and name recognition or larger, more established distribution channels than we do.
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.
Our business could be harmed if our competitors establish cooperative relationships with large medical testing equipment vendors or rapidly acquire market share through industry consolidation or by bundling other products with their hearing screening or jaundice monitoring products
In addition, large medical testing equipment vendors, such as Johnson & Johnson or Roche, 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.
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 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 or we may lose our intellectual property rights due to expiration of our licenses or patents
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 attempt to protect our intellectual property rights by filing patent applications for new features and products we develop. 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 original patent we licensed on a nonexclusive basis from a third party for the technology upon which we developed our automated auditory brainstem response technology expired in late 1999, and that subject matter is in the public domain. In addition, we cannot assure you that the patent applications we have filed to protect the features of our ALGO products that we have subsequently developed will be allowed, or will deter others from using the auditory brainstem response technology.
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 of 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. For example, our former Vice President of Sales left our company in January 2000 to join an internet-related company. 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, 2000, we had total net operating loss carryforwards of approximately $6.8 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 2020. 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 31.8% 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 out 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, 9,799,568, or 68.5% 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 14,299,568 shares of common stock. This includes 4,500,000 shares that we are selling in this offering, which may be resold immediately in the public market. The remaining 9,799,568 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, Dain Rauscher Incorporated can waive this restriction and allow these stockholders to sell their shares at any time. Of these shares, 9,799,568 shares will be subject to volume limitations under the federal securities laws.
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.
USE OF PROCEEDS
We expect that we will receive net proceeds of approximately $44.4 million from the sale of the 4,500,000 shares of common stock we are offering, based on an assumed initial public offering price of $11.00 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 $51.3 million. The principal purposes of this offering are to create a public market for common stock and to attract and retain qualified employees by providing them with equity incentives. We currently intend to use the net proceeds of this offering as follows:
. approximately $3.0 million to fund international expansion;
. approximately $2.0 million to expand our research and development, manufacturing and customer service activities; and
. approximately $4.0 million in 2001 on the market launch of our CO-Stat products and future new products.
We also expect to use the proceeds of this offering for working capital and capital expenditures. In addition, we 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 with any degree of certainty. Actual expenditures may vary significantly from our estimates. 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 December 31, 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 4,500,000 shares of common stock offered by us at an assumed initial public offering price of $11.00 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.
December 31, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share amounts)
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
$3,803...................................... $ 2,227 $ -- $ --
Redeemable convertible preferred stock, $0.001
par value; 8,781,412 shares authorized;
aggregate liquidation value of $25,178 and
aggregate redemption value of $22,999:
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.................................... 12,478 -- --
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.................................... 5,864 -- --
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.................................... 4,657 -- --
-------- -------- -------
Total convertible preferred stock............ 25,226 -- --
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; 868,034 shares issued
and outstanding, actual; 9,799,568 shares
issued and outstanding, pro forma; 14,299,568
shares issued and outstanding, pro forma as
adjusted..................................... 2,902 28,128 72,419
Deferred stock compensation................... (1,532) (1,532) (1,532)
Accumulated deficit........................... (19,653) (19,653) (19,653)
-------- -------- -------
Total stockholders' equity (deficit)......... (18,283) 6,943 51,234
-------- -------- -------
Total capitalization........................ $ 6,943 $ 6,943 $51,234
======== ======== =======
|
The actual, pro forma and pro forma as adjusted information set forth in the table excludes:
. 675,000 shares of common stock issuable upon the exercise of the underwriters' over-allotment option;
. 1,685,513 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2000 at a weighted average exercise price of $2.73 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 December 31, 2000.
DILUTION
Our pro forma net tangible book value as of December 31, 2000 was approximately $6.9 million, or $0.70 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 December 31, 2000 into 8,931,534 shares of common stock concurrently with the completion of this offering. After giving effect to the sale of the 4,500,000 shares of common stock by us at an assumed initial public offering price of $11.00 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 December 31, 2000 would have been approximately $51.3 million or $3.59 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.89 per share of common stock to existing common stockholders and an immediate dilution in net tangible book value of $7.41 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............... $11.00
Pro forma net tangible book value per share before this
offering................................................... $0.70
Increase in pro forma net tangible book value per share
attributable to this offering.............................. 2.89
-----
Pro forma net tangible book value per share after this
offering..................................................... 3.59
------
Dilution per share to new investors........................... $ 7.41
======
|
The following table summarizes, on a pro forma basis as of December 31, 2000, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing and new investors purchasing shares of common stock in this offering, before deducting 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 December 31, 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......... 9,799,568 68.5% $25,625,064 34.1% $2.61
New investors................. 4,500,000 31.5 49,500,000 65.9 11.00
---------- ----- ----------- -----
Total..................... 14,299,568 100.0% $75,125,064 100.0%
========== ===== =========== =====
|
The tables and calculations above assume no exercise of the underwriters' over-allotment option to purchase up to an additional 675,000 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 65.4% 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 5,175,000, or 34.6% 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 December 31, 2000, there were 1,685,513 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $2.73 per share. To the extent that any of these options are exercised, there will be further dilution to new investors.
CONSOLIDATED SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data in conjunction with our consolidated 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 consolidated statement of operations data for the years ended December 31, 1998, 1999 and 2000 and the selected consolidated balance sheet data as of December 31, 1999 and 2000 from the audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 1996, 1997 and 1998 and the consolidated statement of operations data for the years ended December 31, 1996 and 1997 are derived from our audited consolidated financial statements, which are not included in this prospectus. 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 1996, 1997, 1998, 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 year ended December 31, 2000 reflects the conversion of our convertible preferred stock. See the notes to our consolidated 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 2000 reflected amortization of deferred stock compensation of $795,000, of which $184,000 was included in cost of revenues. The amortization of deferred stock compensation allocated to operating expense was $611,000 and was comprised of marketing and selling expenses of $157,000, research and development expenses of $105,000 and general and administrative expenses of $349,000.
Years Ended December 31,
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(in thousands, except per share amounts
)
Consolidated Statement of
Operations Data:
Revenues......................... $ 6,501 $10,031 $15,884 $19,783 $24,633
Cost of revenues................. 2,567 3,612 5,577 6,624 8,745
------- ------- ------- ------- -------
Gross profit................... 3,934 6,419 10,307 13,159 15,888
------- ------- ------- ------- -------
Operating expenses:
Marketing and selling.......... 2,828 4,259 6,275 7,684 8,984
Research and development....... 962 1,602 2,711 2,457 3,458
General and administrative..... 829 1,231 1,638 2,384 2,586
Amortization of deferred stock
compensation.................. -- -- -- -- 611
------- ------- ------- ------- -------
Total operating expenses..... 4,619 7,092 10,624 12,525 15,639
------- ------- ------- ------- -------
Income (loss) from operations.... (685) (673) (317) 634 249
Other income, net................ 21 97 118 20 32
------- ------- ------- ------- -------
Income (loss) before taxes....... (664) (576) (199) 654 281
Income tax expense............... -- -- -- 10 46
------- ------- ------- ------- -------
Net income (loss)................ (664) (576) (199) 644 235
Accretion of redeemable
convertible preferred stock..... 1,079 1,292 1,389 2,085 1,384
------- ------- ------- ------- -------
Net loss available to common
stockholders.................... $(1,743) $(1,868) $(1,588) $(1,441) $(1,149)
======= ======= ======= ======= =======
Basic and diluted net loss per
share .......................... $(16.29) $ (7.62) $ (3.63) $ (2.56) $ (1.62)
======= ======= ======= ======= =======
Shares used in computing basic
and diluted net loss per share.. 107 245 438 562 710
Pro forma basic and diluted net
loss per share.................. $ (0.12)
=======
Shares used in computing pro
forma basic and diluted net loss
per share....................... 9,642
|
December 31,
------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands)
Consolidated Balance Sheet
Data:
Cash equivalents and short-
term investments........... $ 754 $ 2,823 $ 1,943 $ 2,376 $ 983
Working capital............. 830 3,730 3,206 3,814 4,065
Total assets................ 2,681 6,330 7,418 8,699 10,718
Long-term debt, net of
current portion............ 10 -- 150 -- --
Convertible preferred
stock...................... 14,792 19,765 21,154 23,842 25,226
Total stockholders'
deficit.................... (13,544) (15,363) (16,851) (18,226) (18,283)
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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 began actively marketing our CO-Stat products for the analysis of hemolysis and management of jaundice in January 2001.
Our revenues consist of revenues from sales of equipment and disposables. We currently derive substantially all of our revenues from sales of a limited number of products. Nearly all of our revenues were from sales of our ALGO products in 1998, 1999 and 2000. Although we began selling our CO-Stat product in July 1999 on a very limited basis for clinical testing, we expect that a substantial majority of our revenues will continue to be generated from sales of our ALGO products for at least the next two years.
Historically we have sold our products directly through our sales force in the United States and indirectly through distributors internationally. Domestic sales were 81% of our revenues in 1998, 90% of our revenues in 1999 and 86% of our revenues in 2000. We plan to expand our international operations significantly because we believe international markets represent a significant growth opportunity. We acquired the distribution operations of our United Kingdom distributor in January 2001 and expect to begin direct sales operations in Japan in June 2001, when our existing Japanese distribution agreement expires. Consequently, we anticipate that international revenues will increase as a percent of 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. Historically our international sales have been through distributors and have been characterized by a lower gross margin due to the discount the distributors receive from our list prices. Because we are transitioning some of our international sales to direct sales in 2001, our international gross margins may improve in the future.
We historically have sold our products in U.S. dollars. We have also purchased all of the components for our products and paid for substantially all of our expenses in U.S. dollars. As a result, we have very limited direct exposure to foreign currency exchange rate fluctuations. However, the relative price competitiveness of our products may have been, and may continue to be, affected by fluctuation in the exchange rate of the U.S. dollar and the customer's local currency. We expect our exposure to currency exchange rate fluctuations will increase substantially in the future as we begin to sell our products in Japan in Yen, in Belgium, the Netherlands and Luxembourg in Euros, and in the United Kingdom in Pounds Sterling in 2001. We will also increase our exposure to currency exchange rate fluctuations as we increase our direct sales presence outside of the United States and incur a material level of operating expenses in currencies other than the U.S. dollar.
We recognize revenue from product sales, including sales to distributors, upon shipment when a purchase order has been received, the sales price is fixed and determinable and collection of the resulting receivable is probable. Rights of return are generally not provided; however, provisions are made for initial standard warranty obligations of one year, and post-sale training and customer support at the time the related revenue is recognized. 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. Allowances for estimated warranty costs are estimated 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.
In late 1999 and 2000, we entered into agreements with two group purchasing organizations, Novation and AmeriNet, Inc. These agreements provide the members of these organizations, such as a hospital, the ability to purchase our products at a discount from our list prices. We continue to sell our products directly to the group purchasing organization members. We also pay a fee to the group purchasing organization to market our products to their members. Sales to members of Novation accounted for 22% of our revenues in 2000. Of those customers, 79% had purchased our products prior to the time we entered into the agreement with Novation. From time to time we will consider and may enter into additional agreements with other group purchasing organizations. If more of our revenues are generated under these kinds of agreements, the average selling price of our products and our profit margin may decline, and we may pay increased marketing fees.
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.
In January 2001 we reorganized and expanded our domestic sales force to commercially launch and focus on our CO-Stat products. We expect to increase spending on the marketing of our CO-Stat products in 2001 and beyond. Because we have not previously marketed newborn jaundice management products, we cannot be certain that our planned resources will be sufficient to support the CO-Stat launch.
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. We allocate the costs of clinical trials to research and development expenses for those clinical trials that we undertake to validate the clinical operation, efficacy and specificity of a new product or an enhancement of an existing product. Clinical trials can vary significantly in timing, cost and duration. These clinical trials typically occur in the later stage of new product development.
We also conduct clinical trials in order to support our marketing claims regarding the cost or operating performance of our products. We allocate the costs of these clinical trials to marketing and selling expenses. These clinical trials can also vary significantly in timing, cost and duration.
During 2000, we granted options to purchase 985,820 shares of our common stock at a weighted average exercise price of $4.27 per share. The weighted average exercise price was below the weighted average deemed fair value of $6.63 per share. We recorded cumulative deferred stock compensation on our balance sheet of $2.3 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. We expect to amortize aggregate stock compensation of approximately $936,000 during 2001, including $329,000 in the three months ending March 31, 2001, $250,000 in the three months ending June 30, 2001, $196,000 in the three months ending September 30, 2001 and $161,000 in the three months ended December 31, 2001. We also expect to amortize aggregate stock compensation of approximately $409,000 during 2002, $159,000 during 2003 and $28,000 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, 2000, we had approximately $6.8 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 $1.6 million in 1998, $1.4 million in 1999 and $1.1 million in 2000. In addition, we had an accumulated deficit of $19.7 million as of December 31, 2000. We expect to continue to incur net losses in 2001.
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 revenues. Our historical operating results are not necessarily indicative of the results for any future period.
Percent of
Revenue
---------------------
Years Ended
December 31,
---------------------
1998 1999 2000
----- ----- -----
Revenues................................................ 100.0 % 100.0 % 100.0 %
Cost of revenues........................................ 35.1 33.5 35.5
----- ----- -----
Gross profit.......................................... 64.9 66.5 64.5
----- ----- -----
Operating expenses:
Marketing and selling................................. 39.5 38.8 36.5
Research and development.............................. 17.1 12.4 14.0
General and administrative............................ 10.3 12.1 10.5
Amortization of deferred stock compensation........... -- -- 2.5
----- ----- -----
Total operating expenses............................ 66.9 63.3 63.5
----- ----- -----
Income (loss) from operations........................... (2.0) 3.2 1.0
Other income (expense), net............................. 0.7 0.1 0.1
----- ----- -----
Income (loss) before taxes.............................. (1.3) 3.3 1.1
Income tax expense...................................... -- 0.1 0.2
----- ----- -----
Net income (loss)....................................... (1.3) 3.2 0.9
Accretion of redeemable convertible preferred stock..... 8.7 10.5 5.6
----- ----- -----
Net loss available to common stockholders........... (10.0)% (7.3)% (4.7)%
===== ===== =====
|
During 2000, cost of revenues includes amortization of deferred stock compensation of 0.7%. Amortization of deferred stock compensation during 2000 includes marketing and selling of 0.6%, research and development of 0.4% and general and administrative of 1.4%.
Years Ended December 31, 2000 and 1999
Revenues consist almost exclusively of revenues from the sale of ALGO screening equipment and its related disposables. Our revenues increased $4.8 million, or 24.5%, from $19.8 million in 1999 to $24.6 million in 2000. This increase was primarily attributable to increased quantities of disposable supplies sold. Revenues from disposables increased $4.3 million, or 40.0%, from $10.7 million in 1999 to $15.0 million in 2000. As a percent of revenues, revenues from sales of disposables increased from 54.1% in 1999 to 60.8% in 2000. No end customer accounted for more than 10% of our revenues in either 1999 or 2000. Sales to our Japanese distributor, Nippon Eurotec, accounted for 11.0% of our revenues in 2000.
Revenues from indirect sales outside the United States increased $1.3 million, or 68%, from $2.0 million in 1999 to $3.3 million in 2000. This increase was due primarily to higher quantities of our products sold in Japan, the United Kingdom and other countries. One factor relating to the increase in revenues in the Japanese market was the commencement of the Japanese Ministry of Health and Welfare's pilot newborn hearing screening program, which provides for reimbursement of newborn hearing screenings. We expect future sales, if any, related to this pilot program to be one-time screening equipment and disposable supplies purchases. We cannot determine whether such programs will continue to purchase disposable supplies or screening equipment from us. Pilot programs have also been initiated in the United Kingdom and proposed in other countries.
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 $2.1 million, or 32.0%, from $6.6 million in 1999 to $8.7 million in 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 2000. Cost of revenues did not include any amortization of deferred stock compensation in 1999 but did include amortization of $184,000 of deferred stock compensation in 2000. As a percent of revenues, the cost of revenues increased from 33.5% in 1999 to 35.5% in 2000. The increase in cost of revenues as a percent of 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 2000 was impacted by amortization of deferred stock compensation. Excluding amortization of deferred stock compensation, cost of revenues increased from 33.5% of revenues in 1999 to 34.8% of revenues in 2000.
Gross profit increased $2.7 million, or 20.7%, from $13.2 million in 1999 to $15.9 million in 2000. Gross profit as a percentage of revenues decreased from 66.5% in 1999 to 64.5% in 2000. The decrease in gross profit as a percentage of revenues was primarily due to a higher percentage of international sales, increased fixed costs and deferred stock compensation. Excluding the deferred compensation charge, gross profit as a percent of revenues was 65.2% in 2000.
Marketing and selling expenses consist primarily of salaries, commissions, travel, promotional and advertising costs. Our marketing and selling expenses increased $1.3 million, or 16.9%, from $7.7 million in 1999 to $9.0 million in 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 revenues, marketing and selling expenses decreased from 38.8% in 1999 to 36.5% in 2000. The decrease in marketing and selling expenses as a percent of revenues was primarily attributable to the increase in revenues in 2000.
Research and development expenses consist of engineering costs to develop new products, enhance existing products and validate the design of our new or enhanced products. Our research and development expenses increased $1.0 million, or 40.7%, from $2.5 million in 1999 to $3.5 million in 2000. As a percent of revenues, research and development expenses were 12.4% in 1999 and 14.0% in 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 $202,000, or 8.5%, from $2.4 million in 1999 to $2.6 million in 2000. The absolute dollar 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 revenues, general and administrative expenses decreased from 12.1% in 1999 to 10.5% in 2000, which were partially offset by reductions in uncollectible amounts written off. The decrease in general and administrative expenses as a percent of revenues was primarily attributable to the increase in revenues in 2000.
We recorded no amortization of deferred stock compensation in 1999. We recorded aggregate amortization of $795,000 of deferred stock compensation in 2000, of which $184,000 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 $12,000 or 60%, from $20,000 in 1999 to $32,000 in 2000. The increase was primarily due to higher interest earned on increased average cash balances in 2000.
Years Ended December 31, 1999 and 1998
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 increased sales of both screening equipment and disposable supplies and, to a lesser extent, an increase in the price of screening equipment. 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 revenues, revenues from sales of disposables increased from 44.8% in 1998 to 54.1% in 1999. No end customer accounted for more than 10% of our revenues in either 1998 or 1999. However, our Japanese distributor accounted for 14% of our revenues in 1998.
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, which we delivered in late 1997 and 1998, by a local government agency in Belgium that instituted a universal newborn hearing screening program. This large purchase substantially increased our sales outside of the United States in each of 1997 and 1998.
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 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 revenues was primarily due to increased domestic direct sales and the ability to absorb fixed costs over a higher number of items sold. Our gross profit improved as we sold a greater quantity of our products and were able to realize cost savings from bulk purchases of components at a lower per unit cost.
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 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 revenues was primarily attributable to the increase in 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 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 due to the completion of development of the CO-Stat products and clinical trials, which primarily occurred in 1998 and were completed during 1999.
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 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.
Quarterly Results of Operations
The following table presents our operating results for each of the eight quarters in the period from January 1, 1999 through December 31, 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, Dec. 31, Mar. 31, June 30, Sept. 30, 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- --------- -------- -------- -------- --------- ------
(in thousands)
Revenues ............... $4,341 $4,577 $4,715 $6,150 $4,912 $6,097 $6,653 $6,971
Cost of revenues........ 1,508 1,574 1,654 1,888 1,766 2,142 2,391 2,446
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.......... 2,833 3,003 3,061 4,262 3,146 3,955 4,262 4,525
Gross margin.......... 65.3% 65.6% 64.9% 69.3% 64.0% 64.9% 64.1% 64.9%
Operating expenses:
Marketing and
selling.............. 1,691 1,963 1,914 2,116 2,043 2,389 2,208 2,344
Research and
development ......... 703 585 587 582 743 862 915 938
General and
administrative....... 460 561 562 801 563 589 789 645
Amortization of
deferred stock
compensation......... -- -- -- -- 27 214 188 182
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses........... 2,854 3,109 3,063 3,499 3,376 4,054 4,100 4,109
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (21) (106) (2) 763 (230) (99) 162 416
Other income (expense),
net.................... 1 4 7 8 19 (7) 16 4
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
taxes.................. (20) (102) 5 771 (211) (106) 178 420
Income tax expense...... -- -- -- 10 -- -- 23 23
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... (20) (102) 5 761 (211) (106) 155 397
Accretion of redeemable
convertible preferred
stock.................. 347 348 347 1,043 346 346 346 346
------ ------ ------ ------ ------ ------ ------ ------
Net loss available to
common stockholders.... $ (367) $ (450) $ (342) $ (282) $ (557) $ (452) $ (191) $ 51
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Cost of revenues includes amortization of deferred stock compensation of $10,000 in the three months ended March 31, 2000, $64,000 in the three months ended June 30, 2000, $60,000 in the three months ended September 30, 2000 and $50,000 in the three months ended December 31, 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 $12,000 and general and
administrative expenses of $6,000. 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 $45,000, research and development expenses of $38,000 and general and administrative expenses of $131,000. The amortization of deferred stock compensation allocated to operating expenses in the three months ended September 30, 2000 was comprised of marketing and selling expenses of $44,000, research and development expenses of $31,000 and general and administrative expenses of $113,000. The amortization of deferred stock compensation allocated to operating expenses in the three months ended December 31, 2000 was comprised of marketing and selling expenses of $59,000, research and development expenses of $30,000 and general and administrative expenses of $93,000.
When compared to the comparable quarter from the prior year, 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 based on the achievement of year end quotas. 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.
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 December 31, 2000, we had cash equivalents and short-term investments of $1.0 million, an accumulated deficit of $19.7 million and working capital of $4.1 million.
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. The increases in accounts receivable resulted primarily from increased sales. The increases in inventory were attributable primarily to increased demand for our products, as well as the timing of component purchases. These uses of cash were partially offset by increases in accrued liabilities and accounts payable. The increases in accrued liabilities and accounts payable resulted primarily from increased component purchases and other expenditures associated with our growth. 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 provided by operating activities was $375,000 for the year ended December 31, 2000 and resulted from primarily non-cash items such as deferred stock compensation, as well as increases in inventory, accrued liabilities and other working capital items.
Our cash flow can be significantly impacted by the timing of volume purchases of components, particularly the laptop computers that are incorporated into our ALGO 2e color product. We have attempted to realize cost savings associated with volume purchases of laptop computers, because our laptop computer manufacturers have introduced multiple new models per year. We are required to validate any new component in our products. We believe that we realize cost savings from validating a limited number of new models of laptop computers, which exceeds the cost of financing a large inventory of laptop computers. As a result, historically, we have made a large inventory purchases toward the end of a given laptop computer model's production run in order to meet our expected needs over the next nine to 12 months.
Net cash used in investing activities was $950,000 for the year ended December 31, 1998, $1.4 million for the year ended December 31, 1999 and $762,000 for the year ended December 31, 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. We had no material capital expenditure commitments as of December 31, 1998, 1999 or
2000. In the next 12 months, we expect to enter into leases for small office facilities for our Japanese and United Kingdom operations.
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 in financing activities was $1.0 million for the year ended December 31, 2000 and resulted primarily from the deferred costs associated with this offering.
We have a $1.0 million revolving line of credit that expires in 2001. As of December 31, 2000, we did not have any borrowings under this line. Borrowings under the line of credit are limited to our eligible accounts receivable or are collateralized by substantially all of our assets and bear interest at the bank's prime rate plus 1.0%. We are required to meet certain financial ratios, including minimum tangible net worth, a minimum quick ratio and total debt to tangible net worth. We must also meet an operating profitability requirement. We were in compliance with these covenants as of 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 revenues in 1999 and approximately 14% in 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. Historically, our sales have been generally denominated in United States dollars; however, with the formation of our Japanese subsidiary and the acquisition of our United Kingdom distributor, 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 December 31, 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. The adoption of SAB 101 had no impact 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. SFAS 133 is effective for our company in fiscal year 2001. We do not currently engage and have not historically engaged in derivatives or hedging activities. The adoption of SFAS 133 did not have a material impact 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 policies and guidelines for standard medical practices adopted by the American Academy of Pediatrics.
We have two primary product lines that have been cleared for marketing by the Food and Drug Administration: the ALGO and the CO-Stat. We are selling our ALGO products for newborn hearing screening, and, in January 2001, we began commercially 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 auditory brainstem response technology 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. Although we began commercially marketing our CO-Stat products in January 2001, 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 standard of care guidelines.The guidelines suggest that physicians should conduct childhood screening and take preventative measures for common and potentially serious disorders. Examples of standard of care guidelines 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 up to five 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 guidelines for universal screening programs so that health care providers can obtain reimbursement for newborn screening. 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. Similarly, we intend to work with medical professional groups to develop standard of care guidelines for jaundice management.
. 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 up to five 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 who received treatment early had significantly better language skills and vocabularies than those children whose hearing loss was detected later.
The average age of hearing impairment detection in children not screened at birth is two and one-half years old. 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 encouraged additional highly populated states to adopt mandates for universal newborn hearing screening as early as 1997.
Thirty-two states have universal newborn hearing screening mandates in place with legislation pending in another five states. The majority of the mandates currently allow for implementation over a two to three year period. An additional five states have voluntary programs in place. We define states that voluntarily comply to be states without mandated universal newborn screening but in which we estimate at least 50% of newborns are screened. 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 occurred in states with mandates, pending mandates or voluntary programs in place.
Status of Universal Newborn Hearing Screening by State
(as of December 31, 2000)
Voluntary
Mandatory(1) Compliance Legislation Pending No Active Programs
1990 1999 2000 Arizona Ohio Alabama
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Hawaii Arkansas Florida Delaware Pennsylvania Alaska
1992 Georgia Kentucky Michigan Tennessee Idaho
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Rhode Island Illinois Maine Montana Vermont Iowa
1997 Indiana Nebraska New Mexico Washington Minnesota
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Colorado Kansas New Hampshire Nevada
Connecticut Louisiana New Jersey North Dakota
Mississippi Maryland Oklahoma South Dakota
1998 Missouri South Carolina
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California New York
Massachusetts Oregon
North Carolina Texas
Utah Wisconsin
Virginia Wyoming
West Virginia
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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 1.1 million birth difference 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 standard of care 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. Auditory brainstem response technology is the most accurate and comprehensive method for characterizing hearing impairment in adults and infants. Auditory brainstem response technology 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 auditory brainstem response screening equipment, and the screening results must be interpreted by an audiologist or trained physician. Auditory brainstem response technology 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. Otoacoustic emissions 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. Otoacoustic emissions screening uses a probe placed in the ear to deliver auditory stimulus and measures the response of the sensory cells with a sensitive microphone. Otoacoustic emissions screening does not evaluate the function of the entire hearing pathway because it does not assess the neural pathways. Therefore, otoacoustic emissions technology can fail to detect disorders affecting the neural pathways. An individual otoacoustic emissions screening is relatively inexpensive. However, a number of clinical studies have documented that otoacoustic emissions screening can result in an excessive number of false positive results, which require retesting. For example, a study conducted by researchers at the University of Michigan reported in the December 2000 American Journal of Audiology concluded that otoacoustic emissions screening of newborns had a 35% referral rate and that auditory brainstem response technology resulted in substantially fewer false positives with a referral rate of 11%. For otoacoustic emissions screening, 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 auditory brainstem response. In order to address the limitations of other screening techniques, our ALGO product family utilizes automated auditory brainstem response to provide accurate and non-invasive hearing screening for newborns. The ALGO screener, like auditory brainstem response 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 auditory brainstem response 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 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. 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 accounts 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 estimate that the hospitals in the United States spend approximately $1.3 billion per year to treat neonatal jaundice in the hospital. 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 72 hours after birth due to cost considerations. The National Hospital Discharge Survey estimated that the average length of a hospital stay after child birth has fallen from 3.8 days in 1980 to 2.4 days in 1997. The National Hospital Discharge Survey also estimated that 25% of women were discharged after one day or less in 1997. 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 an antibody is affixed to the baby's red blood cells. Antibodies on red blood cells are often associated with a high rate of hemolysis in newborns. However, other conditions may result in the presence of the antibodies, and the antibodies' 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. Our CO-Stat analyzer can be used by a clinician with minimal training to conduct the hemolysis monitoring. The physician can use the results of our CO-Stat analysis, which measures 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 the 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 level of 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 assess 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, New
Zealand and Canada
ALGO Portable Screener Portable newborn hearing screening United States, Europe,
station Japan and Canada
ALGO Disposable Kit: Single use disposables including
earphones and United States, Europe,
Ear Couplers electrodes Japan, Australia, New
Jelly Button Sensors Zealand and Canada
MiniMuff Single use disposable ear cover to United States, Europe
reduce noise (no approval required),
Australia and
New Zealand
Jaundice/Hemolysis Products
CO-Stat Breath Analyzer Newborn screening station to analyze United States and Europe
the rate of hemolysis
CO-Stat Disposable Kit: Single use disposables including tubing United States and Europe
Sample Tubing Filters and filter unit for patient sampling
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Hearing Products
ALGO Product Family
Our ALGO product family utilizes automated auditory brainstem response technology to provide accurate and non-invasive hearing screening for newborns. The ALGO screener delivers thousands of soft clicking sounds 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. This methodology will detect hearing loss at 35 decibels or better. 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 consistent with the responses of a normal hearing child to 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, including repeating the hearing screening by an audiologist or other specialist. Once the results of the second hearing screening are available, if the results still "Refer" the specialist will conduct additional tests to determine the type and severity of the hearing impairment. While the per test disposable costs of otoacoustic emissions screening may be lower than the per screening costs of our ALGO disposable supplies, we believe that by using automated auditory brainstem response technology our ALGO products have a number of advantages that include:
. Accuracy. Tests using automated auditory brainstem response have the highest documented specificity and sensitivity for newborn hearing screening of devices not requiring a specially trained audiologist, although the ALGO screener does not determine the cause of the hearing impairment.
. 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. Clinical studies have shown that with one hour of training and after conducting as few as 10 screenings, operators with limited experience are able to achieve a high level of proficiency. As the operator becomes more experienced, these clinical trials show that these operators meet the American Academy of Pediatrics standard of care guidelines.
. Objective results. Our test produces objective "Pass" or "Refer" results, which do not require interpretation by an audiologist or other trained clinician. The "Refer" result provides indications that the baby's brainwave is not consistent with a normal hearing child but does not quantify the severity of the hearing impairment.
. 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 acquired the ALGO Newborn hearing screener product line in 1987, and 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 products measure 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. In order to conduct a complete assessment of a newborn's risk of jaundice, the clinician must measure the rate at which bilirubin is being produced, the level of bilirubin in the blood or skin and the rate at which the baby is excreting bilirubin. No currently available laboratory test or medical instrument is capable of assessing each of these clinical indicators. We believe our CO-Stat analyzer is the only commercially available device that enables clinicians to measure the rate at which bilirubin is produced. 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 to address the guidelines of the American Academy of Pediatrics, which recommend 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. Operators can learn to use our CO- Stat products with one hour of training. If sampling is inadequate, the CO-Stat products will not provide any test results and will advise the clinician that the test is inadequate to provide results.
. 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. However, in order to determine if the baby is at risk of jaundice caused by the baby's inability to excrete bilirubin, the physician must conduct another test to measure the level of bilirubin in the baby's blood.
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 Food and Drug Administration clearance for use of our CO- Stat products to monitor hemolysis in March 1998. We began to commercially market our CO-Stat products in January 2001. We intend to market the CO-Stat analyzer more aggressively 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 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 1,300 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 approximately 3,200 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, 90% also made purchases from us in 2000. We sold disposable supplies to conduct approximately 1.2 million tests in 1999 and approximately 1.7 million tests in 2000. While the majority of our sales has 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 began to commercially market our CO-Stat analyzer in January 2001. We will also continue to pursue state and hospital system sales as appropriate. In 1999 and 2000, no single end customer comprised more than 10% of our revenues. Nippon Eurotec, our Japanese distributor, accounted for 11.0% of our revenues in 2000.
Marketing and Sales
Our ALGO products have been commercially available since 1985, and we began selling our MiniMuff products in 1995. We began marketing our CO-Stat products for commercial use in January 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 15 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 and the United Kingdom. As of December 31, 2000, our sales force consisted of 15 sales representatives, two of whom focus exclusively on state programs and national accounts, 12 clinical educators, two telesales representatives and a sales support staff of 13 persons. Following each sale, our clinical educators visit the customer to provide training, ongoing customer and technical support and program development. We formed a dedicated sales staff of four persons to facilitate the initial commercial launch of our CO-Stat products.
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. Georgia, Mississippi, New Mexico, North Carolina, Oklahoma and South Carolina 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 revenues in 1999 and approximately 86% of our revenues in 2000.
Indirect Sales
In addition to our direct sales force, outside the United States we have historically relied heavily on indirect sales channels. Revenues from sales through distributors were approximately 10% of revenues in 1999 and approximately 14% of revenues in 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 2001. We established a subsidiary in the United Kingdom in December 2000, which acquired our distributor in the United Kingdom in January 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. For example, members of Novation receive specially negotiated prices, volume discounts and other preferential terms on their member's direct purchases from Natus. Our agreement with Novation requires Novation to promote our products to its members and to inform its members about the special terms we have negotiated. We have agreed to pay Novation marketing fees for these efforts, which fees are based on a percentage of our net sales to Novation's members. Our agreement with Novation continues until January 31, 2003, but we or Novation may cancel it with notice or agree to extend it for two additional one year terms. Direct purchases by members of Novation accounted for approximately 22% of our revenues in 2000. Novation's members purchase products directly from us under the terms negotiated in the group purchasing agreement, and Novation does not purchase and resell our products to its members. Of the Novation members who purchased our products in 2000, 79% of those customers also made purchases directly from us prior to the time we entered into an agreement with Novation.
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. We also sell extended warranty agreements for our ALGO products. We provide service to our domestic customer base through our Redding, 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 Redding 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. For example, reimbursement for hearing impairment screening for newborns is generally included in the lump sum payment for the newborn's birth and hospitalization.
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 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. Some states, such as California and Florida, reimburse clinicians for hearing screenings conducted with ALGO products as a separate reimbursement group from the birth and initial hospitalization reimbursement group. These regulations are being phased in over a ten year period. Recently enacted Medicare reform legislation required the Health Care Finance Administration 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 the Health Care Finance Administration 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-two 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 majority of newborns are screened. In some cases, the state may also purchase the equipment and disposables directly and provide them to hospitals. The states with voluntary programs are Arizona, Delaware, Michigan, Montana and New Mexico.
. Mandate with equipment purchase. The state has mandated universal newborn hearing screening, and the state purchases equipment and disposables for birthing facilities. The states that have adopted this type of program are Georgia, Illinois, Kentucky, Mississippi, North Carolina, Oklahoma and South Carolina.
. Mandate with state reimbursement. The state has mandated universal newborn hearing screening and reimburses hospitals on a per-test basis for Medicaid patients. The states that have adopted this type of program are Arkansas, California, Florida, Maryland, Massachusetts, Missouri, Nebraska and Rhode Island.
. 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. The states that have adopted this type of requirement are Colorado, Connecticut, Hawaii, Indiana, Kansas, Louisiana, Maine, New Hampshire, New Jersey, New York, Oregon, Texas, Utah, Virginia, West Virginia and Wisconsin.
We have sold our ALGO products to customers in each of the 50 states in the United States. 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 companies. However, we perform final assembly, testing and packaging of the ALGO 2e Color and CO-Stat analyzer 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 regular 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 for 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 Natus approved 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 Food and Drug Administration, 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 Food and Drug Administration and the State of California. We are required to conduct our product design, testing, manufacturing and control activities in conformance with the Food and Drug Administration'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 Food and Drug Administration 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 Food and Drug Administration 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 a Food and Drug Administration registered manufacturing facility with a full quality system in place in accordance with the Food and Drug Administration's Quality System Regulation and ISO 9002. TriVirix currently supplies all of our ALGO Portable units and has begun to supply a portion of our preamplifier and printed circuit board needs.
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.
Next Generation ALGO
We are developing the next generation of ALGO screener, which will incorporate software designed to assist the operator by providing more user friendly and task specific help screens. In addition, we believe the added features will enable the next generation ALGO to generate results more quickly. We expect to begin clinical trials of the next generation ALGO in 2001. We cannot market the next generation ALGO without Food and Drug Administration clearance, and we intend to request Food and Drug Administration 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 $2.7 million in 1998, $2.5 million in 1999 and $3.5 million in 2000. As of December 31, 2000, we had 20 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, which expire at various times from 2007 to 2017, 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 have one patent application granted in Japan and six patent applications pending in Japan and one patent application pending in Hong Kong. Our patents and patent applications address various aspects of our current products and those in development including, but not limited to, the earphones used without ALGO Hearing Screeners, the method by which our CO-Stat analyzer measures end tidal carbon monoxide and the filters used with our CO-Stat analyzer. 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 otoacoustic emissions products;
. Bio-Logic Systems, Intelligent Hearing Systems and Sonamed Corp., which sell enhanced auditory brainstem response and otoacoustic emissions products, which run a test on the basis of parameters set by the clinician performing the test and continue to conduct the test until parameters are satisfied and produce results that must be interpreted by a trained audiologist or other specialist; and
. SLE Ltd., which sells auditory brainstem response 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
Food and Drug Administration's Premarket Clearance and Approval Requirements
Unless an exemption applies, the Food and Drug Administration 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 Food and Drug Administration 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 Food and Drug Administration has determined that the medical device in question poses a greater risk of injury.
The Food and Drug Administration'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 Food and Drug Administration 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 Food and Drug Administration 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 Food and Drug Administration has not yet called for submission of a premarket approval. The Food and Drug Administration 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. For example, when we developed our ALGO Portable product, we determined that the ALGO Portable was compliant with the 510(k) clearance for the ALGO 1 and that the modifications to the ALGO Portable did not significantly affect its safety or effectiveness. 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 Food and Drug Administration requires each manufacturer to make this determination, but the Food and Drug Administration can review any manufacturer's decision. If the Food and Drug Administration disagrees with a manufacturer's decision, the agency may retroactively require the manufacturer to seek 510(k) clearance or premarket approval. The Food and Drug Administration 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 Food and Drug Administration 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 Food and Drug Administration requires these devices to undergo the premarket approval process in which the manufacturer must prove the safety and effectiveness of the device to the Food and Drug Administration'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 Food and Drug Administration 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 on a significant risk device, the Food and Drug Administration requires manufacturers to apply for and obtain in advance an investigational device exemption. The investigational device exemption application must be supported by appropriate data, such as animal and laboratory testing results. If the Food and Drug Administration and the Institutional Review Boards at the clinical trial sites approve the investigational device exemption application for a significant risk device, the manufacturer may begin the clinical trial. An investigational device exemption approval provides for a specified clinical protocol, including the number of patients and study sites. If the manufacturer deems the product a nonsignificant risk device, the product will be eligible for more abbreviated
investigational device exemption requirements. If the Institutional Review Boards at the clinical trial sites concur with the nonsignificant risk determination, the manufacturer may begin the clinical trial.
The following chart shows the U.S. regulatory status of the products we currently sell and our regulatory status in Europe and other countries:
Natus Japan Australia and Product FDA 510(k) CE Mark (Shonin) New Zealand Canada ALGO Portable June 1998 July 1999 December 2000 January 2001 December 2000 ALGO 2e Color December 1998 July 1999 September 1997 June 2000 December 2000 CO-Stat March 1998 July 1999 MiniMuff February 1995 January 2001 June 2000 |
Pervasive and Continuing Food and Drug Administration Regulation
Numerous Food and Drug Administration regulatory requirements apply to our marketed devices. These requirements include:
. the Food and Drug Administration'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 Food and Drug Administration certain types of adverse and other events involving their products; and
. the Food and Drug Administration'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 Food and Drug Administration guidelines that may not apply to class I devices. Our products are currently subject to Food and Drug Administration guidelines for 510(k) cleared devices and are not subject to any other form of special controls, such as a requirement to conduct a screening in a laboratory within a medical facility. We believe we are in compliance with the applicable Food and Drug Administration guidelines, but we could be required to change our compliance activities or be subject to other special controls if the Food and Drug Administration changes its existing regulations or adopts new requirements.
We are subject to inspection and market surveillance by the Food and Drug Administration to determine compliance with regulatory requirements. If the Food and Drug Administration 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 Food and Drug Administration 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 believe we are currently in compliance with applicable safety and quality regulations and the environmental protection, biohazard and hazardous substance disposal regulations. 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 Food and Drug Administration, and are subject to regulatory requirements, similar to the Food and Drug Administration'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 is listed with TGA 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 Food and Drug Administration requirements.
Employees
As of December 31, 2000, we had 111 full time employees, including 20 in research and development, 40 in sales and related customer support services, 15 in marketing and 36 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 1,000 square foot service and support center in Redding, California, the lease for which expires in December 2001, and a 1,000 square foot research and development facility in San Francisco, California, the lease for which expires in November 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 small facilities in Tokyo, Japan and outside London, England to support our international 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 December 31, 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........... 53 Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Terese M. Baker................ 42 Vice President, Marketing
Lucille A. Ferus............... 43 Vice President, Engineering
Bryan P. Flaherty, Ph.D. ...... 37 Vice President, Research and Development
Kenneth M. Traverso............ 40 Vice President, Sales
Thomas M. Waugh................ 56 Vice President, Operations
James J. Bochnowski............ 57 Director
William M. Moore............... 52 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 of 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.
Kenneth M. Traverso has served as our vice president of sales since September 2000. From October 1999 to July 2000, Mr. Traverso served as president of DinnerNow.com Inc., an internet aggregator for the restaurant industry. From January 1998 to September 1999, Mr. Traverso served as vice president of sales, western region of Alere Medical, an outpatient chronic disease management company. From May 1995 to January 1998, Mr. Traverso served as vice president of marketing and sales of AbTox, Inc., a low temperature sterilization company. From August 1990 to May 1995, Mr. Traverso served in various capacities at our company, the most recent of which was vice president of sales. Mr. Traverso holds a Bachelor of Science degree in Administration & Marketing from San Francisco State University.
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.
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.
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.
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, our 2000 supplemental 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, 2000 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 2000. 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...................... $255,700 $5,000 200,000 $ --
Chief Executive Officer, President,
Chief Operating Officer, Secretary
and Director
William New, Jr., M.D., Ph.D. ...... 188,300 -- -- 2,900
Chairman, Chief Technology Officer
and Director
Lucille A. Ferus.................... 162,700 -- 40,000 --
Vice President, Engineering
William H. Lawrenson................ 160,500 -- 40,000 --
Vice President, Finance and Chief
Financial Officer
Thomas M. Waugh..................... 156,700 -- 60,000 --
Vice President, Operations
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The amount in the column titled "All Other Compensation" represent premiums for health insurance paid by us for Dr. New's family.
The following summarizes stock options granted to each named executive officer during the year ended December 31, 2000. All of the options were granted under our 1991 stock option plan or our 2000 supplemental stock option plan. Options under the 1991 stock option plan or our 2000 supplemental stock option plan generally vest ratably monthly over four years.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price per Expiration ---------------------
Name Granted in 2000(1) Share(2) Date 5% 10%
------------------------ ---------- ---------- --------- ---------- ---------- ----------
Tim C. Johnson.......... 100,000 10.1% $1.50 2/15/10 $1,641,784 $2,703,117
Tim C. Johnson.......... 100,000 10.1 6.25 12/12/10 1,166,784 2,228,117
William New, Jr., M.D.,
Ph.D. ................. -- -- -- -- -- --
Lucille A. Ferus........ 40,000 4.1 1.50 2/15/10 656,714 1,081,247
William H. Lawrenson.... 40,000 4.1 1.50 2/15/10 656,714 1,081,247
Thomas M. Waugh......... 40,000 4.1 1.50 2/10/10 656,714 1,081,247
Thomas M. Waugh......... 20,000 2.0 1.50 2/15/10 328,357 540,623
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(1) The percents above are based on an aggregate of 985,820 shares subject to options we granted to employees and consultants in the year ended December 31, 2000.
(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 estimated initial public offering price of $11.00 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, 2000.
Aggregate Option Exercises in Last Fiscal Year and Option Values at December 31, 2000
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 2000 December 31, 2000(2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ----------- ----------- ------------- ----------- -------------
Tim C. Johnson.......... 40,000 $430,000 217,430 201,459 $2,261,146 $1,456,411
William New, Jr., M.D.,
Ph.D. ................. 64,000 686,400 66,000 -- 707,850 --
Lucille A. Ferus........ 20,800 220,300 35,525 46,624 348,980 445,835
William H. Lawrenson.... -- -- 55,888 60,312 535,427 565,073
Thomas M. Waugh......... -- -- 13,750 46,250 130,625 439,375
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(1) Assumes that the fair market value at the time of exercise was equal to the assumed initial public offering price of $11.00 per share.
(2) The value of unexercised in-the-money options held at December 31, 2000 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, 2000, 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 $11.00 per share and the per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise 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.
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 December 2000. A total of 2,643,480 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 December 31, 2000, we had issued 865,833 shares of common stock upon the exercise of options granted under our 1991 stock option plan, we had outstanding options to purchase 1,335,513 shares of common stock at a weighted average exercise price of $1.82 per share and 442,134 shares remained available for future option grants under our 1991 stock option plan until the closing of this offering.
2000 Supplemental Stock Option Plan
Our 2000 supplemental stock option plan was adopted by our board of directors in December 2000 and approved by our stockholders in December 2000. A total of 500,000 shares of common stock have been reserved for issuance under our 2000 supplemental stock option plan and, after the effective date of this offering, we do not intend to grant additional options under the 2000 supplemental stock option plan. In December 2000, our board of directors approved the termination of the 2000 supplemental stock option plan as to future grants, effective upon the closing of this offering. However, options outstanding under the 2000 supplemental stock option plan will continue and will be governed by the terms of the 2000 supplemental stock option plan.
The 2000 supplemental 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 supplemental stock option plan were to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to our employees, directors 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 supplemental 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 2000 supplemental stock option plan is set forth in the option agreement. However, the term of an option may not exceed ten years and, in the case of an incentive stock 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 supplemental stock option plan vest and become exercisable as set forth in each option agreement.
With respect to any employee optionee who owns more than 10% of our outstanding stock, the exercise price of any incentive 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 2000 supplemental 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 2000 supplemental 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 2000 supplemental 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 supplemental 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 December 31, 2000, we had issued no shares of common stock upon the exercise of options granted under our 2000 supplemental stock option plan, we had outstanding options to purchase 350,000 shares of common stock at a weighted average exercise price of $6.25 per share and 150,000 shares remained available for future option grants under our 2000 supplemental 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 in July 2000 and approved by our stockholders in August 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 December 31, 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 in July 2000 and approved by our stockholders in August 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 in July 2000 and approved by our stockholders in August 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 and we made aggregate matching contributions of $46,000 in 2000.
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 336,000 shares of common stock in June 1987 at the then fair market value price of $0.26 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 M. Moore, each of whom are our founders, for aggregate proceeds of $230,000.
In December 1989, we issued 109,440 shares of common stock at the then fair market value price of $2.51 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 142,560 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 M. Moore, each of whom are our founders, for aggregate proceeds of $400,000.
In December 1990, we issued 94,340 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 $500,002.
In February 1991, we issued 94,339 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 M. Moore, each of whom are our founders, for aggregate proceeds of $500,000.
We reclassified our outstanding common stock as Series A convertible preferred stock in May 1991.
From August 1991 to December 31, 2000, we have issued shares of additional preferred stock in private placement transactions as follows:
. an aggregate of 1,411,549 shares of Series B convertible preferred stock at per $1.75 share in August 1991;
. an aggregate of 2,535,878 shares of Series B convertible preferred stock at $1.75 per share in December 1992;
. an aggregate of 6,194 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 68,033 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 1,314,177 shares of Series C convertible preferred stock at a per share exercise price of $1.75 in November 1995;
. an aggregate of 521,623 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 94,311 117,888 --
Delphi Ventures II, L.P. ..... -- 198,877 219,714 274,643 --
Delphi BioInvestments, L.P. .. -- 2,323 335 418 --
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. .... -- 644,261 237,130 296,411 --
Trinity Ventures III, L.P. ... -- 178,367 65,650 82,062 --
Trinity Side-by-Side I,
L.P. ........................ -- 34,518 12,705 15,881 --
David Nierenberg(3)........... -- -- 13,714 17,142 --
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 74,278 229,710 287,212 --
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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 1998 to December 31, 2000, 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........................................ 20,000 04/22/98 1.88
14,000 07/06/99 2.25
100,000 02/15/00 1.50
100,000 12/12/00 6.25
William H. Lawrenson.................................. 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....................................... 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 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
Kenneth M. Traverso................................... 100,000 12/12/00 6.25
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 five year loan due in March 2004 to Mr. Johnson for $250,000, which he had received from that bank. Mr. Johnson pledged 27,088 shares of our common stock that he owns to us to provide us a security interest in the event our collateral 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 December 31, 2000, and as adjusted to reflect the sale of 4,500,000 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 9,799,568 shares of common stock outstanding on December 31, 2000 and 14,299,568 shares of common stock outstanding upon completion of this offering.
In computing the percent of shares of common stock and options that are currently exercisable or exercisable within 60 days of December 31, 2000 for a particular stockholder, we included in the total shares outstanding only those options that are currently exercisable or exercisable within 60 days of December 31, 2000 held by that stockholder. 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 December 31, 2000
Number of Exercisable Beneficially
Shares of Within Owned
Common Stock 60 Days of -----------------
Beneficially December 31, Before After
Name of Beneficial Owner Owned 2000 Offering Offering
---------------------------------- ------------ ------------ -------- --------
Tim C. Johnson.................... 183,111 231,639 4.1% 3.9%
William New, Jr., M.D., Ph.D. .... 895,451 66,000 10.4 7.1
Lucille A. Ferus.................. 47,050 40,600 * *
William H. Lawrenson.............. -- 62,941 * *
Thomas M. Waugh................... -- 16,666 * *
James Bochnowski(1)............... 1,369,809 -- 14.0 9.6
William M. Moore(2)............... 234,592 -- 2.4 1.6
David Nierenberg(3)............... 1,400,667 -- 14.3 9.8
All executive officers and
directors as a group (11
persons)......................... 4,315,054 472,330 45.8 31.8
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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 Trinity TVL Partners, L.P., the 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 60 days of
Options December 31, 2000
Number of Exercisable Beneficially
Shares of Within Owned
Common Stock 60 Days of -----------------
Name and Address of Beneficial Beneficially December 31, Before After
Owner Owned 2000 Offering Offering
---------------------------------- ------------ ------------ -------- --------
Trinity Ventures Entities(1)...... 1,400,667 -- 14.3% 9.8%
3000 Sand Hill Road
Bldg. 4, Suite 160
Menlo Park, CA 94025
Delphi Ventures Entities(2)....... 1,369,809 -- 14.0 9.6
3000 Sand Hill Road
Bldg. 1, Suite 135
Menlo Park, CA 94025
Pantheon International
Participations PLC(3)............ 952,381 -- 9.7 6.7
23 Cathedral Yard
Exeter
Devon EX1 1HB
England
Landmark Equity Partners V,
L.P.(4).......................... 847,620 -- 8.7 5.9
760 Hopemeadow Street
Simsburg, CT 06070
John Porter Entities(5)........... 755,764 -- 7.7 5.3
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(1) 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. Trinity TVL Partners, L.P. is the general partner of Trinity Ventures II, L.P., Trinity Ventures II, L.P., and Trinity Side-By- Side I, L.P. The general partners of Trinity TVL Partners, L.P. are the Fenton Family 1994 Trust (Noel J. Fenton trustee), the Nierenberg Family 1992 Living Trust (David Nierenberg trustee), the Shannon 1995 Trust (James G. Shannon, Jr. trustee), the Laderer-Orr Family Trust, UTD June 6, 1997 (Lawrence K. Orr trustee) and TVL Management Corporation. The Chief Executive Officer of TVL Management Corporation is Lawrence K. Orr. Mr. Nierenberg 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 the Delphi Venture Entities 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. Delphi Management Partners, L.L.C., is the general partner of Delphi Venture, 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. James Bochonowski and David L. Douglas are the general partners of Delphi
Management Partners, L.L.C. and Mr. Bochonowski, Mr. Douglas and Donald J. Lothrop are the general partners of Delphi Management Partners, II, L.L.C. Mr. Bochnowski 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. Stanley F. Alfeld is the President and Timothy L. Haviland, John A. Grenier, Brent R. Nicklas, Richard C. Lichter and James P. McConnell are the Vice Presidents of Landmark Advisors, Inc.
(5) Includes 295,763 shares held by Mr. Porter, 210,000 shares held for the benefit of Mr. Porter by Rabobank Nominees Guernsey Limited, a custodian for Mr. Porter, 114,286 shares held by Gracechurch Co., a nominee of Rabobank, and 135,715 shares held by Toxford SA, a custodian for Mr. Porter.
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 December 31, 2000, we had 868,034 shares of common stock outstanding held by approximately 108 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 December 31, 2000, the holders of 8,778,841 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 EquiServe Trust Company, N.A., which is located at 150 Royall Street, Canton, Massachusetts 02021. EquiServe Trust Company, 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 14,299,568 shares of common stock outstanding, based upon shares outstanding as of December 31, 2000, assuming no exercise of the 675,000 share underwriters' over-allotment option and no exercise of outstanding options after December 31, 2000. If the underwriter's over-allotment option is exercised in full, we will have an aggregate of 14,974,568 shares of common stock outstanding based on 9,799,568 shares outstanding as of December 31, 2000. All of the 4,500,000 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 9,799,568 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 9,792,299 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. Dain Rauscher Incorporated 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 Dain Rauscher Incorporated 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 Dain Rauscher Incorporated. Taking into account the lock-up agreements, and assuming Dain Rauscher Incorporated does not release stockholders from these agreements, beginning 180 days after the effective date, approximately 9,799,568 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 142,995 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, 2000 supplemental 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 December 31, 2000, options to purchase 1,685,513 shares of common stock were outstanding of which approximately 699,317 options were then vested and exercisable. Beginning on the date that is 180 days after the effective date of this offering, approximately 829,812 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 8,778,841 shares of outstanding common stock as of December 31, 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:
. an 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
------------------------------------------------------------------- ---------
Dain Rauscher Incorporated.........................................
First Union Securities, Inc........................................
---------
Total............................................................ 4,500,000
=========
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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 Dain Rauscher Incorporated and First Union Securities, Inc. are acting as representatives, propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share on sales to other dealers. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 675,000 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.
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 Dain Rauscher Incorporated, dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for common stock. Dain Rauscher Incorporated 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.............................................. $ $
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Dain Rauscher Incorporated, on behalf of the underwriters, may purchase and sell shares of common stock in the open market. These transactions may include stabilizing transactions, syndicate covering transactions and the imposition of penalty bids.
. A "stabilizing transaction" is a bid for or purchase of shares on behalf of the underwriters while the offering is in progress for the purpose of preventing or retarding a decline in the market price of the common stock.
. A "syndicate covering transaction" is the bid for or purchase of shares in the open market on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering. A syndicate short position will result if the underwriters decide to sell shares of common stock in excess of the number of shares to be purchased by the underwriters in this offering. 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. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. The underwriters may also make "naked" short sales 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.
. A "penalty bid" is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member.
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 $1,650,000.
The representatives may, in the future, 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 consolidated financial statements as of December 31, 1999 and 2000 and for each of the three years in the period ended December 31, 2000 included in this prospectus and the related consolidated 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 AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000 ............ F-3
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended December 31, 2000 ......................................... F-4
Consolidated Statements of Stockholders' Deficit for Each of the Three
Years in the Period Ended December 31, 2000 ............................ F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended December 31, 2000 ......................................... F-6
Notes to Consolidated 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 consolidated balance sheets of Natus Medical Incorporated and subsidiaries (the "Company") as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 2000 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
San Jose, California
January 19, 2001
(January 30, 2001 as to Note 14)
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Pro Forma
December 31, (Note 1)
------------------ Dec. 31,
1999 2000 2000
-------- -------- ---------
ASSETS
Current assets:
Cash and equivalents............................ $ 2,087 $ 681
Short-term investments.......................... 289 302
Accounts receivable, net of allowance for
doubtful accounts of $201 in 1999 and $203 in
2000........................................... 3,128 4,400
Inventories..................................... 1,253 2,194
Prepaid expenses and other current assets....... 140 263
-------- --------
Total current assets.......................... 6,897 7,840
Property and equipment, net...................... 1,277 1,308
Convertible notes receivable..................... 95 115
Long-term investment............................. 315 321
Deposits and other assets........................ 115 1,134
-------- --------
Total assets.................................. $ 8,699 $ 10,718
======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Long-term debt, current portion................. $ 150 $ --
Accounts payable................................ 974 750
Accrued liabilities............................. 1,526 2,694
Deferred revenues............................... 433 331
-------- --------
Total liabilities............................. 3,083 3,775
-------- --------
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
1999 and 2000, none pro forma; aggregate
liquidation value of $3,629 in 1999 and $3,803
in 2000........................................ 2,227 2,227 $ --
Redeemable convertible preferred stock, $0.001
par value; 8,781,412 shares authorized;
aggregate liquidation value of $23,794 in 1999
and $25,178 in 2000 and aggregate redemption
value of $21,615 in 1999 and $22,999 in 2000:
Series B: 3,967,126 shares authorized;
3,967,120 shares issued and outstanding in
1999 and 2000, none pro forma................ 11,764 12,478 --
Series C: 3,214,286 shares authorized;
2,490,181 shares issued and outstanding in
1999 and 2000, none pro forma................ 5,416 5,864 --
Series D: 1,600,000 shares authorized;
1,232,392 shares issued and outstanding in
1999 and 2000, none pro forma................ 4,435 4,657 --
-------- -------- --------
Total convertible preferred stock............. 23,842 25,226 --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value; 120,000,000
shares authorized; shares issued and
outstanding: 597,689 in 1999, 868,034 in 2000
and 9,799,568 pro forma........................ 278 2,902 28,128
Deferred stock compensation..................... -- (1,532) (1,532)
Accumulated deficit............................. (18,504) (19,653) (19,653)
-------- -------- --------
Total stockholders' equity (deficit).......... (18,226) (18,283) $ 6,943
-------- -------- ========
Total liabilities, convertible preferred stock
and stockholders' equity (deficit)........... $ 8,699 $ 10,718
======== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended
December 31,
-------------------------
1998 1999 2000
------- ------- -------
Revenues........................................... $15,884 $19,783 $24,633
Cost of revenues*.................................. 5,577 6,624 8,745
------- ------- -------
Gross profit....................................... 10,307 13,159 15,888
------- ------- -------
Operating expenses:
Marketing and selling............................ 6,275 7,684 8,984
Research and development......................... 2,711 2,457 3,458
General and administrative....................... 1,638 2,384 2,586
Amortization of deferred stock compensation*..... -- -- 611
------- ------- -------
Total operating expenses....................... 10,624 12,525 15,639
------- ------- -------
Income (loss) from operations...................... (317) 634 249
Interest income and other, net..................... 120 37 40
Interest expense................................... (2) (17) (8)
------- ------- -------
Income (loss) before taxes, net.................... (199) 654 281
Income tax expense................................. -- 10 46
------- ------- -------
Net income (loss).................................. (199) 644 235
Accretion of redeemable convertible preferred
stock............................................. 1,389 2,085 1,384
------- ------- -------
Net loss available to common stockholders.......... $(1,588) $(1,441) $(1,149)
======= ======= =======
Basic and diluted net loss per share............... $ (3.63) $ (2.56) $ (1.62)
======= ======= =======
Shares used in computing basic and diluted net loss
per share......................................... 438 562 710
Unaudited pro forma basic and diluted net loss per
share (Note 1).................................... $ (0.12)
=======
Shares used in computing unaudited pro forma basic
and diluted net loss per share (Note 1)........... 9,642
*Amortization of deferred stock compensation
included in:
Cost of revenues................................. $ -- $ -- $ 184
======= ======= =======
Marketing and selling............................ $ -- $ -- $ 157
Research and development......................... -- -- 105
General and administrative....................... -- -- 349
------- ------- -------
Operating Expenses............................. $ -- $ -- $ 611
======= ======= =======
|
The accompanying notes are an integral part of these consolidated financial statements.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share amounts)
Common Stock Deferred
-------------- Stock Accumulated
Shares Amount Compensation Deficit Total
------- ------ ------------ ----------- --------
Balances, January 1, 1998.... 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............. (1,384) (1,384)
Deferred stock compensation.. 2,504 (2,327) 177
Amortization of deferred
stock compensation.......... 795 795
Exercise of stock options.... 270,345 120 120
Net income................... 235 235
------- ------ ------- -------- --------
Balances, December 31, 2000.. 868,034 2,902 (1,532) (19,653) (18,283)
======= ====== ======= ======== ========
|
The accompanying notes are an integral part of these consolidated financial statements.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
------------------------
1998 1999 2000
------ ------- -------
Operating activities:
Net income (loss).................................. $ (199) $ 644 $ 235
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 357 585 655
Loss on disposal of property and equipment....... -- -- 7
Amortization of deferred stock compensation...... 40 -- 795
Non cash marketing expense....................... -- -- 177
Writeoff of note receivable...................... -- 200 --
Changes in operating assets and liabilities:
Accounts receivable............................ (689) (321) (1,272)
Inventories.................................... (589) (73) (941)
Prepaid expenses and other current assets...... (115) 101 (123)
Accounts payable............................... 329 15 (224)
Accrued liabilities and deferred revenues...... 568 103 1,066
------ ------- -------
Net cash provided by (used in) operating
activities................................... (298) 1,254 375
------ ------- -------
Investing activities:
Acquisition of property and equipment.............. (900) (694) (668)
Deposits and other assets.......................... (32) (36) (55)
Purchase of convertible notes receivable........... -- (95) (20)
Purchase of note receivable........................ -- (200) --
Purchases of short-term investments................ (547) (569) (596)
Sales of short-term investments.................... 529 559 583
Purchase of long-term investment................... -- (315) (6)
------ ------- -------
Net cash used in investing activities......... (950) (1,350) (762)
------ ------- -------
Financing activities:
Issuance of preferred stock........................ -- -- --
Exercise of warrants on Series C preferred stock... -- 603 --
Issuance of common stock........................... 60 66 120
Deferred offering costs............................ -- -- (989)
Borrowings on bank loans........................... 300 -- --
Payments of borrowings and capital lease
obligations....................................... (10) (150) (150)
------ ------- -------
Net cash provided by (used in) financing
activities................................... 350 519 (1,019)
------ ------- -------
Net increase (decrease) in cash and equivalents..... (898) 423 (1,406)
Cash and equivalents, beginning of period........... 2,562 1,664 2,087
------ ------- -------
Cash and equivalents, end of period................. $1,664 $ 2,087 $ 681
====== ======= =======
Noncash investing and financing activities:
Accretion of redeemable convertible preferred
stock............................................. $1,389 $ 2,085 $ 1,384
Exercise of warrants, cashless..................... $ -- $ 448 $ --
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 1 $ 17 $ 8
Cash paid for income taxes......................... $ -- $ 7 $ 45
|
The accompanying notes are an integral part of these consolidated financial statements.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1999 and 2000
1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Natus Medical Inc. (the "Company") was incorporated in California in May
1987 and reincorporated in the State of Delaware in August 2000. The Company
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 response
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 measure 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.
On July 28, 2000, the Company created and incorporated a wholly owned subsidiary in Japan. On December 21, 2000, the Company created and incorporated a wholly owned subsidiary in the United Kingdom.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Natus Medical Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
All share and per share amounts in the accompanying consolidated financial statements have been restated to give effect to the two-for-five reverse stock split that occurred on August 15, 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, 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. Except for international distributors, for which the Company frequently requires a letter of credit prior to shipment, the Company 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, 1999. One customer accounted for 14% of accounts receivable as December 31, 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
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 $22,999,000 at December 31, 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 $289,000 and $302,000 at December 31, 1999 and 2000, respectively, with original maturities ranging between three and six months. Cost, which approximated market value at December 31, 1999 and 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 27,088 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 and $273,000 at December 31, 1999 and 2000, respectively.
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
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recorded amount of the Company's debt obligations approximate their estimated fair value due to their variable interest rates. At December 31, 2000, the difference between estimated fair value and amortized cost for the convertible notes receivable was not significant.
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. The Company capitalizes the costs associated with acquiring and installing software to be used for internal purposes.
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, 1999 and 2000, capitalized patent costs, which are included in deposits and other assets in the accompanying balance sheets, totaled $145,000, and accumulated amortization totaled $60,000 and $85,000, respectively. During 1998, 1999 and 2000, the Company recorded amortization expense in association with capitalized patent costs of $10,000, $14,000 and $25,000, 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, including sales to distributors, upon shipment when a purchase order has been received, the sales price is fixed and determinable and collection of the resulting receivable is probable. Rights of return are generally not provided; however, provisions are made for initial standard warranty obligations of one year, and post-sale training and customer support at the time the related revenue is recognized. 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. The Company's products include certain software applications that are integral to the operation of the product. The costs to develop such software have not been capitalized as the Company believes its current software development process is essentially completed concurrent with the establishment of technological feasibility of the software.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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
Unaudited 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 consolidated 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 December 31, 2000.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission (the "SEC") 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. The adoption of SAB 101 had no impact on the Company's financial position or results of operations.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS 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. SFAS No. 133 is effective for the Company in fiscal year 2001. The Company does not currently engage and has not historically engaged in derivative or hedging activities. The adoption of SFAS 133 did not have a material impact on the Company's financial position or results of operations.
2--INVENTORIES
Inventories consist of (in thousands):
December 31,
-------------
1999 2000
------ ------
Raw materials and subassemblies............................... $ 469 $1,017
Finished goods................................................ 784 1,177
------ ------
Total....................................................... $1,253 $2,194
====== ======
|
3--PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
December 31,
----------------
1999 2000
------- -------
Furniture and equipment.................................... $ 1,179 $ 1,074
Computer software and equipment............................ 1,061 1,082
Demonstration and loaned equipment......................... 970 734
Leasehold improvements..................................... 88 228
------- -------
3,298 3,118
Accumulated depreciation and amortization.................. (2,021) (1,810)
------- -------
Total.................................................... $ 1,277 $ 1,308
======= =======
|
4--CONVERTIBLE 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 2000, the Company advanced $95,000 and $20,000, respectively, under such commitment. The notes bear interest at a fixed rate of 7%, and all outstanding principal and interest related thereto is due in July 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. The distributor was acquired by the Company in 2001. See Note 14.
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 AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5--ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
December 31,
-------------
1999 2000
------ ------
Compensation and related benefits............................. $ 758 $ 873
Warranty reserve.............................................. 487 548
Accrued professional fees..................................... 79 551
Other......................................................... 202 722
------ ------
Total....................................................... $1,526 $2,694
====== ======
|
6--CONVERTIBLE PREFERRED STOCK
At December 31, 2000, 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, 1998 to December 31, 2000 are as follows (in thousands):
Warrant
for
Series
Series A Series B Series C Series D C Total
-------- -------- -------- -------- ------- -------
Balances, January 1,
1998..................... $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.......... 714 448 222 -- 1,384
------ ------- ------ ------ ----- -------
Balances, December 31,
2000..................... $2,227 $12,478 $5,864 $4,657 $ -- $25,226
====== ======= ====== ====== ===== =======
|
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.
. 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
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 2000, including cumulative dividends, was $12,478,000, $5,864,000 and $4,657,000, 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, 2000 were $1,630,000. Cumulative dividends for Series B, C and D preferred stock at December 31, 2000 of $5,536,000, $1,506,000, and $806,000, 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 net 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, 2000, the Company had reserved an aggregate of 11,359,181 shares of common stock of which 8,931,534 shares are reserved for conversion of convertible preferred stock and 2,427,647 shares are reserved for issuance upon the exercise of stock options.
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Option Plan
At December 31, 2000, under the Company's 1991 stock option plan (the "1991 Plan"), incentive and nonstatutory stock options to purchase up to 2,643,480 shares of common stock, 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 1991 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.
2000 Supplemental Stock Option Plan Adoption
In December 2000, the Board of Directors and the stockholders approved the adoption of the 2000 Supplemental Stock Option Plan (the "Supplemental Plan") and the reservation of 500,000 shares for issuance thereunder. At December 31, 2000, options to purchase 350,000 shares were outstanding under the Supplemental Plan and no options had been exercised.
A summary of option activity under the 1991 Plan and the Supplemental Plan is as follows:
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding, January 1, 1998 (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 $6.63 per
share)............................................... 985,820 $4.27
Exercised ............................................ (270,345) $0.44
Cancelled............................................. (123,592) $3.13
---------
Outstanding, December 31, 2000 (699,317 exercisable at a
weighted average exercise price of $0.87 per share).... 1,685,513 $2.73
=========
|
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning outstanding and exercisable options outstanding at December 31, 2000:
Weighted
Average
Remaining
Contractual
Exercise Number Life Number
Price Outstanding (Years) Exercisable
-------- ----------- ----------- -----------
$ 0.25 340,582 5.59 325,626
$ 0.28 66,000 0.59 66,000
$ 1.00 115,886 7.00 81,233
$ 1.50 425,429 9.29 102,024
$ 1.88 110,729 7.66 70,927
$ 2.25 111,367 8.46 48,344
$ 5.00 10,800 9.49 717
$ 6.25 484,200 9.93 3,896
$10.00 20,520 7.06 550
--------- -------
1,685,513 699,317
========= =======
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At December 31, 2000, options to purchase 442,134 shares were available for future grants under the 1991 Plan and 150,000 shares were available for future grants under the Supplemental Plan.
On August 15, 2000, the stockholders approved the following actions to approve and adopt the following plans, each of which becomes effective at the time the Securities and Exchange Commission declares a registration statement for the Company's Common Stock effective:
. Adoption of the 2000 Stock Option Plan (the "2000 Stock Plan") and the termination of the 1991 Plan as to future option grants upon the effective date of the Company's registration statement on Form S-1. 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, (ii) 7% of the shares of common stock outstanding on the last day of the preceeding fiscal year, or (iii) an amount determined by the Board of Directors. No options were issued, outstanding or exercised under this plan at December 31, 2000.
. Adoption of the 2000 Employee Stock Purchase Plan (the "2000 ESPP Plan"). 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. No shares were granted or purchased under this plan at December 31, 2000.
. Adoption of the 2000 Director Option Plan (the "2000 Director Plan"). 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 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 Company has initially reserved a total of 400,000 shares of
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. No options were
issued, outstanding or exercised under this plan at December 31, 2000.
Deferred Stock Compensation
During the year ended December 31, 2000, the Company issued a total of 985,820 common stock options at an exercise price ranging from $1.50 to $10.00 per share, in comparison to the deemed weighted average fair value of $6.63 per share. The cumulative deferred stock compensation with respect to these grants totaled $2,327,000 and is being amortized to expense on a graded vesting method over the four-year vesting period of the options through December 2004.
During 1998 and 2000, the Company issued fully vested options to nonemployees for the purchase of 43,400 and 28,200 shares of common stock at a weighted average exercise price of $1.55 and $4.90 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 $177,000 for the years ended December 31, 1998 and 2000, respectively. The Black-Scholes option pricing model was used to determine the fair value with the following weighted average assumptions: contractual life of 10 years for 1998 and 2000; risk-free interest rate of 5.3% for 1998 and 6.0% for 2000; expected volatility factor of 75% for 1998 and 2000.
Amortization of employee and nonemployee stock-based compensation totaled $972,000 for 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 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 1998, 1999 and 2000; risk free interest rate of approximately 6.0% in 1998, 1999 and 2000; 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 AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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,
-------------------------
1998 1999 2000
------- ------- -------
Net loss available to common stockholders:
As reported.................................... $(1,588) $(1,441) $(1,149)
Pro forma...................................... $(1,667) $(1,544) $(1,900)
Basic and diluted net loss per share:
As reported.................................... $ (3.63) $ (2.56) $ (1.62)
Pro forma...................................... $ (3.81) $ (2.75) $ (2.68)
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8--NET LOSS PER SHARE
During 1998, 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,
--------------------------------
1998 1999 2000
---------- ---------- ----------
Convertible preferred stock................... 7,869,921 8,931,534 8,931,534
Warrants for convertible preferred stock...... 1,785,714 -- --
Stock options................................. 1,080,991 1,093,630 1,685,513
---------- ---------- ----------
Total....................................... 10,736,626 10,025,164 10,617,047
========== ========== ==========
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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, 2000 are as follows (in thousands):
Operating
Leases
---------
Year Ending December 31,
2001............................................................. 689
2002............................................................. 607
2003............................................................. 620
------
Total minimum lease payments..................................... $1,916
======
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Rent expense is recorded on a straight-line basis and totaled approximately $238,000 in 1998, $413,000 in 1999 and $574,000 in 2000.
10--BORROWING ARRANGEMENTS
The Company has a $1,000,000 revolving bank line of credit through September 2001. In addition, the Company financed the expansion of its information system during 1998 with a two-year note under an
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
extension of its existing bank facility in the amount of $300,000. The remaining principal balance outstanding was repaid in monthly installments through December 2000. Borrowings 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, 2000) 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, 2000, the Company was in compliance with all such requirements of the borrowing arrangement.
11--INCOME TAXES
Income tax expense during 2000 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,
----------------
1999 2000
------- -------
Net deferred tax assets:
Net operating loss carryforwards....................... $ 2,956 $ 2,377
Accruals deductible in different periods............... 605 974
Capitalized research and development costs............. 268 289
Credit carryforwards................................... 370 397
Stock compensation expense on nonqualified stock
options............................................... -- 121
------- -------
Total net deferred tax assets........................ 4,199 4,158
Valuation allowance...................................... (4,199) (4,158)
------- -------
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,
----------------------------
1998 1999 2000
-------- -------- --------
Federal statutory tax expense (benefit)...... $ (70) $ 229 $ 98
State tax expense (benefit).................. (11) 38 16
Valuation allowance.......................... 193 (361) (41)
Stock compensation expense on incentive stock
options..................................... -- -- 279
Other........................................ (112) 104 (306)
-------- -------- --------
$ -- $ 10 $ 46
======== ======== ========
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At December 31, 2000, the Company had federal net operating loss carryforwards of approximately $6.8 million available to reduce future taxable income. Such carryforwards expire beginning in 2002 through
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2020. At December 31, 2000, the Company had research and experimentation credit carryforwards available of approximately $259,000 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.
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 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. The Company made aggregate employer matching contributions of $46,000 in 2000.
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 31,
-----------------------
1998 1999 2000
------- ------- -------
Revenues:
United States...................................... $12,820 $17,804 $21,306
Japan.............................................. 2,228 1,717 2,703
All other.......................................... 836 262 624
------- ------- -------
$15,884 $19,783 $24,633
======= ======= =======
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For all periods presented, all of the Company's long-lived assets were located within the United States.
In 1999, no sales to a single customer accounted for greater than 10% of revenues. One customer, a distributor, represented 14% of revenues in 1998 and 11% of revenues in 2000.
14--SUBSEQUENT EVENT
On January 30, 2001, Natus Neonatal Limited, the Company's United Kingdom subsidiary, purchased the distribution business of Neonatal Perspectives Ltd. ("NPL"), our United Kingdom distributor, for consideration of approximately $198,000. Such consideration was satisfied by the Company's convertible notes receivable and accounts receivable from NPL. The acquisition will be accounted for by the purchase method of accounting.
[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.]
4,500,000 Shares
[LOGO OF NATUS MEDICAL INCORPORATED APPEARS HERE]
Common Stock
Price $ Per Share
Dain Rauscher Wessels
First Union Securities, Inc.
Until , 2001, (25 days after the date of this Prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may he 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.
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............................................. $ 14,940
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..................................... 600,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 24,500
----------
Total.......................................................... $1,650,000
==========
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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 five 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 January 1993, the Registrant issued 2,000 shares of Common Stock to one accredited investor in connection with certain license rights to intellectual property.
5. 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.
6. 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.
7. In December 1999, the Registrant issued and sold 344,652 shares of Series C Preferred Stock for approximately $603,000 and sold 716,961 shares of Series C Preferred Stock upon the net exercise of warrants to purchase 716,849 shares to 21 accredited investors pursuant to Section 4(2) of the Securities Act.
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8. Pursuant to Rule 701 promulgated under the Securities Act, from July 1991 to December 31, 2000, the Registrant issued and sold 865,833 shares of Common Stock to employees and consultants for aggregate consideration of approximately $356,825 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
3.1.2 Certificate of Amendment to Certificate of Incorporation
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.
10.6.2+ Transition Agreement dated as of July 28, 2000 between Registrant,
Nippon Eurotec Co. Ltd., Toshibumi Wakayama, Masaaki Kuroiwa and
Kenji Tomita
10.7+ Patent License Agreement dated June 30, 1998 between Registrant and
The Leland Stanford Junior University
10.8* Lease Agreement dated August 24, 1998 between Registrant and San
Carlos 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.
10.13 Lease dated November 1, 2000 between Registrant and Media Lofts, LLC,
for the premises located at 370 7th Street, Suite 5, San Francisco,
California
10.14+ Memorandum of Understanding dated December 7, 2000 between Registrant
and the Ludlow Company LP
10.15 2000 Supplemental Stock Option Plan
10.15.1 Form of Option Agreement for 2000 Supplemental Stock Option Plan
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
99.1 Consent of Churchill Madison Group
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* Previously filed.
** To be filed by amendment.
+ 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 amendment number one to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Carlos, State of California on February 9, 2001.
/s/ Tim C. Johnson
By: _________________________________
Tim C. Johnson
President, Chief Executive
Officer, Chief Operating
Officer and Director
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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 February 9, 2001
____________________________________ Officer, Chief Operating
Tim C. Johnson Officer and Director
(Principal Executive
Officer)
/s/ William H. Lawrenson Vice President Finance and February 9, 2001
____________________________________ Chief Financial Officer
William H. Lawrenson (Principal Financial and
Accounting Officer)
William New, Jr.* Director February 9, 2001
____________________________________
William New, Jr.
James J. Bochnowski* Director February 9, 2001
____________________________________
James J. Bochnowski
William M. Moore* Director February 9, 2001
____________________________________
William M. Moore
David Nierenberg* Director February 9, 2001
____________________________________
David Nierenberg
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/s/ Tim C. Johnson
*By: ___________________________
Tim C. Johnson
|
Attorney-in-Fact
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Schedule II
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for Doubtful Accounts
Balance at Charges to Deductions- Balance at
beginning costs and write-offs end
of period expenses of accounts of period
---------- ---------- ----------- ----------
Year Ended
----------
December 31, 2000.................. 201 89 (87) 203
December 31, 1999.................. 138 131 (68) 201
December 31, 1998.................. 125 13 -- 138
Warranty Reserve
Year Ended
----------
December 31, 2000.................. 487 233 (172) 548
December 31, 1999.................. 500 185 (198) 487
December 31, 1998.................. 297 306 (103) 500
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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
3.1.2 Certificate of Amendment to Certificate of Incorporation
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.
10.6.2+ Transition Agreement dated as of July 28, 2000 between Registrant,
Nippon Eurotec Co. Ltd., Toshibumi Wakayama, Masaaki Kuroiwa and
Kenji Tomita
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
10.8* Carlos 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.
10.13 Lease dated November 1, 2000 between Registrant and Media Lofts, LLC,
for the premises located at 370 7th Street, Suite 5, San Francisco,
California.
10.14+ Memorandum of Understanding dated December 7, 2000 between Registrant
and The Ludlow Company LP
10.15 2000 Supplemental Stock Option Plan
|
10.15.1 Form of Option Agreement for 2000 Supplemental Stock Option Plan 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 99.1 Consent of Churchill Madison Group |
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
NATUS MEDICAL INCORPORATED
Natus Medical Incorporated, a corporation organized and existing under the laws of Delaware (the "Company"), pursuant to the provisions of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation, as amended, of the Company is hereby amended by deleting ARTICLE IV, Section 5(d)(i)(4)(B) thereof in its present form and substituting therefor a new ARTICLE IV, Section 5(d)(i)(4)(B) in the following form:
"(B) up to 3,143,482 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;"
SECOND: The amendment of the Certificate of Incorporation of the Company set forth in this Certificate of Amendment has been duly adopted in accordance with the provisions of Section 242 of the DGCL by (a) the Board of Directors of the Company having duly adopted a resolution setting forth such amendment and declaring its advisability and submitting it to its shareholders for approval and (b) the stockholders of the Company having duly adopted such amendment by written consent.
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by Tim C. Johnson, its President and Secretary, and attested by William H. Lawrenson, its Assistant Secretary, this ____ day of February, 2001.
Date: February __, 2001
ATTEST:
By:___________________________________________
William H. Lawrenson, Assistant Secretary
EXHIBIT 4.1
NM
Natus Medical Incorporated
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN CANTON, MA OR NEW YORK, NY
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 639050 10 3
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE PER SHARE, OF
Natus Medical Incorporated
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
CHAIRMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
EQUISERVE TRUST COMPANY, N.A.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
NATUS MEDICAL INCORPORATED
A statement of the rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares of stock of the
Corporation, and upon the holders thereof as established by the Certificate of
Incorporation or by any certificate of determination of preferences, and the
number of shares constituting each class or series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ................ Custodian .........................
(Cust) (Minor)
under Uniform Gifts to Minors
Act................................................
(State)
UNIF TRF MIN ACT -- ................ Custodian (until age ..............)
(Cust)
.......................... under Uniform Transfers
(Minor)
to Minors Act ......................................
(State)
|
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within certificate, and do hereby irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated
X
X
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811
February 9, 2001
Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070
RE: AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-44138) dated August 18, 2000 to be filed by you with the Securities and Exchange Commission on February 9, 2001 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 5,175,000 shares (including shares issuable upon exercise of the underwriters' over-allotment option) of Common Stock of Natus Medical Incorporated (the "Shares"). As your counsel in connection with this transaction, we have examined the proceedings proposed to be taken in connection with said sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of various states, where required, the Shares when issued and sold in the manner referred to in the Registration Statement will be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati |
EXHIBIT 10.6
NATUS(R)
Natus Medical Incorporated
DISTRIBUTION AGREEMENT
TERRITORY: JAPAN
-----
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
-------------
|
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 FCA ("Free Carrier," INCOTERMS 1990) Natus shipping dock, San Carlos, California. 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 FCA Natus shipping point.
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 FCA ("Free Carrier", INCOTERMS 1990) 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 first week of each quarter, Nippon Eurotec shall provide Natus with a good faith six (6) month rolling forecast commencing with the next calendar quarter 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 first day of the quarter 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 FCA (INCOTERMS, 1990) 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
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Exhibit B: Nippon Eurotec 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
NIPPON EUROTEC PRODUCTS
[To be listed by Nippon Eurotec; to include a detailed list of all products now being sold by Nippon Eurotec in the newborn market category.]
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 upcoming Quarter 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 Please Call for Quote
ALGO 2e Carrying Case Please Call for Quote
700090 Power Cord $ [***]
900081 ALGO 2e Label Printer $ [***]
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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
__________
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[***] 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
=====
__________
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[***] 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 /s/ Kenji Tomita
------------------------ ---------------------------
Title CEO Title Director
------------------------ ---------------------------
Date 7/13/98 Date June 22 1998
------------------------ --------------------------
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EXHIBIT 10.6.2
Transition
Agreement
Natus, Eurotec,
Wakayama, Kuroiwa, Tomita
July 28, 2000
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.
AGREEMENT
THIS AGREEMENT ("Agreement") is effective July 28, 2000, and is made and entered into by, among and between:
Natus Medical, Inc. a California corporation having is principal place of business at 1501 Industrial Road, San Carlos, CA, 94070 ("Natus");
Toshibumi Wakayama ("Wakayama"), acting personally, and in his capacity as President and Managing Director of Nippon Eurotec Co., Ltd. ("Eurotec"), a limited liability corporation under the laws of Japan having its principal place of business at Akasaka Daiichi Building, 9-17, Akasaka 4-Chome, Minato-Ku, Tokyo, 107, Japan;
Masaaki Kuroiwa ("Kuroiwa"), an employee of Eurotec who is acting herein in his personal capacity; and
Kenji Tomita ("Tomita"), an employee of Eurotec who is acting herein in his personal capacity.
RECITALS:
WHEREAS, Natus and Nippon Eurotec are parties to an agreement dated June 11, 1997, pursuant to which Natus has appointed Eurotec as exclusive distributor for designated Natus products in Japan ("Natus Products"), which such agreement expires by its terms on June 10, 2001 ("Distribution Agreement"; Exhibit A hereto);
WHEREAS, Wakayama, Tomita and Kuroiwa, have established a highly cordial and successful working relationship with Natus, based on mutual trust, and would like to continue to work in some capacity to support sales and distribution of the Natus Products despite termination of the Distribution Agreement on June 10, 2001;
WHEREAS, the parties agree that in order to continue the successful sales and distribution of the Natus Products in Japan after June 10, 2001 ("Distribution Agreement Expiration Date"), Natus should establish a wholly- owned subsidiary Natus Japan K.K., ("NJKK"), and that Wakayama, Kuroiwa, and Tomita should serve as members of the Board of Directors and, in the future, as employees, of NJKK, and in this manner continue their personal involvement in the sales of Natus Products, and to do so pursuant to these terms;
WHEREAS, the parties agree that in order to assure and to accomplish the smooth transition from Eurotec to NJKK of the Natus Products sales and distribution business in Japan, and the personal involvement of Wakayama, Tomita and Kuroiwa, it will be helpful to set forth in writing those terms already discussed and agreed upon by the parties during the amicable and mutually cooperative discussions held to date.
NOW, THEREFORE, based on the foregoing premises and on the mutual promises contained in this Agreement, the parties hereto agree as follows:
1. Distribution Agreement Reaffirmed
1.1 The parties acknowledge and agree that this Agreement is not in intended to, and shall not, modify or amend the terms of the Distribution Agreement. The parties further reaffirm their commitment to the terms of the Distribution Agreement including, among other terms, those pertaining to the performance by Natus and by Eurotec through June 10, 2001. The parties further agree that this Agreement is not intended to interfere with or interrupt Eurotec's and Natus' business with respect to sales and distribution of the specified Natus products pursuant to the Distribution Agreement.
2. Transition of Natus Products Business to Natus Japan K.K.
2.1 Natus Japan K.K. The parties hereby acknowledge the incorporation of Natus Japan K.K., a wholly-owned subsidiary of Natus duly incorporated as a limited liability company under the laws of Japan. The parties agree to carry out the smooth transition to NJKK of the Natus Products business in Japan currently being handled by Eurotec, and to do so according to the timetable specified in Exhibit B hereto and to the other terms of this Agreement.
2.2 Transition Details, Schedule. The parties agree to exert their best efforts to accomplish the transfer of the Natus Products business to NJKK according to the time table in Exhibit B, which transition is to be completed by no later than July 1, 2001. In preparation for this transition, Wakayama shall present to Natus a list compiling all items (tangible as well as intangible) used by Eurotec in connection with the Natus Products business, together with Wakayama's advice as to which such items are necessary or helpful to NJKK as NJKK assumes the Natus Products business. Natus shall make the final determination as to which such items shall be assumed by NJKK. At this time, the parties contemplate that Eurotec shall transfer to NKJJ, and NJKK shall assume, the following items:
2.2.1 Natus Products regulatory approvals (Shonin; Kyoka; others); customer data in all forms including and electronic and hard-copy; advertising and marketing materials in all forms including electronic and hard- copy; accounts opened or maintained with advertisers, consultants, customers, resellers, leasing companies, and the like, with respect to marketing, sales, distribution or purchasing, leasing or servicing Natus Products; all technical data developed or maintained by Eurotec related to Natus Products; all information in whatever format related to marketing, clinical studies, and the like, developed or maintained by Eurotec regarding Natus Products; and such other items as are determined by the parties according to these terms. In connection with the transfer of Shonin to NJKK, the parties acknowledge and affirm their intent to apply the reimbursement formula in section 3.6.4 of the Distribution Agreement. In addition, NJKK shall bear the MHW fees charged to transfer the Shonin to NJKK.
2.2.2 NJKK shall also evaluate and assess the prospects of hiring current Eurotec employees involved in the Natus Products business, and in this connection shall obtain the cooperation and assistance of Wakayama to review such employee's performance,
credentials, employment history, etc. Final determination on any NJKK employment matter shall be made by the President of NJKK. Eurotec shall fully release such employees who are hired by NJKK, and NJKK shall be indemnified and help harmless by Eurotec with respect to matters arising from their employment by Eurotec including payments for insurance, retirement, social benefits, and the like.
2.3 Business Plan: NJKK President. The parties agree to work together to establish a definitive business plan for NJKK, and to recruit and hire a highly competent operating president for NJKK.
2.4 Asahi Chemical Relationship. The parties acknowledge the current sub-distributorship between Eurotec and Asahi Chemical Ltd., and as well the highly important role played by Asahi in connection with the Natus Products business. The parties agree to exert their strongest and best faith efforts to continue to conduct their affairs so as to promote the strongest possible business relationship with Asahi through the Distribution Agreement Expiration Date, and to promote and facilitate a relationship between NJKK and Asahi on the most productive terms possible after that date.
3. Matters Pertaining to Wakayama
3.1 Natus Medical Inc. Stock Options. Natus hereby offers Wakayama, and Wakayama accepts such offer, the option to purchase [***] shares of Natus Common Stock, at an option price of $[***] per share, pursuant to the terms of the Natus Medical Inc. 1991 Stock Plan (as amended) (attached as Exhibit C). Wakayama's right to exercise such Stock Options and to purchase Natus shares vests according to the following schedule:
[***] shares vesting one year after date of incorporation of Natus
Japan K.K.;
[***] shares vesting one year thereafter; and
[***] shares vesting one year thereafter.
3.2 Member of the Board of Directors and Chairman of Natus Japan K.
K. Natus hereby appoints Wakayama to the Board of Directors of Natus Japan
K.K., and with this appointment, the title of Chairman (in Japanese, "Kaicho"),
and Wakayama accepts such appointment. The term of Wakayama's appointment is
effectively immediately and continues until Natus shall appoint Wakayama's
successor or replacement.
3.2.1 As Director, Wakayama agrees to take actions consistent with the instructions of Natus or NJKK, and to refrain from taking actions that are inconsistent with such instructions, as well as to vote as Director according to Natus' instructions, and to this end to enter into written agreement with Natus and with NJKK which shall be binding on Wakayama to the extent permissible under Japanese law. Wakayama shall sign and be bound by the Natus Confidentiality and Non-Competition Agreement attached hereto as Exhibit E.
3.3. Employment from July 1, 2001. NJKK offers to employ Wakayama from July 1, 2001, to perform the duties, and to pay the salary and to allocate the budget, as set forth below, and Wakayama accepts such offer:
3.3.1 Duties: Wakayama shall work at least half-time for NJKK, and shall be responsible for lobbying towards UNHS, helping create and implement strategies in marketing Natus Products, serve as an idea generator for NJKK, inspire and magnetize the staff of NJKK, make him self available from time to time to work on other Natus international marketing efforts, and in general, shall support to the fullest extent of his ability, the activities of NJKK. Wakayama shall not be required to regularly attend the NJKK office in performing these duties, it being understood that Wakayama will continue to use his office at Eurotec while performing these duties for NJKK. Wakayama shall report regularly to the President and to the Board of Directors of NJKK, and his continued employment by NJKK is subject at all times to the discretion of the Board of Directors of NJKK.
3.3.2 Wakayama Salary and Budget. NJKK shall allocate annually a maximum of Yen [***] as salary and expense budget for Wakayama. Wakayama in coordination with NJKK's accountants shall apportion such Yen [***] between his personal salary, and NJKK's expense budget in connection with lobbying and government relations efforts towards UNHS. Such apportionment shall be made prior to July 1, 2001 for the following year, and annually each year thereafter during the term of Wakayama's employment. Amounts apportioned to Wakayama's salary shall be paid monthly by NJKK as ordinary payroll, and Wakayama solely shall be responsible for personal taxation at the national, prefectural, or local levels on such compensation amounts. Amounts expended on lobbying and government relations activities shall be properly receipted, and such amounts shall be used solely towards promotion of Natus Products and not for any other purpose.
3.4 Payment of Lobbying Fees. Natus hereby offers Wakayama, and Wakayama accepts, an Annual UNHS Lobbying Bonus for "Major Areas" (as set forth in Exhibit D) adopting UNHS before March 31, 2004, to be awarded according to these terms:
3.4.1 Natus will compensate Wakayama US$[***] for each Major Area in Japan adopting UNHS, provided that:
(a) Nippon Eurotec (prior to 6/30/01) or Natus Japan K.K. (after 7/101) must have met its combined ALGO 2eC and Portable minimum purchase commitments from Natus for the year during which such Major Area adopts UNHS ("Total Minimum Annual Sales Value").
(b) If the Total Minimum Annual Sales Value for any year was not achieved, then the Lobbying Bonus will be pro-rated according to the chart below.
(c) For Major Areas adopting UNHS before 7/1/01, the Total Minimum Annual Sales Value shall be equal to the value of Natus ALGO 2eC and Portables that Nippon Eurotec has committed to purchasing through 6/30/01.
(d) Natus shall pay the Annual UNHS Lobbying Bonus for up to ten Major Areas adopting UNHS before 3/31/04, based on the Calculation Method below:
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Annual UNHS Lobbying Bonus Calculation Method for Major Areas Adopting UNHS Before 3/31/04
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"Total Minimum Annual If: Then:
Sales Value" (to Natus)
of ALGO 2eC & Portable The percentage of "Total The following formula is used to
by Year (Yr 1 Ending Minimum Annual Sales Calculate Annual UNHS Lobbying
6/30/02): Value" Actually Achieved Bonus to be Paid for Major Areas
by Year End (Total $ adopting UNHS during that year:
Value Algo2eC & Portable)
7/00-6/01: To be determined is:
Yr 1: [***]: $[***] -----------------------------------------------------------------
Yr 2: [***]: $[***] 100% or more $[***] X [***] X No. of Major Areas
Yr 3: [***]: $[***] adopting UNHS that year
-----------------------------------------------------------------
90-99% " " $[***] X [***] X No. of Major Areas
adopting UNHS that year
-----------------------------------------------------------------
75-89% " " $[***] X [***] X No. of Major Areas
adopting UNHS that year
-----------------------------------------------------------------
50-74% " " $[***] X [***] X No. of Major Areas
adopting UNHS that year
-----------------------------------------------------------------
0-49% " " $[***] X [***] X No. of Major Areas
adopting UNHS that year
---------------------------------------------------------------------------------------------
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3.4.2. By way of example and not of limitation:
(a) Example: If Saitama is the only Major Area that adopts UNHS by 6/31/01, Wakayama (or Eurotec, as determined by Wakayama) will then receive an Annual Lobbying Bonus of $[***] multiplied by the formula in Column 3, above, based on the actual percentage achieved of Eurotec's Total Minimum Annual Sales Value through 6/30/01.
(b) Example: Five Major Areas adopt UNHS between 7/1/01 and 6/30/02, and Natus sells more than $[***] of Algo 2eC and Portables to NJKK during that period. Therefore, $[***] Annual UNHS Lobbying Bonus is to be paid by Natus for that year ending 6/30/02.
(c) Further Example: Five Major Areas adopt UNHS between 7/1/02 and 6/30/03, and Natus sells more than $[***] of Algo 2eC and Portables to NJKK during that period. Therefore, $[***] Annual UNHS Lobbying Bonus is to be paid by Natus for that year ending 6/30/03.
3.4.3 The maximum cumulative Annual UNHS Lobbying Bonus payments to be made by Natus pursuant to this Agreement is US$[***] representing the cumulative total possible bonus payments for ten Major Areas adopting UNHS before March 31,
2003, and when during each year in which any Major Area adopted UNHS the Total Minimum Annual Sales Value has been achieved.
3.4.4 For purposes of this bonus, the parties agree to define Major Areas as the prefectures, cities and districts listed in Exhibit D hereto. The parties agree to define "adopting UNHS" to mean written legislative or administrative action by the highest government body in any Major Area that mandates universal hearing screening of babies born in that Major Area and that establishes a reimbursement scheme that complies with the MHW rules regarding reimbursement for UNHS .
3.5 Commission Bonus on Exceeding Sales Objectives. Natus hereby offers to pay to Eurotec or to Wakayama, and Wakayama accepts, a bonus as follows:
----------------------------------------------------------------------------------------
Year
(1 July- Algo2eC Algo Portable
30 June)
----------------------------------------------------------------------------------------
2001-02 For purchases from Natus of [***] or On purchase from Natus of more
more units: $[***] per unit on units than [***] units: $[***] per
number [***] and higher unit on units [***] and higher
----------------------------------------------------------------------------------------
2002-03 For purchases from Natus of [***] or On purchase from Natus of more
more units: $[***] per unit on units than [***] units: $[***] per
number [***] and higher unit on units [***] and higher
----------------------------------------------------------------------------------------
2003-04 For purchases from Natus of [***] or On purchase from Natus of more
more units: $[***] per unit on units than [***] units: $[***] per
number [***] and higher unit on units [***] and higher
-----------------------------------------------------------------------------------------
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3.5.1 These bonus commission amounts are payable by Natus by the end of the first quarter after the completion of each respective year.
3.5.2 Natus is prepared to make the payments described in 3.4 and 3.5, above, either directly to Wakayama or to Nippon Eurotec, based on Wakayama's discretion. If such payments are paid to Nippon Eurotec, the parties understand that there may be requisite written agreement between Nippon Eurotec and NJKK, but in no event shall any such payment or the need for any such written agreement be interpreted as extending or continuing the Distribution Agreement. Notwithstanding the foregoing, the activities described herein Wakayama's employment and UNHS lobbying efforts are acknowledged by the parties to personal services and must be performed by Wakayama personally, and cannot be assigned or delegated to anyone whether an employee of Eurotec or otherwise:
3.6 Other Details. Natus expects to work with you to terminate or transition your agreement with Asahi as we may determine is in the best interests of NJKK, and in this connection, we expect that you will conduct Eurotec's affairs with Asahi in a manner that will promote a strong relationship with Asahi and NJKK after 6/31/01.
In exchange for the payments to be made to you, Natus assumes your highest level of cooperation and assistance in transferring the Algo business to Natus Japan K.K. over a
schedule to be mutually determined, but to be substantially completed by July 1, 2001. This would include the customer data, leasehold if suitable for NJKK, advertising and marketing materials, Shonin and all technical data on Natus products, and the like. Natus would expect effective on that date to receive a full release by all parties and individuals involved with the earlier Natus- Nippon EUROTEC business, including Eurotec, its officers, directors and shareholders, and Asahi.
4. Matters Pertaining to Tomita.
4.1 Natus Medical Inc. Stock Options. Natus hereby offers Tomita, and Tomita hereby accepts, the option to purchase [***] shares of Natus Common Stock, at an option price of $[***] per share, pursuant to the terms of the Natus Medical Inc. 1991 Stock Plan (as amended) (attached as Exhibit C). Tomita's right to exercise such Stock Options and to purchase Natus shares vests according to the following schedule:
[***] shares vesting one year after date of incorporation of Natus
Japan K.K.; and
[***] shares vesting one year thereafter.
4.2 Member of the Board of Directors of Natus Japan K. K. Natus hereby appoints Tomita to the Board of Directors of Natus Japan K.K., and Tomita hereby accepts such appointment. The term of Tomita's appointment is effectively immediately and continues until Natus shall appoint his successor or replacement.
4.2.1 As Director, Tomita agrees to take actions consistent with the instructions of Natus or NJKK, and to refrain from taking actions that are inconsistent with such instructions, as well as to vote as Director according to Natus' instructions, and to this end to enter into written agreement with Natus and with NJKK which shall be binding on Tomita to the extent permissible under Japanese law. Tomita shall sign and be bound by the Natus Confidentiality and Non-Competition Agreement attached hereto as Exhibit E.
4.3 Employment from July 1, 2001. Natus acknowledges Tomita's resignation for Eurotec on June 30, 2001, and NJKK hereby offers to employ Tomita starting July 1, 2001, to perform the duties and to pay the salary as set forth below, and Tomita hereby accepts such offer:
4.3.1 Duties. Tomita shall perform the duties of General Manager, Sales (in Japanese, "bucho"). Tomita shall also perform the duties of Technical Services Manager ("shurii sekinin gijitsusha"). Tomita shall also perform the duties of MHW Responsible Technician (in Japanese, "sekinin gijitsunin"). As Sales General Manager, Tomita shall be responsible for setting and meeting quarterly, semi-annual, and annual sales goals. Tomita shall be responsible for hiring, training, motivating, terminating, and otherwise managing, the NJKK sales staff as well as the outside sales representatives. Tomita shall perform his duties on a full-time basis, and shall have such additional duties as may be determined by the President of NJKK.
4.3.2 Compensation. Tomita shall receive as compensation an amount no less then his current compensation from Eurotec, which is represented to be annually Yen [***]. Tomita shall be eligible for bonuses, salary increases and other incentive awards that are adopted by NJKK and made available to other management members. Tomita shall work under the direction of, and shall report to, the President of NJKK, and his continued employment by NJKK is subject at all times to the discretion of the Board of Directors of NJKK.
5. Matters Pertaining to Kuroiwa.
5.1 Natus Medical Inc. Stock Options. Natus hereby offers Kuroiwa, and Kuroiwa hereby accepts, the option to purchase [***] shares of Natus Common Stock, at an option price of $[***] per share, pursuant to the terms of the Natus Medical Inc. 1991 Stock Plan (as amended) (attached as Exhibit C). Kuroiwa's right to exercise such Stock Options and to purchase Natus shares vests according to the following schedule:
[***] shares vesting one year after date of incorporation of Natus Japan
K.K.; and
[***] shares vesting one year thereafter.
5.2 Member of the Board of Directors of Natus Japan K. K. Natus hereby appoints Kuroiwa to the Board of Directors of Natus Japan K.K., and Kuroiwa hereby accepts such appointment. The term of Kuroiwa's appointment is effectively immediately and continues until Natus shall appoint his successor or replacement.
5.2.1 As Director, Kuroiwa agrees to take actions consistent with the instructions of Natus or NJKK, and to refrain from taking actions that are inconsistent with such instructions, as well as to vote as Director according to Natus' instructions, and to this end to enter into written agreement with Natus and with NJKK which shall be binding on Kuroiwa to the extent permissible under Japanese law. Kuroiwa shall sign and be bound by the Natus Confidentiality and Non-Competition Agreement attached hereto as Exhibit E.
5.3 Employment from July 1, 2001. Natus acknowledges Kuroiwa's resignation for Eurotec on June 30, 2001, and NJKK hereby offers to employ Kuroiwa starting July 1, 20001, to perform the duties and to pay the salary as set forth below, and Kuroiwa hereby accepts such offer:
5.3.1 Duties. Kuroiwa shall be General Manager (in Japanese "bucho") for new product development, for regulatory affairs, as well as Clinical Advisor Program Manager, and Intervention Program Relationship Manager. Kuroiwa shall be responsible for developing a program, and for successfully conducting the program, for device approvals, Good Manufacturing Practices/Importer Approvals, and all other matters pertaining to obtaining government or regulatory approvals of Natus Products, NJKK or its facilities, licenses, etc. As Clinical Advisor Program Manager, Kuroiwa shall be responsible for successful creation, and implementation, of the CA Program in Japan. As Intervention Program Relationships Manager Kuroiwa shall be responsible for liaison with the Dr. Tanaka Institute, and shall create and manage a program to successfully coordinate the activities of the Tanaka Institute with those of
NJKK to maximize the sales of Natus Products. Kuroiwa shall perform his duties on a full-time basis and in a highly competent and professional manner.
5.3.2 Compensation. As compensation, Kuroiwa shall receive as compensation an amount no less then his current compensation from Eurotec, which is represented to be annually Yen [***], and shall be eligible for bonuses, raises and other incentive awards that may be adopted by NJKK and made available to other management members of NJKK. Kuroiwa shall report to and be supervised by the President of NJKK, and his continued employment by NJKK is subject at all times to the discretion of the Board of Directors of NJKK.
6. Additional Undertakings.
6.1 Consent of Eurotec to this Agreement.
6.1.1 Indemnification by Eurotec of Wakayama, Tomita, Kuroiwa and Natus. The offers by Natus made hereunder, and accepted by Wakayama, Kuroiwa and Tomita, and the other promises exchanged hereunder, are exchanged with the full knowledge and consent of Wakayama as controlling shareholder, Representative Director and President of Eurotec, and as a result Eurotec and its directors, officers, agents, assigns and shareholders (collectively in this paragraph only, referred to as "Eurotec") shall indemnify and hold harmless Natus and NJKK and any of their officers, directors, shareholders, agents and employees from and against any and all claims, demands, disputes, complaints, actions, suits, liabilities and damages (including attorney fees and costs) of any kind to the extent that any such claim, demand, etc., may relate to or arise from (a) Wakayama's, Tomita's or Kuroiwa's services as employee or Director of Eurotec, or (b) any actions taken by the parties in performance of the promises made in this Agreement (herein collectively referred to as "Claim"). Eurotec further agrees, at its sole cost and expense, to release, defend (at Natus or NJKK's option), indemnify, and hold harmless Natus and NJKK, their directors, officers, agents, employees, and shareholders from and against all such Claims. Without limiting the generality of the foregoing, Eurotec's duty to release, defend, indemnify, and hold harmless shall specifically include those Claims arising from (a) the employment relationship between NJKK and Wakayama, Tomita and Kuroiwa, or service by them as members of the Board of Directors of NJKK, including any compensation offered or paid to them hereunder; (b) Eurotec's status as Wakayama's, Tomita's or Kuroiwa's employer, including (but not limited to) all Claims by Eurotec based on loss of personal services, lost or diminished business opportunity, or usurpation of business opportunity, and the like, as a result of the actions contemplated hereunder; or (c) the transfer hereunder of the Natus Product business to NJKK.
6.1.2 No Payments to Eurotec. It is understood, acknowledged and agreed by the parties that no payments shall be made, nor shall any be claimed due or owing, to Nippon Eurotec, Ltd., as a result of the termination of the Distribution Agreement nor as a result of any action contemplated by this Agreement to be taken by the parties, it being clearly understood that, as stated in the Distribution Agreement, there shall be no liability for termination of the Distribution Agreement pursuant to its terms.
7. General Terms.
7.1 Cooperation. Each of the parties hereto shall use its reasonable efforts to take or cause to be taken all actions, to cooperate with the other party hereto, with respect to all actions, and to do or cause to be done all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.
7.2 Waiver. Any failure of Wakayama, Tomita or Kuroiwa to comply with any obligations or agreements herein contained to be performed by any such party may be waived only in writing by Natus.
7.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt of: hand delivery; certified or registered mail; return receipt requested; or telecopy transmission with confirmation of receipt:
(i) If to Natus, to:
Tim Johnson
Natus Medical, Inc.
1501 Industrial Road
San Carlos, CA 94070
Phone: (800) 255-3901
Fax: (650) 802-0401
(with a copy to)
Mark Foster
Law Offices of Mark Foster
9615 SW Allen Blvd, Ste 103
Portland, OR 97005
Phone: (503) 643-0065
Fax: (503) 643-6800
(ii) If to Wakayama, to:
Mr. Toshibumi Wakayama
Hakusan 5-6-15, Bunkyo-ku, Tokyo, Japan
Postal code: 112-0001
Phone: 81-(0)3-3941-0865, Fax: 81-(0)3-3941-5693
(No e-mail )
(iii) If to Kuroiwa, to:
Mr. Masaaki Kuroiwa
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Sumiyoshidai 22-35, Aoba-ku, Yokohama, Japan
Postal code: 227-0035
Phone & Fax: 81-(0)45-960-1393
E-mail: mkuro@pop02.odn.ne.jp (home)
(iv) If to Tomita, to:
Mr. Kenji Tomita
Totsuka-cho 2730-31 , Totsuka-ku, Yokohama, Japan Phone : 81-(0)45-865-5360 (No fax) E-mail : CZB07140@nifty.ne.jp(home)
Such names and addresses may be changed by written notice to each person listed above.
7.4 Governing Law and Consent to Jurisdiction (Dispute Resolution)
(a) This Agreement shall be governed by and construed in accordance with the internal substantial laws and not the choice of law rules of the State of California, USA.
(b) Any judicial proceeding brought with respect to this Agreement must be brought in any court of competent jurisdiction in the State of California, and, by execution and delivery of this Agreement, each party (i) accepts, generally and unconditionally, the exclusive jurisdiction of such courts and any related appellate court, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement and (ii) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT.
(c) Any dispute, claim or controversy arising out of or relating to this Agreement, or the interpretation or breach thereof, shall be referred to arbitration under the rules of the American Arbitration Association, to the extent such rules are not inconsistent with this Section. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal or equitable proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations.
(d) The arbitration panel shall consist of one arbitrator, who shall be appointed by a representative of each party hereto. The two representatives thus appointed shall choose the arbitrator; PROVIDED, HOWEVER, that if, within thirty days after the selection of the second of the two representatives, the two representatives are unable to agree on the appointment of the arbitrator, either representative may petition the American Arbitration Association to make the appointment. The place of arbitration shall be San Francisco, California.
7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
7.6 Term and Termination. This Agreement shall become effective on the Effective Date and shall remain in force until July 1, 2001, (the "Termination Date"), and on an effective the Termination Date this Agreement shall terminate, provided that certain terms of this Agreement shall survive termination pursuant to this section.
7.6.1 Termination for Cause. This Agreement shall be terminated for cause:
(i) If the Eurotec Executives (or any of them) on one hand, or Natus on the other, materially defaults in the performance of any provision of this Agreement, then the non-defaulting party may give written notice to the defaulting party that if the default is not cured within thirty (30) calendar days, the Agreement will be terminated at the end of that period and such termination shall not prejudice or limit either party's remedies; or
(ii) Upon:
(a) the institution by or against Natus, or any of the Eurotec Executives, of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of its debts; or
(b) any party's making an assignment for the benefit of creditors; or
(c) any party's death or incapacity, or the dissolution of Natus, this Agreement shall terminate immediately without notice and shall be deemed to have been terminated by the party not so affected and such termination shall not prejudice or limit either party's remedies.
7.6.2 Duties upon Termination. Upon any termination or expiration of this Agreement no party shall retain any copies of any Confidential Information which may have been entrusted to.
7.6.3 Survival. The terms of this Agreement which by their nature may survive the termination or expiration of this Agreement shall survive the termination or expiration of this Agreement.
7.7 Entire Agreement. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The Recitals form an integral part of this Agreement. This Agreement, including the Exhibits and Schedules hereto and the documents referred to herein, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
7.8 Amendment and Modification. This Agreement may be amended or modified only by written agreement of the parties hereto.
7.9 Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns; nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto and their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
7.10 Assignability. This Agreement shall not be assignable by Wakayama, Tomita or Kuroiwa without the prior written consent of Natus. Natus may assign its rights under the Agreement to any affiliate of Natus.
7.11 Consents. No consent required to be given under this Agreement shall be unreasonably withheld.
7.12 Counterparts. This Agreement shall be prepared in two identical and original counterparts and both of which together shall be one and the same instrument and either of which may be used for purposes of proof.
7.13 Cumulation of Remedies. All remedies available to a party under this Agreement are cumulative and may be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed an election of such remedy to the exclusion of other remedies.
7.14 Independent Parties. Each party shall remain an independent contractor and shall be responsible for compliance with all laws, rules and regulations involving, but not limited to, employment of labor, hours of labor, health and safety, working conditions and payment of wages. Each party shall also be solely responsible for payment of taxes, including federal, state and municipal taxes, chargeable or assessed with respect to its employees, such as social security, unemployment, worker's compensation, liability insurance and federal and state withholding. Neither party nor its employees, officers, directors, or agents shall hold itself out as the agent, employee, legal partner, or joint venturer of the party, and shall make no commitment or engagement on the account of or on behalf of the other party.
7.15 Force Majeure. Nonperformance of either party shall be excused to the extent that performance is rendered impossible by strike, fire, flood, governmental acts, orders or restrictions, or any other reason where failure to perform is beyond the control and not caused by the negligence of the nonperforming party. In the event of any delay caused by such contingency, the delayed party may defer any performance or delivery prevented by the Force Majeure condition for a period equal to the time lost by reason of such delay, provided, however, that the delayed party promptly commences and reasonably and diligently pursues actions to cure or circumvent such cause. Whenever any cause delays or threatens to delay the timely performance of this Agreement, the party with such knowledge shall immediately notify the others of all relevant information with respect to such cause. If Wakayama is delayed in any performance or delivery by more than thirty (30) days, Natus may terminate the delayed performance or delivery or this Agreement and such terminating shall not be a breach of this Agreement and shall be without penalty.
7.16 Governing Language. English shall be the language of this Agreement and the English language shall govern all disputes, performance and interpretations.
7.17 Joint Work Product. The parties further acknowledge that they have thoroughly reviewed this Agreement and bargained over its terms and that for convenience, Natus has written down the terms of this Agreement. Accordingly, this Agreement shall be construed without regard to the party or parties for its preparation and shall be deemed to have been prepared jointly by the parties.
7.18 Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to be sufficiently given if delivered by hand or if sent by courier with a receipt requested or by registered air mail, postage prepaid, addressed to each party, at the addresses set forth above or to such other address as may be furnished for such purpose by notice duly given under this Agreement. Such notice shall be deemed to have been given when delivered by hand or five (5) days after deposit with the courier or mail service. Any party may change its address for such communications by giving such notice to the other party in conformance with this section.
7.19 Severance. If any provision of this Agreement is held to be invalid by a court of competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and effect. The parties agree to renegotiate any term held invalid and to be bound by the mutually agreed substitute provisions.
7.20 Waiver. The failure of any party to this Agreement at any time or times to require performance of any provision of this Agreement shall in no manner affect such party's available remedies or right at a later time to enforce the same. No waiver by any party of any condition, or of the breach of any term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise (in any one or more instances) shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or of any remedy or as a waiver of any other condition or as a breach of any other term, covenant, representation or warranty of this Agreement.
Natus Medical, Inc. Toshibumi Wakayama, Personally
And on behalf of Nippon Eurotec Ltd.,K.K.
By: /s/ Tim C. Johnson By: /s/ Toshibumi Wakayama
-------------------- ------------------------
Name: Tim C. Johnson Name: Toshibumi Wakayama
---------------- --------------------
Title: President and CEO Title: President
------------------- -----------
Date: 8/23/00
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Masaaki Kuroiwa, Personally, as pertaining solely to those obligations that relate to him:
By: /s/ Masaaki Kuroiwa
---------------------
Name: Masaaki Kuroiwa
-----------------
|
Kenji Tomita, Personally, as pertaining solely to those obligations that relate to him:
By: /s/ Kenji Tomita
------------------
Name: Kenji Tomita
--------------
|
Exhibit A Distribution Agreement
Exhibit B Transaction Timetable
Exhibit C Natus Medical, Inc. 1991 Stock Plan (as amended)
Exhibit D Major Areas
Exhibit E Confidentiality and Nondisclosure Agreement
Exhibit A Distribution Agreement
(See Exhibit 10.6)
Exhibit B Transaction Timetable
ID Task Name Duration Start Date Finish Date Predecessor Resource Names
--------------- ----------------------------------- -------- ---------- ----------- --------------------------
1 Prepare draft Wakayama proposal 2 wks 19-Jun-00 30-Jun-00
2 Finalize Arrangements w/Wakayama 22 days 17-Jul-00 15-Aug-00
3 Transition Agreement 22 days 17-Jul-00 15-Aug-00
4 Finish draft Wakayama agr 22 days 17-Jul-00 15-Aug-00
5 Obtain Asahi consent to NJKK 1 day 15-Aug-00 15-Aug-00
6 Sign Transition Agr 0 days 15-Aug-00 15-Aug-00
7 Establish Natus K.K. 15 days 10-Jul-00 28-Jul-00
8 Japanese atty engage 10 days 10-Jul-00 21-Jul-00
9 Set up Natus Japan KK 10 days 17-Jul-00 28-Jul-00
10 Draft NJK.K.Founding Documents 10 days 17-Jul-00 28-Jul-00
11 Wakayama:NJKK B/D 0 days 28-Jul-00 28-Jul-00
12 Kuroiwa NJKK B/D 0 days 28-Jul-00 28-Jul-00
13 Tomita NJKK B/D 0 days 28-Jul-00 28-Jul-00
14 Transition Business to NJ 236 days 15-Aug-00 10-Jul-01
15 Est NJKK Legal Office 1 day 10-Jan-01 10-Jan-01
16 Transition ALGO Sales to NJ 180 days 01-Nov-00 10-Jul-01
17 Initiate PR for NJ 30 days 30-May-01 10-Jul-01
18 Write CA Program 24 days 15-Aug-00 15-Sep-00
19 Transition Tech Support to NJ 88 days 09-Mar-01 10-Jul-01
20 Transfer Marketing to NJ 90 days 07-Mar-01 10-Jul-01
21 Transfer Selected NE Assets to NJ 60 days 13-Apr-01 10-Jul-01
22 Transition Shonin to NJ 137 days 01-Jan-01 10-Jul-01
23 Join ACCJ 1 day 25-Aug-00 25-Aug-00
24 Hire NJKK Pres 100 days 15-Aug-00 01-Jan-01
25 Get New Shonin? 120 days 24-Jan-01 10-Jul-01
26 Natus-NE Contract End 0 days 10-Jul-01 10-Jul-01
27 Natus Japan Opening Party 0 days 10-Jul-01 10-Jul-01
|
Exhibit C Natus Medical Incorporated 1991 Stock Plan
(See Exhibits 10.2 and 10.2.1)
Exhibit D Major Areas
"Major Prefectures" means only the following Prefectures and areas:
Tokyo area: 1. Saitama Pref. - 65,711 2. Chiba - 54,006 3. Tokyo-to - 97,958 4. Kanagawa - 81,788 (Sub-total : 299,463 ) Nagoya area: 5. Nagano pref. - 20,765 6. Gifu - 20,151 7. Shizuoka - 35,395 8. Aichi - 73,737 (Sub-total: 150,043 ) Osaka area: 9. Shiga pref. - 14,040 10. Kyoto-Fu - 23,831 11. Osaka-Fu - 88,386 12. Hyogo-ken - 53,765 13. Nara-ken - 13,158 (Sub-total : 193,180 ) |
Grand total of these three majors areas : 642,691 - 54.6% of total of Japan.
Plus the following important areas:
14. Hokkaido
15. Ibaraki-ken
Exhibit E
NATUS JAPAN K.K. NONDISCLOSURE AGREEMENT
Agreement made [date] _________, by and between Natus Japan K.K. ("NJKK"), and
[Name] ____________________ ("Director"). In consideration of Director's
continued service as a director of Natus Japan K.K., and the mutual promises
made and exchanged herein, Director and NJKK agree to the following terms and
conditions.
1. Trade Secrets. Director acknowledges that the following constitute NJKK trade secrets ("Trade Secrets") in that, as used in NJKK's business, they are secret, confidential, unique, and valuable, they were developed by NJKK at great cost and over a long period, and in light of the fact that disclosure of any of the items to anyone other than NJKK's officers, agents, or authorized Directors will cause NJKK irreparable injury:
a. Customer lists, supplier lists, call lists, marketing plans, sales channels, sales methods, customer specifications or requirements, NJKK's prices to customers, NJKK's or its customers' or suppliers' costs, and any other customer data which NJKK is obligated to keep secret;
b. Memoranda, notes, records, and other confidential technical data;
c. Sketches, plans, drawings, blueprints, formulas, and other confidential research and development plans, information or data; or
d. Manufacturing processes, including that pertaining to the development, production, reproduction or distribution of NJKK's software, its proprietary machinery or equipment specifications, as well as NJKK's (or that belonging to any subsidiary, parent or affiliate company) plant or production facility layout, any of its formulas, or the composition, design, internal method of working, source code, programming logic, and the like, of NJKK's products ("Products"), as well as the sources, prices, or nature of, materials, supplies or component for Products.
For purposes of this Agreement, the parties agree that items may constitute NJKK Trade Secrets regardless of the form or medium in which such items may exist, whether tangible or intangible, whether visible to or readable by humans or machines, whether stored in any format including written, hard-copy, liquid, gas, or magnetic, and in whatever human or machine-cognizable language. The restrictions contained in this Agreement include confidential information and trade secrets developed by Director while serving as a Director or employee of NJKK.
2. Nondisclosure. Except as necessary in the legitimate pursuit of NJKK business, Director will not disclose to anyone, other than NJKK's officers, agents, or authorized Directors (unless otherwise directed in writing by NJKK's President) any of the items listed in Paragraph 3 or any of NJKK's other confidential information or Trade Secrets, whether developed before or after the date of this Agreement.
3. Inventions. In order to facilitate the implementation of this Agreement, Director hereby agrees to:
3.1 Regularly and promptly, and in any event at NJKK's request, advise NJKK's management of each invention, discovery, idea, or improvement (collectively, "Invention"), whether or not patentable, that is made or conceived by Director, either alone or with others, during the term of Director's service as Director or employee and directly or indirectly related to Director's work and investigations, or resulting from or suggested by any work Director might do for NJKK, and promptly to submit to management a written disclosure of each Invention describing its nature, use, and operation;
3.2 Maintain a notebook record from day to day of all work of an important character that Director does, including each Invention, and deliver all such notebooks and all other records relating to such work, in whatever format or medium, whether human-readable or machine-readable, to NJKK, immediately upon the termination of Director's service as Director or employee;
3.3 Assign, without further consideration, to NJKK, or NJKK's nominee, all of Director's right, title, and interest in each Invention (whether or not patentable) which is made during business hours or otherwise and which relates to NJKK's business, or is made using NJKK's equipment, facilities, materials, time, money, or other resources. Director will, at all times during his/her service as Director or employee and after its termination for any reason, assist NJKK or NJKK's nominee in every proper way (but entirely at NJKK's or NJKK's nominee's own expense) to obtain, for NJKK's or NJKK's nominee's own benefit, patents or other forms of protection for each Invention in any and all countries. From time to time on request, Director will execute all papers and do all proper things that may reasonably be required to protect and maintain the rights of NJKK or NJKK's nominee in an Invention;
3.4 Understand and agree that all information relating to each Invention shall be considered proprietary and shall be protected as a Trade Secret in accordance with this agreement; and
3.5 List on Schedule A to this Agreement, all inventions, whether or not patented or patentable, including a brief description of each, made or conceived by Director prior to signing this Agreement. These inventions are excluded from the operation of this Agreement, and NJKK has no rights in them. If such inventions are patented (or a patent is applied for or pending), Director has listed all parties having an interest in such patent, a copy of such patent (or pending application, if public), and Director warrants that this information is true and accurate.
4. Agreement Binding After Employment Ends. The provisions of this agreement obligating Director to protection of NJKK Trade Secrets shall not terminate upon the termination of Director's service as Director or employee, and such terms and conditions shall be binding upon Director following termination of Director's service regardless of the reason for such termination. For twelve months following termination of Director's service as a Director or employee of NJKK, Director shall not, without prior written approval of NJKK, directly or indirectly obtain employment (including serving on the Board of Directors, or as a consultant, advisor, investor or partner) with any entity that is in the business of making, compiling, sourcing, financing, marketing, selling, or otherwise distributing, products or services similar to, or in competition with, those products or services made, sold or otherwise distributed by NJKK.
5. Return of Material Upon Termination. Upon termination of Director's service as Director or employment for any reason, unless Director's services as Director or employee are transferred to a parent, subsidiary or affiliate of NJKK where Director's retention of the same is required for the conduct of Director's job, Director at once will return to NJKK all of NJKK's secret and confidential material that is in Director's possession or control.
6. Successors, Assigns, Affiliates, and Subsidiaries. This Agreement shall inure to the benefit of NJKK and NJKK's parent, subsidiaries, affiliates, successors, and assigns.
7. Public Information. Director's obligation of confidentiality under this Agreement shall not apply to information which:
a. Is already known to Director or is publicly available at the time of disclosure, but only to the extent that such knowledge by Director is verifiable by NJKK;
b. Is disclosed to Director by a third party who is not in breach of an obligation of confidentiality; or
c. Becomes publicly available after disclosure through no act of Director.
8. Enforcement of Agreement. This Agreement can be enforced by NJKK and by NJKK's parent, subsidiaries, affiliates, successors, and assigns in the jurisdiction and venue determined by NJKK (or its parent, subsidiary, affiliate, successor or assign) to be appropriate. Either equitable relief or damages at law or both, or the equivalent thereto in any jurisdiction in which such action is commenced, may be sought for breaches or threatened breaches of this Agreement. The prevailing party in any action brought to enforce these terms shall be entitled to an award of attorney's fees and costs of suit. This Agreement shall be interpreted in accordance with the laws of the State of California without regard to its choice of law rules.
IN WITNESS WHEREOF, NJKK, and Director, have each signed this Agreement on the above date in Tokyo, Japan.
Director: Natus Japan K.K.:
______________________________ ___________________
Print Name Print Name and Title
______________________________ ___________________
Signature Signature
Date: __________ Date: __________
Schedule A: List of Director's Prior Inventions, Attached: Applicable _____
[To be filled in by Director]
Not Applicable____
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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 five thousand shares (5,000) 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 10.10
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. Market Competitive 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
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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. Administrative Damages............................................... 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
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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 one hundred eighty (180) days 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.
Novation
75 Remittance Dr., Suite 1420
Chicago, IL 60675-1420
The Northern Trust Company
801 S. Canal St.
4th Floor Receipt & Dispatch
Chicago, IL 60607
Attn: Novation, Suite 1420
Telephone: (312) 630-8100, #9
Please send a copy of the check to:
Shirlene Inmon
Analyst-Women's Health
Novation
125 John Carpenter Freeway
Irving, Tx 75062-2324
10. Administrative Damages. Novation and Supplier [***] that [***] would [***]
if Supplier [***] of [***] in [***] as required in [***] above, [***] to
[***] as required in [***] above, or [***] as required in [***] above, in
each case within the time and manner required by this Agreement. Novation
and Supplier [***] that the [***] by [***] by reason of [***] to Supplier
is [***] and they therefore [***] that the [***] of [***] a reasonable
[***] and were [***] according to the [***]:
[***]
[***] in accordance with this Section is [***] to any [***] or the [***] may have by reason of [***] or [***] within the time and manner required by this Agreement.
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.
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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 screening [***] of all births with ALGO(TM) products
**Super Committed Pricing: 1. Hospital commits to screening [***] of all births
with ALGO(TM) products
2. One (1) Natus hardware device purchased for every
[***] births
3. Minimum of [***] Natus hardware devices purchased
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+ [***] [***] [***]
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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
|
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)
|
. 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
|
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
[GRAPHIC OMMITTED]
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 hardware sales.
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
[GRAPHIC OMITTED]
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
This page was intentionally left blank.
[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 "Super Committed Hardware" pricing tier 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 other like customers who purchase at a similar volume or commitment level.
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
|
NOVATION ELECTRONIC COMMUNICATION REQUIREMENTS SCHEDULE
This form is being completed by: June Fallon Date: 11-17-99
----------------- -------------
(Your Name)
Your Company Name: Natus Medical Inc. Your Title: VP - Field Operations
-------------------------- ---------------------
Phone: (800) 255-3901 E-mail: jfallon@natus.com Fax: (650) 802-6620
----------------- ------------------- -------------------
|
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.
-----------------------------------------------------------------------------------------------------------------------------------
WHEN WILL YOUR
COMPANY MEET THIS
NOVATION REQUIREMENT NOVATION EXPECTATION REQUIREMENT (MM/DD/YY)
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------
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
|
EXHIBIT Q
AGREEMENT EXCEPTION FORM
Authorized
Signature: /s/ W. H. Lawrenson
---------------------
W. H. LAWRENSON, CFO
Title: Vice President-Field Operations Date: 11/23/99
------------------------------- --------
|
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. 2nd sentence. -After second reference to [***] add [***]
Page 2. Section 2c. Contract Award - [***] Terms. 4th 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. 1st sentence.
-Change [***]
-Delete [***] to [***].
-Change "change" to "increase"
Page 2. Section 2e. Contract Award - Notification of Changes of Pricing and
Terms. 2nd sentence.
-Delete sentence.
Page 3. Section 2f. Contract Award - Underutilized Businesses. 2nd sentence.
-After 2nd 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 30 days 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 "one hundred eighty (180)" is changed to "thirty (30).
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. 1st sentence.
-Change "destination" to "FOB origin".
Page 3. Section 4a. Product Supply - Delivery and Invoicing 2nd sentence.
-Change "absorb" to "add".
Page 4. Section 4a. Product Supply - Delivery and Invoicing. 4th 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. 2nd sentence.
-After the word "via" add "either hard copy or by"
-Change [***]
-Delete all words after the 2nd reference to the word "within"
-After the 2nd reference to the word "within" add "specified and
usual delivery terms."
Page 4. Section 4d. Product Supply - Manuals/Schematics/Inspection Procedures.
2nd 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 "four (4)"
Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes is
Packaging. 1st 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. 2nd sentence.
-Change [***] to [***]
Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 3rd 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 "for [***] after delivering written notice"
Page 5. Section 4f. Product Supply - Discontinuation of Products, Changes in Packaging. 4th sentence Part (iii).
-Add "for [***] after delivering written notice"
Page 5. Section 4h. Product Supply - New Technology. 1st 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 Member, [***] will [***] Member with
an [***] and a [***] at [***] to the Member for the [***] the [***]
Member 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. 1st sentence.
-"Supplier" is changed to "Member".
Page 6. Section 4m. Product Supply - Member Services. 2nd sentence.
-After the word "and" add ", if applicable,".
-After first reference to "representatives" delete remainder of sentence.
Page 6. Section 4n. Product Supply - Training. 1st through 4th sentences.
-Delete in their entirety.
Pages 6 and 7. Section 4n. Product Supply - Training. 5th 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 "a cost to be determined". -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. 1st sentence.
Subsection (1).
-Delete "ordered or"
Page 7. Section 4p. Product Supply - Return of Products. 1st sentence.
Subsection (2).
-After "nonconforming" add "through no act or omission of the Member;"
Page 7. Section 4p. Product Supply - Return of Products. 2nd 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. 1st 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. 7th 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. 2nd 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. 1st sentence.
-After "assembles", add "if available".
Page 8. Section 5c. Product Quality - Replacement Parts. 4th 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. 1st 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. 2nd paragraph.
Sentences 2, 3, 4.
-Delete [***].
Page 9. Section 5e. Product Quality - Up Time Guarantee. 2nd paragraph. Sentence 5.
-Delete "In addition,".
-After [***] add "as is supported by continuous auditable written records of such up time"
Page 9. Section 5g. Product Quality-Upgrades. 2nd sentence.
-Change "given" to "offered".
-Change [***] the Member" to [***] at [***] any such [***] becomes
[***].
Page 9. Section 5g. Product Quality-Ugrades. 3rd 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. 3rd 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. 1st sentence.
-Change "perform" to "support".
-After 2nd 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. 2nd sentence.
-Delete in its entirety.
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 3rd sentence.
-After "requested" add "and publicly available as requested".
Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 5th 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. 1st 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. 1st sentence.
-After "Member" replace "any cost" with "actual and reasonable costs".
Page 11. Section 5q. Product Quality-Shelf Life. 2nd 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 " Novation will support Supplier access to neonatology and
pediatric physician meetings."
Page 14. Section 9a. Marketing Fees-Calculation. 1st 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 "and monthly report"
Page 16. Section 10. Administrative Damages.
-Delete [***].
Page 16. Section 11. Nonpayment or Insolvency of a Member. First sentence.
-Delete "prior".
Page 16. Section 12a. Insurance-Policy Requirements. 2nd sentence.
-Change [***] to [***].
-Delete [***].
Page 16. Section 12a. Insurance-Policy Requirements. 3rd sentence.
-Change [***] to [***].
Page 17. Section 14. Release and Indemnity. 1st sentence.
-Delete [***].
Page 18. Section 14. Release and Indemnity. 2nd sentence.
-Delete [***].
-Change "WHERE" to "TO THE EXTENT";
-Delete [***].
Page 18. Section 15. Books and Records; Facilities Inspections. 2nd sentence.
-After "audit by" add "an independent CPA designated by".
-Delete "representatives".
Page 18. Section 15. Books and Records; Facilities Inspections. 3rd 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. 4th sentence.
-After "will" add "reasonably".
Page 18. Section 17a. Nondisclosure. 1st 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. 1st 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").
-------
|
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.
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
-----------------------------
|
EXHIBIT 10.13
Lease Unit 5
This lease is effective as of November 1, 2000 between Media Lofts, LLC, a California limited liability company ("Landlord"), and Natus ("Tenant").
Tenant's lease of the Premises shall include the right to use, in common with others, the lobbies, entrances, stairs and other public portions of the Building. All of the windows and outside walls of the Premises and any space in the Premises used for shafts, stacks, pipes, conduits, ducts, electrical equipment or other utilities or Building facilities are reserved solely to Landlord and Landlord shall have rights of access through the Premises for the purpose of operating, maintaining and repairing the same.
c. Initial Monthly Rent: $6,500.00 - Six Thousand Five Hundred Dollars and No Cents
month of the Lease Term and the Security Deposit. Except as otherwise provided in this Paragraph 3, no delay in delivery of possession of the Premises to Tenant shall operate to extend the Lease Term or amend Tenant's obligations under this Lease.
a. On or before the first day of each calendar month during the Lease Term, Tenant shall pay to Landlord, as monthly rent for the Premises, the Monthly Rent specified in Paragraph 2 above and in subparagraph (b) below. If the Lease Term commences on a day other than the first day of a calendar month, or terminates on a day other than the last day of a calendar month, then the Monthly Rent payable for such partial month shall be appropriately prorated on the basis of a thirty (30) day month. Monthly Rent shall be paid by Tenant to Landlord, in advance, without deduction, offset, prior notice or demand, in lawful money of the United States of America at Landlord's office specified in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments made by check must be drawn either on a California institution or in a financial institution that is a member of the Federal Reserve system.
b. The monthly rent for year one of the Lease Term shall be $6,500.00. Tenant will have 1 option year at 15%. Year Two will be $7,475.00. Tenant must give 30 days notice to execute option year.
c. All amounts payable by Tenant to Landlord under this Lease in addition to the Monthly Rent hereunder shall constitute rent owed by Tenant to Landlord hereunder.
d. Tenant acknowledges that late payment of any installment of Monthly Rent will cause Landlord to incur costs not contemplated by this Lease and that the exact amount of such costs would be extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by the Real Property and the loss of the use of the delinquent funds. Therefore, if any installment of Monthly Rent due from Tenant is not received when due, Tenant shall pay to Landlord on demand an additional sum of three percent (3%) of the overdue installment, which sum represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. Any rent not paid by Tenant to Landlord within thirty (30) days of the date due shall bear interest from the date due to the date of payment by Tenant at an annual rate of interest (the "Interest Rate") equal to the lesser of (i) the maximum annual interest rate allowed by law on such due date, or (ii) the rate of twelve percent (12%) per annum. Failure by Tenant to pay rent when due, including any interest accrued under this subparagraph, shall constitute an Event of Default (as defined in Paragraph 25 below) by Tenant under this Lease giving rise to all the remedies afforded Landlord under this Lease for non- payment of rent.
e. No security or guaranty which may now or hereafter be furnished to Landlord for the payment of rent due under this Lease or for the performance by Tenant of the other terms of this Lease shall in any way be a bar or defense to any of Landlord's remedies set forth in Paragraph 25 below.
Tenant shall not do or suffer or permit anything to be done in or about the Premises or the Real Property, nor bring or keep anything therein, which would in any way subject Landlord, Landlord's agents or the holder of any Superior Interest to any liability, increase the premium rate of or affect any fire, casualty, liability, rent or other insurance relating to the Real Property or any of the contents of the Building, or cause a cancellation of, or give rise to any defense by the insurer to any claim under, or conflict with, any policies for such insurance. If any act or omission of Tenant results in any such increase in premium rates, Tenant shall pay to Landlord upon demand the amount of such increase. Tenant shall not do or suffer or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, or use or suffer or permit the Premises to be used for any immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain, suffer or permit any nuisance in, on or about the Premises. Tenant agrees not to handle, store or dispose of any substance
on the Premises which is prohibited by federal, state or local law or regulation. Without limiting the foregoing, no loudspeakers or other similar device which can be heard outside the Premises shall, without the prior written approval of Landlord, be used in or about the Premises. Tenant shall not commit or suffer to be committed any waste in, to or about the Premises.
Tenant agrees not to employ any person, entity or contractor for any work in the Premises (including moving Tenant's equipment and furnishings in, out or around the Premises) whose presence may give rise to a labor or other disturbance in the Building and, if necessary to prevent such a disturbance in a particular situation, Landlord may require Tenant to employ union labor for the work.
shall be made at Tenant's sole cost and expense by a general contractor approved in writing by Landlord in advance and Tenant shall pay Landlord on demand or prior to or during the course of such construction a reasonable amount determined by Landlord to compensate Landlord for its review of the proposed Alteration (which shall not exceed $500.00) and for other reasonable direct and indirect expenses incurred by Landlord or Landlord's agents in connection with the Alteration (e.g., freight elevator operation, additional cleaning expenses and additional security expenses). All such work shall be performed diligently and in a first-class workmanlike manner and in accordance with plans and specifications approved by Landlord, and shall comply with all applicable laws and Landlord's construction procedures for the Building. In no event shall Tenant employ any person, entity or contractor to perform work in the Premises whose presence may give rise to a labor or other disturbance in the Building. Default by Tenant in the payment of any sums agreed to be paid by Tenant for or in connection with an Alteration (regardless of whether such agreement is pursuant to this Paragraph 9 or separate instrument) shall entitle Landlord to all the same remedies as for non-payment of rent under this Lease. Any Alterations, including, without limitation, movable partitions that are affixed to the Premises (but excluding movable, free standing partitions) and all carpeting, shall at once become part of the Building and the property of Landlord. Tenant shall give Landlord not less than five (5) days' prior written notice of the date the construction of the Alteration is to commence. Landlord may post and record an appropriate notice of non-responsibility with respect to any Alteration and Tenant shall maintain any such notices posted by Landlord in or on the Premises.
a. Landlord and the holders of any Superior Interests (as defined in Paragraph 21 hereof) shall not be liable to Tenant and Tenant hereby waives all claims against such parties for any loss, injury or other damage to person or property in or about the Premises or the Real Property from any cause whatsoever, including, without limitation, water leakage of any character from the roof, walls, basement or other portion of the Premises or the Real Property, or gas, fire, explosion or electricity within the Premises or the Real Property, or acts of other tenants of the Building; provided, however, that the foregoing waiver shall be inapplicable to any loss, injury or damage resulting directly or indirectly from Landlord's negligence, gross negligence or willful misconduct.
b. Tenant shall hold Landlord and the holders of any Superior Interest, and the constituent shareholders, partners or other owners thereof, and all of their agents, contractors, servants, officers, directors, employees and licensees (hereinafter collectively called the "Indemnities") harmless from and indemnify the Indemnities against any claims, liability, damages, costs or expenses, including reasonable attorneys' fees and costs incurred in defending against the same, to the extent arising from (a) the acts or omissions of Tenant, Tenant's employees, agents, contractors, licensees, subtenants, customers, guests or invitees in or about the Real Property, (b) any construction or other work undertaken by Tenant on the Premises, whether prior to or during the term of this Lease, (c) any breach or Event of Default under this Lease by Tenant, or (d) any accident, injury or damage, to any person or property, occurring in or about the Premises caused by the intentional acts, negligence, gross negligence or willful misconduct of Tenant, its employees and others; except to the extent such claims, liability, damages, costs or expenses are caused directly or indirectly by the negligence, gross negligence or willful acts or omissions of Landlord or its authorized representatives or agents. In case any action or proceeding be brought against any of the Indemnities by reason of any such claim or liability, Tenant, upon notice from Landlord, covenants to resist and defend at Tenant's sole expense such action or proceeding by counsel reasonably satisfactory to Landlord. The provisions of this Paragraph 14(b) shall survive the termination of this Lease with respect to any injury, illness, death or damage occurring prior to such termination.
c. Nothing in this Paragraph 15 shall be construed as creating or implying the existence of (i) any ownership by Tenant of any fixtures, additions, Alterations, or improvements in or to the Premises or (ii) any right on Tenant's part to make any addition, Alteration or improvement in or to the Premises.
a. 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 such petition) seeking for Tenant any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any state or federal bankruptcy or other law, or Tenant consents to or acquiesces in the appointment, pursuant to any state or federal bankruptcy or other law, of a trustee, receiver or liquidator for the Premises, for Tenant or for all or any substantial part of Tenant's assets;
b. Tenant fails within sixty (60) days after the commencement of any proceedings against Tenant seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any state or federal bankruptcy or other law, to have such proceedings dismissed, or Tenant fails, within sixty (60) days after an appointment pursuant to any state or federal bankruptcy or other law without Tenant's consent or acquiescence, of any trustee, receiver or liquidator for the Premises, for Tenant or for all or any substantial part of Tenant's assets, to have such appointment vacated;
c. Tenant is unable, or admits in writing its inability, to pay its debts as they mature; or
d. Tenant gives notice to any governmental body of its insolvency or pending insolvency, or of its suspension or pending suspension of operations.
In no event shall this Lease be assigned or assignable by reason of any voluntary or involuntary bankruptcy proceedings, nor shall any rights or privileges hereunder be an asset of Tenant, the trustee, debtor-in-possession, or the debtor's estate in any bankruptcy, insolvency or reorganization proceedings.
Tenant, the trustee, debtor-in-possession, or the debtor's estate in any bankruptcy, insolvency or reorganization proceedings.
(i) Tenant fails to pay rent or other sums as and when due hereunder.
(ii) Tenant fails to comply with any other provision of this Lease in the manner and within the time required after ten (10) days written notice from Landlord to Tenant.
(iii) Tenant fails to occupy and use the Premises for fifteen
(15) consecutive days, which failure shall be deemed an abandonment of the
Premises by Tenant.
(iv) Tenant violates the bankruptcy and insolvency provisions of Paragraph 24 hereof.
(i) 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, but not limited to, its re-entry into the Premises, its reletting of the Premises for Tenant's account, or its exercise of any other rights and remedies under this Paragraph 25, 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, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant as provided in California Civil Code Section 1951.2 or any other applicable existing or future law, ordinance or regulation providing for recovery of damages for such breach, including but not limited to the following:
(A) the reasonable cost of recovering the Premises; plus
(B) the reasonable cost of removing Tenant's Alterations, trade fixtures and improvements; plus
(C) all unpaid rent due or earned hereunder prior to the date of termination, less the proceeds of any reletting or any rental received from subtenants prior to the date of termination applied as provided in Paragraph 25(b)(ii) below, together with interest at the Interest Rate specified in Paragraph 5(c) of this Lease, on such sums from the date such rent is due and payable until the date of the reward of damages; plus
(D) the amount by which the rent which would be payable by
Tenant hereunder, as reasonably estimated by Landlord, from the date of
termination until the date of the award of damages, exceeds the amount of such
rental loss as Tenant proves could have been reasonably avoided together with
interest at the Interest Rate specified in Paragraph 5 hereof on such sums from
the date such rent is due and payable until the date of the award of damages;
plus
(E) the amount by which the rent which would be payable by
Tenant hereunder, as reasonably estimated by Landlord, for the remainder of the
then term, after the date of the award of damages exceeds the amount 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%); plus
(F) such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
(ii) Landlord may continue this Lease in full force and effect and may enforce all of its rights and remedies under this Lease, including, but not limited to, the right to recover rent as it becomes due. During the continuance of an Event of Default, Landlord may enter the Premises without terminating this Lease and sublet all or any part of the Premises for Tenant's account to any person, for such term (which may be a period beyond the remaining term of this Lease), at such rents and on such other terms and conditions as Landlord deems advisable. In the event of any such subletting, rents received by Landlord from such subletting shall be applied (A) first, to the payment of the costs of maintaining, preserving, altering and preparing the Premises for subletting, the other costs of subletting, including but not limited to brokers' commissions, attorneys' fees and expenses of removal of Tenant's personal property, trade fixtures and Alterations; (B) second, to the payment of rent then due and payable hereunder; (C) third, to the payment of future rent as the same may become due and payable hereunder; (D) fourth, the balance, if any, shall be paid to Tenant upon (but not before) expiration of the Lease Term. If the rents received by Landlord from such subletting, after application as provided above, are insufficient in any month to pay the rent due and payable hereunder for such month, Tenant shall pay such deficiency to Landlord monthly upon demand. Notwithstanding any such subletting for Tenant's account without termination, Landlord may at any time thereafter, by written notice to Tenant, elect to terminate this Lease by virtue of a previous Event of Default.
During the continuance of an Event of Default, for so long as Landlord does not terminate Tenant's right to possession of the Premises and subject to Paragraph 13, entitled Assignment and Subletting, and the options granted to Landlord thereunder, Landlord shall not unreasonably withhold its consent to an assignment or sublease of Tenant's interest in the Premises or in this Lease.
(iii) During the continuance of an Event of Default, Landlord may enter the Premises without terminating this Lease and remove all of Tenant's personal property, Alterations and trade fixtures from the Premises and store them at Tenant's risk and expense. If Landlord removes such property from the Premises and stores it at Tenant's risk and expense, and if Tenant fails to pay the cost of such removal and storage after written demand therefor and/or to pay any rent then due, then after the property has been stored for a period of thirty (30) days or more Landlord
may sell such property at public or private sale, in the manner and at such times and places as Landlord deems commercially reasonable following reasonable notice to Tenant of the time and place of such sale. The proceeds of any such sale shall be applied first to the payment of the expenses for removal and storage of the property, the preparation for and the conducting of such sale, and for attorneys' fees and other legal expenses incurred by Landlord in connection therewith, and the balance shall be applied as provided in Paragraph 25(b)(ii) above.
Tenant hereby waives all claims for damages that may be caused by Landlord's reentering and taking possession of the Premises or removing and storing Tenant's personal property pursuant to this Paragraph 25, and Tenant shall hold Landlord harmless from and against any loss, cost or damage resulting from any such act. No reentry by Landlord shall constitute or be construed as a forcible entry by Landlord.
(iv) Landlord may require Tenant to remove any and all Alterations from the Premises or, if Tenant fails to do so within thirty (30) days after Landlord's request, Landlord may do so at Tenant's expense.
(v) 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 specified in Paragraph 5 from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant. Any amount due Landlord under this subsection shall constitute additional rent hereunder.
default, specifying the nature of such default), the current amounts of and the dates to which the Monthly Rent and Additional Rent has been paid, and setting forth such other matters as may be reasonably requested by Landlord. Any such statement may be conclusively relied upon by a prospective purchaser of the Real Property or by a lender obtaining a lien on the Real Property as security.
b. All Exhibits, Riders and other attachments hereto are hereby incorporated herein and made a part hereof. Such Exhibits, Riders and other attachments, if any, affixed to this Lease are a part hereof, and in the event of variation or discrepancy the duplicate original hereof including such Exhibits, Riders and attachments, if any, held by Landlord shall control.
THIS LEASE IS EXECUTED by Landlord and Tenant as of the date first set forth above.
TENANT: /s/ W. H. Lawrenson Date October 25, 2000
--------------------------- -------------------------
PRINT: W. H. Lawrenson, CFO Date
---------------------------- _________________________
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LANDLORD:
Media Lofts, LLC, a California Limited
Liability Company
INTENTIONALLY OMITTED
RULES AND REGULATIONS FOR THE BUILDING
ATTACHED TO AND MADE A PART OF THIS LEASE
370 7/th/ Street
San Francisco, CA
1. Except as provided or required by Landlord in accordance with building standards, no sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, printed, painted or affixed by Tenant on or to any part of the Building or exterior of the premises leased to tenants or to the door or doors thereof without the written consent of Landlord first obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant.
2. Except as provided or required by Landlord in accordance with Building standards, no draperies, curtains, blinds, shades, screens or other devices shall be hung at or used in connection with any window or exterior door or doors of the premises.
3. The bulletin board or directory of the Building shall be used primarily for display of the name and location of Tenants and Landlord reserves the right to exclude any other names therefrom, to limit the number of names associated with Tenants to be placed thereon and to charge for names associated with Tenants to be placed thereon at rates applicable to all Tenants.
4. The sidewalks, halls, passages, exits, entrances, elevators and stairways of the Building shall not be obstructed by Tenants or used by them for any purpose other than for ingress and egress from their respective premises. The halls, passages, exits, entrances, elevators, stairways, balconies and roof of the Building are not for the use of the general public and Landlord in all cases reserves the right to control the same and prevent access thereto by all persons whose presence, in the judgment of the Landlord, is or may be prejudicial to the safety, character, reputation or interests of the Building and its Tenants; provided however, that Landlord shall not prevent such access to persons with whom Tenants deal in the ordinary course of business unless such persons are engaged in illegal activities. No person shall go upon the roof of the Building unless expressly so authorized by Landlord.
5. Tenants shall not alter any lock nor install any new or additional locks or any bolts on any interior or exterior door of any premises leased to Tenant.
6. The doors, windows, light fixtures and any lights or skylights that reflect or admit light into halls or other places of the Building shall not be covered or obstructed. The toilet rooms, toilets, urinals, wash bowls or other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown or
placed therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, cause such expense.
7. Tenants shall not mark, drive nails, screw or drill into the walls, woodwork or plaster or in any way deface the Building or any premises leased Tenant.
8. Furniture, freight or equipment of every kind shall be moved into or out of the Building only at such times and in such manner as Landlord shall designate. Landlord may prescribe and limit the weight, size and position of all equipment to be used by Tenants, other than standard office desks, chairs and tables and portable office machines. Safes and other heavy equipment shall, if considered necessary by Landlord, stand on wood strips of such thickness as Landlord deems necessary to distribute properly the weight thereof. All damage to the Building or premises occupied by Tenants caused by moving or maintaining any property of a Tenant shall be repaired at the expense of such Tenant.
9. Tenants shall not cause any unnecessary labor by carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to any Tenant for loss of property on the premises, however occurring, or for any damage to the property of any Tenant caused by the employees or independent contractors of Landlord or by any other person. Window cleaning shall be done only at the regular and customary times determined by Landlord for such services.
10. No Tenant shall sweep or throw or permit to be swept or thrown any dirt or other substance into any of the corridors, halls or elevators or out of the doors or stairways of the Building; use or keep or permit to be used or kept any foul or noxious gas or substance; permit or suffer the premises occupied by such Tenant to be occupied or used in a manner offensive or objectionable to Landlord or other Tenants by reason of noise, odors or vibrations; interfere in any way with other Tenants or persons having business in the Building; or bring or keep or permit to be brought or kept in the Building any animal life form, other than human, except seeing-eye dogs when in the company of their masters.
11. No Tenant shall use or keep in the premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of customary office equipment, or, without Landlord's prior written approval, use any method of heating or air-conditioning other than that supplied by Landlord. No Tenant shall use or keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be 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 must comply with any government imposed codes and regulations concerning the use or storage of any substances on the premises.
12. No boring or cutting for telephone or electric wires shall be allowed without the consent of Landlord and any such wires permitted shall be introduced at the place and in the manner described by Landlord. The location of telephones, speakers, fire extinguisher and all other office equipment affixed to premises occupied by Tenants shall be subject to the approval of Landlord.
Each Tenant shall pay all expenses incurred in connection with the installation of its equipment, including any telephone and electricity distribution equipment.
13. Upon termination of occupancy of the Building, each Tenant shall deliver to Landlord all keys furnished by Landlord, and any reproductions thereof made by or at the direction of such Tenant, and in the event of loss of any keys furnished shall pay Landlord therefor.
14. No Tenant shall affix any floor covering in any manner except as approved by the Landlord. The expense of repairing any damage caused by removal of any such floor covering shall be borne by the Tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused.
15. No mail, furniture, packages, supplies, equipment, merchandise or deliveries of any kind will be received in the building or carried up or down in the elevators except between such hours and in such elevators as shall be designated by Landlord.
16. In no case shall Landlord be liable for any loss or damage for any loss or damage for any error with respect to the admission to or exclusion from the Building of any person. At such times as Landlord deems necessary for the safety and protection of the Building, its Tenants and all property located therein, Landlord may prohibit and prevent access to the Building by all persons by any means Landlord deems appropriate.
17. Each Tenant shall see that the exterior doors of its premises are
closed and securely locked on Sundays and legal holidays and not later than 6:00
p.m. of each other day each Tenant shall exercise extraordinary care and caution
that all water faucets or water apparatus are entirely shut off each day before
its premises are left unoccupied and that all electricity or gas shall likewise
be carefully shut off so as to prevent waste or damage to Landlord or to other
Tenants of the Building.
18. Landlord may exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building.
19. The requirements of Tenants will be attended to only upon application to Landlord at the office of the Building. Employees of Landlord shall not perform any work outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord shall be required to admit any person (Tenant or otherwise) to any premises in the Building.
20. No vending or food or beverage dispensing machine or machines of any description shall be installed, maintained or operated upon any premise in the Building without the written permission of the Landlord.
21. Landlord, without notice and without liability to any Tenant, at any time may change the name or the street address of the Building.
22. The word "Building" as used in these rules and regulations means the Building of which a part of the premises are leased pursuant to the Lease to which these rules and regulations are attached. Each Tenant shall be liable to Landlord and to each other Tenant of the Building for any
loss, cost, expense, damage or liability, including attorneys' fees, caused or occasioned by the failure of such first named Tenant to comply with these rules, but Landlord shall have no liability for such failure or for failing or being unable to enforce compliance therewith by any Tenant and such failure by Landlord or non-compliance by any other Tenant shall not be a ground for termination of the Lease to which these rules and regulations are attached by the Tenant thereunder.
23. Each Tenant shall maintain the portions of its premises which are visible from outside of the Building or from hallways or other public areas of the Building, in a neat, clean and orderly condition.
24. Intentionally Omitted.
25. No Tenant shall place any items whatsoever on the roof or balcony areas of the Building without prior written consent of Landlord.
26. No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung, or placed in, or used in connection with any window of the Building without prior written consent of Landlord. In any event, with the prior written consent of Landlord, such items shall be installed on the office side of the Landlord's standard window covering and shall in no way be visible from the exterior of the Building.
27. Intentionally Omitted.
28. No Tenant shall install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building.
29. There shall not be used in any space, or in the public halls of the Building, either by any Tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Landlord may approve. No other vehicles of any kind shall be brought by any Tenant into the Building or kept in or about the premises.
30. Each Tenant shall store all its trash and garbage within its premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the City of San Francisco without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purpose and at such times as Landlord shall designate.
31. Canvassing, peddling, soliciting, and distribution of handbills or any other written materials in or about the Building are prohibited, and each Tenant shall cooperate to prevent same.
32. Intentionally Omitted.
33. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular Tenant or Tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations against any or all of the Tenants of the Building.
34. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building.
35. Landlord reserves the right to make such other reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein.
Sign: /s/ W. H. Lawrenson Date October 25, 2000
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Print: W. H. Lawrenson, CFO Date
------------------------------------- _____________________
LANDLORD:
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Media Lofts, LLC
EXHIBIT 10.14
tyco The Ludlow Company LP ------------- [address] Healthcare
Ludlow
Natus Medical Inc. and The Ludlow Company LP, the parties, desire to enter into an agreement. Both parties expect to receive certain benefits from this agreement and both parties accept obligations as part of this agreement. The term of this agreement will be five years from date of acceptance by both parties.
Ludlow agrees to do the following for the benefit of Natus:
1. Supply "one piece molded Ear Couplers" and "Tab" style electrodes to Natus at pricing per letter from Paul Latka to Tom Waugh dated September 18, 2000.
2. Provide design input and manage the design and fabrication of production tooling at [***] for Natus designed injection molded Ear Coupler parts.
3. Design and have constructed at [***] production equipment to manufacture finished Natus Ear Coupler assemblies packaged similar to the current "Colorado Pack."
4. Demonstrate to Natus' satisfaction the ability to manufacture Ear Couplers at two Ludlow facilities. One facility will be Ludlow's [***] plant which will be called the Primary Manufacturing Location. An additional location will be chosen by Ludlow and will be referred to as the Secondary Manufacturing Location.
5. Give a minimum of six months notice of intention to move manufacturing locations for Natus products. In this case, manufacturing of Natus products will not cease at the original location until Natus validates and qualifies the new location.
6. Warehouse Natus-owned finished goods Ear Coupler inventory at two locations, one being Ludlow's Huntington Beach facility. If the alternate site is a Ludlow owned facility, there will be [***] to [***] for this service, otherwise [***] may [***] its [***] to [***].
7. Provide Natus with a [***] for [***] and [***] that are [***] in conjunction with [***], those [***] that are under [***] for the [***] of this agreement. [***] may [***] either increases or decreases on [***], such as [***], which are beyond [***]. In particular, [***] and only [***] will be [***].
8. Share [***] as follows: If the [***] is the [***] by both Natus and Ludlow, each party will [***]. If the [***] is achieved by [***], [***] will [***] of the [***] and [***] of the [***]. In the case of a proposed [***], Ludlow will [***] of the individual component [***] but [***] the product.
Natus agrees to do the following for the benefit of Ludlow:
1. Purchase a combination of foam and molded Ear Coupler/Electrode sets from Ludlow for the term of this agreement as outlined in the following table:
Minimum Units Purchase
Year Requirement
--------- ----------------------
Year 2001 [***]
Year 2002 [***]
Year 2003 [***]
Year 2004 [***]
Year 2005 [***]
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2. [***] for [***] initiated by Natus after various sign-off stages. These may include additional [***], equipment, or additional [***] or [***].
3. [***] for [***] in capital equipment and engineering if this agreement is cancelled by Natus prior to it's expiration, unless the reason for the cancellation is due to poor quality or delivery, or other reasons that are controllable by Ludlow. In the event that Natus [***], under this clause, the [***] will become the [***].
The parties have executed this Memorandum of Understanding on the 7/th/day of December, 2000.
For: Natus Medical Inc. For: The Ludlow Company LP
/s/ Thomas M. Waugh /s/ Lee Carrier
--------------------------------- ----------------------------
Signature Signature
Name: Thomas M. Waugh Name: Lee Carrier
--------------------------- ---------------------
Title: Vice President, Operations Title: President
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The Ludlow Company LP
[address]
18 September 2000
Thomas Waugh
Vice President, Operations
Natus Medical Inc.
1501 Industrial Rd
San Carlos, CA 94070-4111
Dear Tom:
Estimates for the new Natus ear coupler and electrodes have been completed. The cost projections are based upon best guess information available at this time. The cost projections include the cost for a new production line for the ear couplers utilizing the molded ear coupler and [***] hydrogel. [***] for the molded ear coupler are also included in the estimate.
Proposed Natus System
---------------------
One piece molded ear coupler: $[***] per pair
"Tab" style electrode: $[***] per pouch of three electrodes
-----
Total cost per procedure: $[***]
Current Natus System
--------------------
Foam Ear coupler: $[***] per pair
Snap style electrodes: $[***] per pouch of three electrodes
-----
Total cost per procedure: $[***]
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Moving to the new system would result in a [***]% ($[***]) cost reduction per patient procedure.
Attached are two spreadsheets detailing the total cost saving to Natus per year using realistic conversion rates from the current system to the new design over a five year period. In year five, we project complete conversion to the new molded design. Total savings over this time period are in excess of $[***].
Of course, a faster rate of conversion would yield great savings sooner.
We look forward to reviewing this proposal and moving forward with the conversion.
Best Regards,
/s/ Paul Latka Paul Latka Director of Sales & Marketing OEM Medical Products |
Natus Product Conversion to Molded Ear Couplers/Tabs
Annual Total
Foam Foam Annual Molded Molded Molded Annual Total Annual Price Average
Ear Ear Foam Ear Ear Ear Ear Annual Avg Ear Cost of Jelly of Annual Total Cost
Calendar Coupler Coupler Ear Coupler Coupler Coupler Coupler Ear Coupler Jelly Button New Tab Electrode of
Year Qty Cost Coupler Qty Cost Cost Cost Couplers Cost Buttons Cost Tabs Cost Cost Electrodes
-------- ------- ------- ------- ------- ------- ------- ------- -------- ------- ------- ------ ----- ------ --------- ----------
2000 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
2001 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
2002 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
2003 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
2004 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
2005 [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
Total
Calendar Estimated
Year Cost
-------- ---------
2000 [***]
2001 [***]
2002 [***]
2003 [***]
2004 [***]
2005 [***]
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Cost Comparison Current Foam Ear Coupler vs. Conversion to Molded Ear Coupler
Average Cost Per Annual Cost Current
Total Study with with Cost Per Annual Cost
Annual Conversion Conversion Study with Per Study
Calendar Ear to Molded to Molded Foam Ear with Current
Year Couplers Ear Coupler Ear Coupler Coupler Ear Coupler Savings
-------- -------- ---------------- ------------ ---------- ------------ -------
2000 [***] [***] [***] [***] [***] [***]
2001 [***] [***] [***] [***] [***] [***]
2002 [***] [***] [***] [***] [***] [***]
2003 [***] [***] [***] [***] [***] [***]
2004 [***] [***] [***] [***] [***] [***]
2005 [***] [***] [***] [***] [***] [***]
Total five year savings [***]
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portions have been filed separately with the Commission.
Exhibit 10.15
NATUS MEDICAL INCORPORATED
2000 SUPPLEMENTAL STOCK OPTION PLAN
(i) Any "person" (as such term term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or
(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets; or
(iii) The consummation of 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 or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
(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 on 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 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 day of determination; 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.
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). 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, except that if Shares of restricted stock issued pursuant to an Option are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.
(a) The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions of any Option 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 prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;
(vii) 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 minimum 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
(viii) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.
The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.
(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, the per Share exercise price shall be determined by the Administrator.
(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.
note, (4) other Shares, provided Shares acquired from the Company, either directly or indirectly, (x) 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) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. 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. Notwithstanding the foregoing, the Administrator may permit an Optionee to exercise his or her Option by delivery of a full-recourse promissory note secured by the purchased Shares. The terms of such promissory note shall be determined by the Administrator in its sole discretion.
An Option shall be deemed exercised when the Company receives: (i) written or 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 shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall 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 within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
proportionately adjusted for any increase or decrease in the number or type 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 number of issued shares of Common Stock effected without receipt of consideration by the Company. The 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, type or price of Shares 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 10(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 Sections 10(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 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.
(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.
(v) For the purposes of this Section 12(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 10.15.1
NATUS MEDICAL INCORPORATED
2000 SUPPLEMENTAL STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of Natus Medical Incorporated (the "Company") under the terms of the Natus Medical Incorporated 2000 Supplemental Stock Option 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: X 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) provided
however, that this Option shall
not be exercisable prior to six
months from 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).
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By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 2000 Supplemental Stock Option 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 and Chief Executive
Officer
Name
________________________
Print Name
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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 Delaware corporation
By: _______________________________________
Tim C. Johnson
President and Chief Executive Officer
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 2000 SUPPLEMENTAL STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH 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.
of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
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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OPTIONEE : _____________________________ COMPANY : NATUS MEDICAL INCORPORATED SECURITY : COMMON STOCK AMOUNT : ______________________________ DATE : ______________________________ |
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 144, 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. 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 one year 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 two 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 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 Rule 144 is 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 Rule 144 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.
Signature of Optionee:
Date: ___________________, _________
EXHIBIT 21.1
SUBSIDIARIES
Jurisdiction of
Name Incorporation
---- ---------------
Natus Japan K. K. Japan
Natus Neonatal Limited United Kingdom
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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 January 19, 2001 (January 30, 2001 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 consolidated financial statements referred to in our aforementioned report also included the consolidated financial statement schedule of Natus Medical Incorporated and subsidiaries, listed in Item 16(b). This consolidated 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 consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP San Jose, California February 8, 2001 |
Exhibit 99.1
CHURCHILL MADISON GROUP CONSENT
We hereby consent to the use of our name and the inclusion of the information attributed to us in the Registration Statement on Form S-1 filed by Natus Medical Incorporated (file no. 333-44138) and all amendments thereto, and the related prospectus.
/s/ Carol Olson
By: _________________________________
(Carol Olson)
Managing Partner, Founder
Title: ______________________________
Churchill Madison Group
Date: February 7, 2001
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